asia
India's Bulk Drugs Sector Grows Up Winners and losers become evident as industry strives to meet international customers' and WTO's requirements Jean-Francis Tremblay C&EN Hong Kong
T
hat there are extremes in India is well known. Among India's 1 billion citizens is a high diversity of wealth, housing, education, and modernity. The country's bulk pharmaceutical industry reflects that diversity. Despite some recent achievements, India's bulk pharmaceuticals industry is still perceived as a marginal player on the world stage. It is seen as an industry that relies on outdated technology and nonexistent environmental standards to produce active ingredients that are still protected by international patents. This image persists while an increasing number of Indian producers are complying with U.S. Food & Drug Administration standards and have received ISO 14000 certification, meaning they meet international environmental management guidelines. Some of India's active pharmaceutical ingredient (API) producers have already achieved world-class status and are still relentlessly upgrading their operations to the highest international standards. Numerous others remain an embarrassment to the national industry and face uncertain prospects. By 2005--when India has to fully comply with World Trade Organization (WTO) requirements and compete more directly with the outside world—bulk drug producers have to adapt or disappear. This weeding-out process will enhance India's international image in the bulk drug industry. "Very few people know that India has good-quality products," observes P. V. Rama Prasad Reddy, founder and managing director of Hyderabad-based Aurobindo Pharma. Generally speaking, he says that the quality of India's bulk pharmaceutical industry still slightly lags Europe's and that European producers are 24
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often better able to manage quality. But the enormous difference in perceptions of Indian and European producers "is not warranted." Reddy is also president of India's Bulk Drug Manufacturers Association, which is based in Hyderabad. Although India's largest drug and bulk pharmaceutical firm, Ranbaxy Laboratories, is located in New Delhi, the bulk
Doshi (left) and P. V. Prasad Reddy
rapid growth is quickly raising India's international profile. Whereas export sales in fiscal 1993 amounted to $190 million, they had grown to $651 million in fiscal 1999. Raw materials such as APIs represent 10% of the total sales of the world pharmaceutical industry, according to the Italian Association of Manufacturers of Intermediates & Active Ingredients for Pharmaceutical Use. Therefore, India's bulk drugs presumably are incorporated into several billion dollars' worth of finished pharmaceutical formulations worldwide. Hyderabad-based Virchow Laboratories, for example, says that its annual output of sulfamethoxazole, an antibacterial agent, is sufficient to make enough of the drug to treat 300 million patients. Increasingly, buyers in Europe and North America are sourcing compounds for which the patent has expired from Indian API producers. Several of the largest multinational pharmaceutical companies are laying the groundwork to source ingredients from India when the country reinstates a product patent regime in 2005 as part of its WTO commitments. 'To avail itself of these opportunities, [more] Indian manufacturers will need to implement current good manufacturing practices (cGMP) and strive to increase the quality of their prodRama ucts," says D. R Rao, managing director of Hyderabad-based Neuland Laboratories. "But I don't see why India couldn't export $2 billion or $3 billion worth of APIs per year.
