BUSINESS VALUABLE More and more pharmaceutical ingredients are being made in India, such as at this Biocon plant in Bangalore. monsoon had a beneficial effect on agriculture, which is important in a country where the majority of its population lives in the countryside. It's a good time to be an Indian pharmaceutical producer, several speakers explained. In the U.S., the main market targeted by Indian companies, health authorities are trying to contain costs in various ways. Congress is considering legislative changes that would reduce the time that producers of patented drugs can enjoy protection from generics.
ASIA
FORWARD MOTION Indian pharmaceutical producers learn how to better compete in international markets JEAN-FRANÇOIS TREMBLAY, C&EN HONG KONG
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N THE PAST FEW YEARS, INDIAN COM-
panies have raised their profile within the ranks of the global pharmaceutical industry Firms such as Ranbaxy, Cipla, Dr. Reddy's, and Wockhardt have become established suppliers of a wide variety of drugs, drug ingredients, formulations, and research services. Yet the majority of India's thousands of bulk drug and pharmaceutical ingredient producers have so far not vent u r e d m u c h outside India. Most have limited themselves to the Indian market, where prices are low and competition is fierce. It is a small pie: India represents only 1.3% of the global market in terms of Reddy value. Last month, about 350 senior and middle managers of Indian drug companies assembled for a conference organized by the Indian Pharmaceutical Association on how to better compete in international markets. Speakers from some of India's best drug companies explained what led to their success. The meeting took place under enhanced security at the Hyatt Regency in Mumbai, a new hotel located near the airport. Those driving to the venue had their cars inHTTP://WWW.CEN-ONLINE.ORG
spected for bombs by guards using mirrors to look under vehicles. Less than three weeks earlier, two car bombs had killed 51 people in the city The explosions deterred several foreign
Croisât
conventioneers from going to India. Subodh Priolkar, the conference's chairman, said organizers could attribute 15 foreign cancellations to the bombing. All in all, he said, the 350 Indian attendees were a little bit more than predicted, and the 26 foreign visitors were about half the number expected. For Indian businesspeople, the bombings are a minor blotch on a positive economic picture. The business mood in India is euphoric because the summer
DRUGS THAT ARE now reaping annual sales of $40 billion will come off-patent before 2 0 0 6 , according to P. A. Mody, chairman and managing director of Unichem Laboratories. Satish Reddy, managing director of Dr. Reddy's Laboratories, said his company is making use of an amendment to the U.S. drug patent laws that allows generics producers to legally challenge the patents held by drug companies. If the suit is successful, the challenger can enjoy exclusivity in the generics market for six months. "It's a high-risk, highreturn strategy," he said. In one successful case, Dr. Reddy's spent $1 million in legal fees but later reaped $ 17 million in US. sales with a 95% profit margin over a six-month period. Unichem's Mody said that generics producers win three lawsuits out of four in the US. Large international drug companies also look at Indian firms as potential allies in their attempts to reduce costs. In recent years, the cost of bringing a new drug to market has ballooned to nearly $900 million, according to the Tufts Center for the Study of Drug Development. Fewer new drugs are coming onto the market every year, making it difficult for producers ofpatented drugs to sustain their profitability Not so long ago, large drug companies were cold-shouldering Indian producers, whom they portrayed as unfair competitors trading on patent infringements. However, because India will abide by international agreements on product patents after 2005, Indian companies are now viewed as respectable. Already, 61 Indian pharmaceutical plants have been inspected and approved by the U.S. Food & Drug Administration. In an elaborate presentation to which C&EN
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BUSINESS about 20 of his colleagues contributed, Denis Croisât, a director of active pharmaceutical ingredient outsourcing at Aventis Pharma, explained what he expects from India. He forecasts that the cost savings Aventis derives from purchasing from countries such as India will increase sixfold over the next three years. Aventis' product portfolio, he pointed out, consists of 450 brands sold in 25,000 different package and formulation types. Despite some excess capacity in its 59 facilities worldwide, Aventis
will outsource production of mature products that have been on the market for at leastfiveyears. India is blessed with talented people, strong capabilities in chemistry, a large number of entrepreneurs, product development laboratories, and production capacity to spare, Croisât said. Many people speak English, the documentation that accompanies its products is up to international standards, and costs are low. Furthermore, India is developing its drug discovery capabilities.
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But he has found that project management skills can be inadequate when orders involve more than simply shipping an existing product. He added that Indian plants can be untidy, cutting-edge technology is rare, logistics are poor, intellectual property is still not well protected, and government bureaucracy can slow down deliveries. Moreover, he said that when delivered products are found to be subpar, it is next to impossible to return them to their manufacturers. IN A SEPARATE presentation, Mohan Beltangady, a vice president in Pfizer's global R&D organization, said India presented attractive opportunities for the conduct of clinical trials. Large numbers of Indians have never received any treatment for their ailments, meaning that drug tests conducted on such patients would be more conclusive than elsewhere. But Indian law prevents foreign companies from conducting Phase I trials of new drugs. More serious, Indian authorities do not maintain confidentiality on the clinical trial results to which they have access. Gautam Kumra, a principal at management consulting firm McKinsey, said Indian drug manufacturers aspiring to become world-class manufacturers face some tough challenges. The majority of Indian drugmakers owe no small part of their success to their low cost. But there is nothing really special about low cost, he said, because anyone producing in India can take advantage of this "labor arbitrage." India's commitment to respect international drug patents after 2005 will have a profound effect on the structure of its pharmaceutical industry Larger Indian players such as Ranbaxy or Dr. Reddy's are well positioned to take advantage of the new opportunities that are arising. But others, stuck in their old ways, face an uncertain future. Venkat Jasti, managing director of Suven Pharmaceuticals, warned that many Indian companies will be caught flat-footed in future years when they are found to be infringing both product and process patents. India is home to as many as 24,000 pharmaceutical companies. The majority are formulators, but the number is still clearly excessive. Many will fade as India's pharmaceutical industry becomes more similar to those of the foreign countries where it is expanding. But this will not harm the industry's growth. The Economist Intelligence Unit predicts that sales of Indian drug companies will increase by 65% from 2002 to 2007. • HTTP://WWW.CEN-ONLINE.ORG
