Indian Pirates Turned Partners
International
Once Copycats, Its Drug Makers Emerge as
Industry Powerhouses
By Joanna Slater
1,131 words
13 November 2003
The Wall Street Journal
A14
English
(Copyright (c) 2003, Dow Jones & Company, Inc.)
Bombay, India -- DURING HIS 21 years as a researcher at drug titan Bristol-Myers
Squibb Co. in the U.S., Rashmi Barbhaiya gave little thought to the
pharmaceutical industry in his native India. His impression, shared by many
peers, was that Indian firms were good only at copying drugs invented by others.
These days, Mr. Barbhaiya thinks differently -- and for good reason. Once
dismissed as knock-off pirates, India's pharmaceutical companies are emerging as
potential partners for Western drug firms, and even as significant competitors.
Now head of research and development at Ranbaxy Laboratories Ltd., India's
largest drug company, Mr. Barbhaiya, 51 years old, is at the forefront of this
transformation. Late last month, Ranbaxy announced a deal with GlaxoSmithKline
PLC to collaborate on research. The agreement is the first for the large
Anglo-American company in the developing world and shows how the outsourcing of
work abroad is extending into higher-value, skill-based fields. Indeed,
companies such as General Motors Corp., General Electric Co., and Ford Motor Co.
are already tapping Indian science and engineering talent for sophisticated
research and development and auto design.
A few years ago, Glaxo's partnership with Ranbaxy would have been unthinkable.
Indian pharmaceutical firms earned the ire of Western companies by copying their
drugs and selling generic versions cheaply in the local market.
Now, the tune has changed considerably. After announcing the alliance with
Ranbaxy, Jean-Pierre Garnier, Glaxo's chief executive, said the idea "is to
combine their skill sets, which include excellent chemistry, with our technology
infrastructure."
There also is regulatory logic to the deal. India is adopting a Western-style
patent regime that takes effect in 2005, making it impossible for local
companies to copy new medicines invented elsewhere. To find new avenues for
growth, the top Indian companies are boosting exports to other markets and
investing in research. Those exports will jump to more than $1.4 billion this
year, up from $330 million in 1998, according to a recent Morgan Stanley report.
As a result, Indian drug firms are "emerging as a credible force in the global
pharmaceutical industry," the report says. "They are poised to compete in the
global pharmaceutical markets, likely more than many investors realize."
Already, India's top drug makers have had considerable success penetrating the
U.S. market. There, companies such as Ranbaxy, Dr. Reddy's Laboratories Ltd. and
Cipla Ltd. have gained a reputation as inexpensive and reliable suppliers both
of bulk ingredients for drugs and of finished pills. Their generic copies, at
times tweaked or improved versions of the original, rely on skills gained during
years of reverse-engineering. And their costs are some of the lowest in the
industry -- as little as one-eighth those in the U.S. for the services of a
laboratory chemist.
Recently, Indian firms have also gained stature in American courts. Some have
taken on big Western drug makers through a series of high-profile lawsuits over
patents on blockbuster drugs. In a coup, Dr. Reddy's on Nov. 3 received final
approval from the U.S. Food and Drug Administration to sell a generic version of
Pfizer Inc.'s Norvasc, a hypertension drug with nearly $4 billion in annual
sales.
In fact, Glaxo and Ranbaxy were locked in a bitter patent battle only two years
ago. Glaxo tried to prevent Ranbaxy from selling a generic version of its
antibiotic Ceftin in the U.S., and lost the case on appeal. The drug is now
Ranbaxy's best-selling product, with more than $100 million in sales a year.
Given that history, Ranbaxy's Mr. Barbhaiya says he was apprehensive when his
company, eager to find a partner that could provide early leads for new drugs,
began discussing a research alliance with Glaxo. He says other big players were
also interested in teaming up with Ranbaxy, but declines to name them.
Based in New Delhi, Ranbaxy has a large team of chemists and a thriving export
business. Research firm Datamonitor expects Ranbaxy to be the fastest-growing
generics company in the U.S. over the next five years. Ranbaxy's 2003 sales
through September hit $718 million, up 27% from a year earlier. Its U.S. sales
jumped 47% to $304 million.
The litigation between Glaxo and Ranbaxy -- still simmering in a lower court
despite Glaxo's loss of a related appeal -- cropped up soon after the companies
began talking about a year ago, at a dinner with one of Glaxo's attorneys, says
Mr. Barbhaiya.
"We discussed it openly and decided that where we have an adversarial
relationship, we're going to let the court decide," he says. "We essentially
made a wall and kept it absolutely out of the discussion." The legal battle in
the U.S. had "no effect" on the negotiations for the research partnership, says
Louise Dunn, a Glaxo spokeswoman. "We said, `Here's a great company, the
intellectual property situation [in India] is changing, let's work with them.' "
The result was a five-year agreement to pursue new drugs for ailments such as
diabetes and asthma. Glaxo will provide Ranbaxy with early insights on what
causes a disease and which molecules might address it. Ranbaxy will work to
improve those molecules and identify promising candidates for further
development.
Neither Ranbaxy nor Glaxo would disclose financial details of the deal. The
partnership is structured around payments linked to certain research goals and
royalties, according to Ms. Dunn. Glaxo will market any drugs resulting from the
partnership everywhere except India.
Ranbaxy's tie-up with Glaxo may be a precursor to other similar partnerships.
"Multinationals have been running us down for years," says Y.K. Hamied, chairman
of Bombay-based Cipla. "Now we have been accepted internationally."
---
Just What the Doctor Ordered
No longer mere copycats, India's top pharmaceutical companies are using
their low costs and chemistry expertise to boost exports, challenge patents
in court and embark on new drug research.
COMPANY SALES* ADVANTAGES PARTNERSHIPS PATENT CHALLENGES
Ranbaxy $790 Global marketing GlaxoSmithKline vs. Pfizer (Lipitor);
Laboratories mln network; drug- (research); vs. Glaxo (Ceftin)
development Clinton foundation
skills (anti-HIV drugs)
Dr. Reddy's $373 Patent challenges; Novo Nordisk vs. Pfizer (Norvasc);
Laboratories mln drug-discovery (drug deve- vs. Eli Lilly (Prozac)
research lopment)
Novartis
(drug development)
Cipla $300 Manufacturing Watson Pharmaceuticals N/A
mln facilities; (generics);
marketing Clinton foundation
alliances (anti-HIV drugs)
*Dr. Reddy's and Cipla figures are for year ended March 31, 2003; Ranbaxy
is for calendar 2002
Note: Figures converted from rupees at a rate of 48.39 per dollar, the
average rate for year ended March 31, 2003
Sources: Morgan Stanley; WSJ research Photos: IndiaPicture
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