drug industry is mainly centered around two cities: Hyderabad and Mumbai (formerly Bombay). In Mumbai, Manish ~mmmmm™" Doshi, managing director Total sales and exports are of Umedica Laboratories predicted to rise for India's and sister company Amoli bulk pharmaceutical industry Organics, points out that, although Indian API produc$ Millions ers may have been spend4,000 ing less than their competitors in Europe, one must 3,000 consider that costs in India are lower. 'The effort has not been less," he says. 2,000 For the past six years or so, India's drug ingredients 1,000 industry has been growing at an average rate of 20%, according to the Bulk Drug Manufacturers Association. Between 50 and 60% of 8ourct: India's Bufc Drug Manufacturers Association sales are from exports. This
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India'stoacHiigffhrmsupglracHiig openrttons as pnvflts soar Over the past several years, several Indian bulk pharmaceuticals companies have developed high standards. They stand in sharp contrast to India's image of a low-tech country with sloppy environmental practices. At Hyderabad-based Dr. Reddy's Group, a company that many Indians cite as being the most technically proficient, some fairly advanced research takes place. Two companies comprise most of Dr. Reddy's Group: Dr. Reddy's Laboratories and Cheminor Drugs. Dr. Reddy's Laboratories has licensed to Novo Nordisk an antidiabetic insulin sensitizer that k discovered in its labs. K. Vym*, the assistant director of the An? atytical Research Department, who did postdoctoral woik at the University of California, Davis, says that the research faeffities at his disposal act Dr. Reddy's are of the same quality as those he worked in in the U.S. Thefirmhas filed 175 research patents in the U.S. It runs a pleasant research complex where 250 staff woik among trees and green lawns in a suburb of Hyderabad. Most of the PhJXs in die labs are returnees from the U.S., Ja* pan, or Germany, says G. Om Reddly, the vice president responsible for research at Dr. Reddy's Research Foundation. Dr. Reddy's has also opened a research center in Atlanta. G. V. Prasad, Cheminor's managing director, explains that the lab is sited in the U.S. because there is insufficient molecular biology expertise in India right now. "Althoughtitislab is expensive to run, it is necessaiyforus to have it if we want to be serious about our discoveiy efforts,* Prasad says. Dr. Reddy's has been recruiting internationally. The firm curreutty employs a total of 4,000 people, a staffing level that Prasad says will remain relatively stable for the time being. Dr. Reddy's does some custom chemical synthesis. Prasad also reports that the firm has "some veiy complex molecules available^ right away, fd km costs." He notes that some of the products have a molecNow, there is a very good scope for growth." Neuland, whose facilities are FDA-approved for the production of albuterol sulfate, an antiasthmatic, has implemented cGMP in its plants. These rosy prospects do not mean that Indians living overseas should rush back to the motherland, Rao cautions. He says that Indians pursuing a successful career abroad may be better off staying away from India. "You can make lots of effort and not move forward much here," he warns. Rao founded 28
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pharmacology, and new drug delivery methods. Aurobindo says it will be esular weight in the 500- to 600-amu sential to develop unique technologies range, and that the manufocturing re- in order to survive when India implements compliance with World Trade Or^ quires up to 20 steps. Dr. Reddy's Group was founded in ganization standards in 2005. 1984. Prasad says that the biggest chalMumbai-based Wockhardt spends lenges in India's bulk pharmaceutical about 10% of its sales on R&D, says industry are the severe competition Sushil Bahl, general manager of corpoamong Indian producers and the rising rate relations. "We still havefiveyears cost of environmental compliance. The to prepare for the patent regime," he firm, which received ISO 9000 certifi- says. In recent years, the company's catesfromDNV-HoDand, is working to- pharmaceutical sales have grown more ward its ISO 14000 certification. ISO than 18% per year. This includes both 9000 certMkation means thatfirmscan bulk pharmaceuticals and branded manage their production process con- formulations. The company just moved sistently; ISO 14000 certification into a new headquarters building means firms have systems in place for worth $32 million. environmental management Bahl says the company employs 250 Founded in 1988, Aurobindo Pharma p . has been growing fost1 er than Dr. Reddy's. Aurobindo is complet- /% ing construction of a research center near Dr.Reddt/s.Thefecffity, which is being built at a cost of $6 million, currently employs 55 researchers who are primarily concerned with production process improvements. In a second phase, which will be impleG. Om ReOOy (left) and BtanŒng In front mented soon, the of Dr. Reddy's research complex* company will begin research into scientists, 90 of whom are Ph.D.s Biotech comtrained overseas. The company runs pounds for meone of India's onjy two privately operatdicinal use. In ed biotechnology research labs. Curthe third phase, rently, the company focuses on developto b e ffTfppiefH^fMing drug delivery systems, but it is ed in the middle of next year, research- quickly stepping up research into new era will expand efforts into discovering molecules. Operations began in May of new chemical entities. last year as a joint venture with New JerCustom chemical synthesis is one sey's Sidmak Laboratories. Through the area into which Aurobindo hopes to ex- venture, 15 of Wockhardfs products pand. The firm claims that it can sup- will be marketed in the U.S. bearing the port customers in the area of medicinal name of both companies. chemistry, organic synthesis, analytical In January, Wockhardt split itself research, dosage-form developments, into two subgroups of companies that
Neuland in 1986 after returning from the U.S., where he obtained a Ph.D. degree in organic chemistry from the University of Notre Dame. Neuland is one of India's most successful producers of bulk pharmaceuticals. In addition to albuterol sulfate, the company makes antiasthmatics salbumetol sulfate and terbutaline sulfate, as well as cardiovascular active ingredients sotalol hydrochloride and labetalol hydrochloride, among other products. Sales amounted to $18 million last year.
