Line Starts in New Delhi
For Many Generic Antibiotics, the Supply
Line Starts in New Delhi Little-Known Ranbaxy Makes A Splash in Look-Alike
Drugs, Seeks Its Own Breakthroughs
By Miriam Jordan
Staff Reporter of The Wall Street Journal
1,206 words
28 December 1999
The Wall Street Journal
B1
English
(Copyright (c) 1999, Dow Jones & Company, Inc.)
Most Americans haven't heard of a New Delhi company called Ranbaxy Laboratories
Ltd. But its factories spit out generic drugs that wind up in medicine cabinets
across the country, including the popular antibiotics cefaclor, cephalexin and
amoxicillin.
Ranbaxy is part of a massive, low-cost medicine industry in India built around
reverse engineering -- copying an established drug by developing an innovative
process to make it. The company has quietly churned out low-cost copies of
Western drugs for most of its 38 years. It turned up the volume four years ago
when it adopted an unusual strategy for a generic-drug lab in a developing
country: It started inventing its own molecules.
This year, Ranbaxy tasted the first major success: For $60 million plus
royalties, it sold to Bayer AG an advanced formulation of one of the German
company's most profitable drugs, ciprofloxacin, an infection-fighting
antibacterial agent. The tablet conceived by Ranbaxy enables patients to take
only one dose a day, instead of several, by discharging the drug over a
prolonged period of time.
"From a reverse-engineering, copy-product company, we will become a
research-based company," says Davinder Singh Brar, who became Ranbaxy's chief
executive officer in March.
Roughly 14 out of every 100 researchers working in U.S. pharmaceutical labs are
of Indian origin, and Ranbaxy is luring some back home. Twenty of the 85 members
of its drug-discovery team were poached from U.S. and European companies. "It's
reverse brain drain," says J.M. Khanna, Ranbaxy's head of research. To meet Food
and Drug Administration standards and keep the scientists happy, the company
built state-of-the-art laboratories in New Delhi's outskirts.
The company has little choice but to change. Under a World Trade Organization
pact, New Delhi has agreed that by 2005 it will recognize and protect patents
for pharmaceutical products (not just the process by which they are made). In
any case, Ranbaxy seems to be on the right track. Its stock has risen 150% this
year, giving it a $3 billion value, bigger than some U.S. generic-drug rivals.
With $500 million in annual revenue and units in seven countries, including
China and the U.S., Ranbaxy is India's largest home-grown drug multinational.
Now, Ranbaxy is about to start patient trials on a new molecule to treat
swelling prostate glands in aging men. If successful, it could propel the
company into a $3 billion-a-year market alongside Glaxo Wellcome PLC and Abbott
Laboratories, among other giants. And a handful of other drugs are advancing
inside Ranbaxy's labs.
The competition is impressed. "Drug discovery calls for large investments, and
Ranbaxy won't do it overnight," says Anustup Datta, business development chief
at SmithKline Beecham PLC's unit in India. "But their vision is very clear, they
have attracted extremely good scientists and they are investing substantially."
The Ranbaxy story offers insights into the role of foreign drug makers in the
creation and supply of medications to the American market. It began in 1962 when
a Sikh refugee and moneylender from Pakistan, Bhai Mohan Singh, acquired a small
drug-import business and a pharmacy from two debtors in New Delhi who owed him
$100,000. That concern, run by men named Ranbir and Gurbax, was little more than
a warehouse and offices in three Indian cities. Mr. Singh gradually converted it
into a pharmaceutical lab, hiring inexpensive local scientists to
reverse-engineer foreign drugs.
In 1982, Mr. Singh's son, Parvinder, became Ranbaxy's joint managing director
alongside his father. That event kicked off a period of dramatic change -- and
family antagonism. The younger Mr. Singh, a graduate of the University of
Michigan, where he took just 22 months to earn a doctorate in pharmaceutical
chemistry, wanted to go global.
Then, as now, India's drug makers basked in a protected domestic market. But
while other Indian tycoons kept their empires safely in family hands, the
younger Mr. Singh hired the best managers he could find, despite opposition from
his conservative father.
By the early 1990s, the younger Mr. Singh had steered the company overseas with
joint ventures in Nigeria, Thailand and Malaysia, all brokered by Mr. Brar, then
a 30-year-old rising star. In 1993, the younger Mr. Singh formed a joint venture
with Eli Lilly & Co. to manufacture Lilly products in India and market them
throughout South Asia. In 1994, he listed Ranbaxy global depositary receipts in
Luxembourg. In the mid-1990s, the company began manufacturing in China, Britain
and Ireland, and set up marketing offices in Russia and several European
countries.
In 1994, when it looked as if U.S. health-care reform would trigger an explosion
in the generic-drug market, Lilly struck a deal for Ranbaxy to make generics for
it. Down the road, the companies aimed to collaborate in research. However,
after the U.S. Congress blocked President Clinton's reform plan, both parties
agreed to dismantle the deal.
It was also in 1994 that the managerial and personal differences between father
and son reached the boiling point. Indian newspapers reported that the son
removed his father's belongings from the corporate office in 1994. His
justification: The elder Mr. Singh had withdrawn from day-to-day management and
hadn't used the office in two years. The father filed a police complaint against
the company, but authorities took no action.
Expansion continued. In 1995, Ranbaxy bought Ohm Laboratories, a small New
Jersey maker of over-the-counter drugs such as cough medicines. Last year,
Ranbaxy launched 15 generic medicines under its own label in the U.S. and is
awaiting approval from the FDA to sell several more.
"They are breaking into territory reserved for the big boys," says Hemant Shah,
an independent industry analyst in Warren, N.J. "No other Indian company has had
the tenacity to invest like them."
This past July, Parvinder Singh died of cancer. He was 56 years old. Today, the
elder Mr. Singh, 85, is in court with his son's widow in a property-ownership
dispute, but he isn't fighting the company. He didn't respond to repeated
messages at his home seeking comment.
The U.S. is now Ranbaxy's largest market outside India, with sales expected to
hit $47 million this year. China and Britain are the other two main markets,
each at about $15 million this year.
Ranbaxy devoted about 4% of its $500 million revenue to R&D last year, and plans
to spend 6% by 2003. That's small compared with leading Western pharmaceutical
companies, which pour about 15% of revenue into research, but high compared with
major generic-drug makers, according to industry analysts.
It will take at least another eight years before Ranbaxy's prostate drug can be
commercialized, and the company realizes that it will need to collaborate with a
pharmaceutical firm with muscle: It costs about $500 million to get a new drug
to market.
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