The top Indian bulk pharmaceutical companies enjoy not only booming sales, but also high profitability. One company, Dr. Reddy's Laboratories, based in Hyderabad, reports that its sales doubled to $100 million between 1995 and 1999. Aftertax profits increased 29% to $12 million during that period. At Aurobindo Pharma, sales more than doubled between 1997 and 1999 to $128 million. Net profit nearly tripled to $11.6 million. Signs of this rapid growth are obvious: Wockhardt Ltd. has moved into
are listed separately on stock exchanges In both Mumbai and Luxembourg. One group is called Wockhardt Ltd. and focuses on development and sales of bulk pharmaceuticals and formulations. Bahl says the objective is to increase sates in this area 30% per year on average, although he notes that Wockhardt has usually achieved a more modest 20% growth in the past The other group, called Wockhardt Life Sciences, will focus on hospital management, development and sales of agrochemicals, and parenterals, which are drugs administered other than by the digestive tract Sales this fiscal year—which now coincides with the calendar year—are scheduled to reach $23 million, and Bahl says that they will triple within three years. Wockhardt9s total sales for the 12month period that ended June 30, 1999, amounted to $111 million. Virtually alone among India's leading pharmaceutical companies, Ranbaxy is headquartered in New Delhi. That firm's annual sales stand at roughly $425 million, which is about four times as much as Aurobindo, Dr. Reddy's, or Wockhardt. Ranbaxy, which was founded in 1962, claims that its sales have grown at the average annual rate of 25% in the past 20 years. It hopes that its annual sales wfll reach $1 billion by 2003. Ranbaxy's traditional businesses have been based on branded pharmaceuticals in India and sales of bulk drugs. One of the recent thrusts at Ranbaxy has been in drug discovery. The firm says that it employs about 300 scientists and that 5% of its sales is invested in R&D. This may seem insufficient to support drug discovery endeavors considering that Ranbaxy98 sales are not as laige as those of drug companies in the U.S. or Europe. But one must keep in mind that Indian researchers command lower salaries. Ranbaxy says that it filed a product patent in 1998 in both India and the U.S.fora drug it calls Parvosin, which can be used to treat benign prostatic hyperplasia. new headquarters in Mumbai; Aurobindo Pharma is adding two floors to its corporate headquarters in Hyderabad; and Virchow Laboratories is building new corporate headquarters. More significant, to maintain the viability of their operations, the companies are rapidly beefing up their R&D capabilities by building labs and hiring researchers. These expansions reflect changing times in India's bulk pharmaceuticals industry. Increased communications with the outside world, strict demands for
product quality and environmental stan- fleet this, Glaxo's India subsidiary prodards of major overseas clients, chang- duces a large portion of the firm's global es in the patent regime, and better en- output when measured in terms of kiloforcement of environmental laws are all grams or liters of product. Batch sizes in India are huge, reflecting forces conspiring to septhe country's immense arate winners from lospopulation. As a result, ers in India's bulk pharsome of Glaxo's plants in maceutical sector. India offer the firm its Since the 1970s, forbest economies of scale eign pharmaceutical in the world. That Kurcompanies that sell patdekar works out of Mumented drugs have been bai is a reflection of the reluctant to source APIs importance of India in from India. This will Glaxo Wellcome's global change after 2005 with sourcing strategy. India's membership in WTO. Madhav B. KurWhen Glaxo Welldekar, international procome purchases APIs curement director for from third parties, it subAsia-Pacific and Japan at mits the aspiring suppliGlaxo Wellcome says, % er to a thorough exami"Recently, Glaxo decided f nation, including an envithat it doesn't need to | ronmental audit. Indian manufacture at plants all | firms are increasingly over the world. As part of | obtaining ISO 14000 certhe rationalization, it es tification, partly in an makes sense to source effort to increase their from countries with a marketability. lower cost base." One Meeting the demands way Glaxo Wellcome will of companies such as achieve this objective Glaxo Wellcome or other will be to purchase infirms based in North gredients from Indian America and Europe reproducers. quires a lot of effort. But it allows Indian firms to esSays Kurdekar: "For cape the debilitating price the past four orfiveyears, competition that exists in we have recognized that India. "Unlike in the India produces cost-effecWestern world, ingreditive APIs. We are now ents are a major compoworking with a few of Innent of the price of a drug dia's top suppliers as posin a less developed counsible sources. We are cautry," Doshi says. In terms tious in our approach. In of value, Indian bulk pharview of the poor patent maceutical producers sell protection under prevailmore than half of their ing laws in the Indian output to foreign custommarket," Glaxo Wellcome ers. Foreign customers will, for now, work with find prices in India generIndian sources for some ally so low compared to off-patent actives. From top: Rao, Kurdekar, what they could purchase Other than buying and N. V. Reddy close to home, that their from third parties, Kurdekar says that Glaxo will increase its main focus when purchasing in India is to in-house manufacturing from world- identify reliable suppliers of high-quality scale sites in India. Glaxo Wellcome's ingredients. operations in India have traditionally foIndian firms supplying APIs to forcused on the domestic market. Even be- mulators in the U.S. or Europe must fore the merger of Glaxo and Wellcome, meet the requirements of the U.S. FDA Glaxo had been India's largest pharma- or European authorities, which is also ceutical company, in terms of domestic forcing companies to raise their stansales, for about 20 years, Kurdekar says. dards. At Hyderabad-based Arandy, He says an internal review found that, Managing Director R. R. K. Raju says although the amount of sales did not re- that obtaining FDA approval is the maMAY8,2000C&EN
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Controversial government policies helped industry grow A series of factors are behind the growth of India's bulk pharmaceutical industry. First of all, says D. R. Rao, managing director of Hyderabad-based Neuland Laboratories, "Indian phar maceuticals are doing well due to the large pool of qualified manpower. There are [government-run] national laboratories, and also many people who have been trained abroad." The government has played a key role in developing these qualified human resources. The bulk drug industry is mainly centered around two cities: Hyderabad and Mumbai (formerly Bombay). Mumbai is India's main business cen ter. Most bulk pharmaceutical makers are in Hyderabad. Three government organizations have contributed to launching the bulk pharmaceuticals' industry in Hyder abad, explains Aurobindo Pharma's managing director, P. V. Rama Prasad Reddy: the Indian Institute for Chemi cal Technology, the Center for Cellular Molecular Biology, and Indian Drugs
& Pharmaceuticals Ltd. "Almost all the top [drug] companies [in the Hy derabad area] are related to these three organizations. There was both re search and manufacturing here" be fore a private pharmaceutical industry was established, Reddy says. Government price controls on bulk pharmaceuticals and at the retail lev el have also contributed to low drug prices in India. These controls have been implemented since the 1 9 7 0 s , says Madhav B. Kurdekar, Glaxo Wellcome's Mumbai-based interna tional procurement director for AsiaPacific and Japan. Indians enjoy what are "perhaps the lowest medicine prices in the world," says Neuland's Rao. He says prices are about onethirtieth those in the U.S. For the most part, the industry is not happy with the controls on prices. K. Radha Krishna Murthy, adminis trative secretary of the Hyderabadbased Bulk Drug Manufacturers As sociation, says, "The government specifies the margins, which leads to
some d i s c u s s i o n s . [Formulators] have to disclose their cost structure to the government, and there are also criteria for fixing bulk drug prices. The industry would like to have mar ket forces define prices." The price controls have been a mixed blessing, Kurdekar explains. On the one hand, although Glaxo Well come has led pharmaceutical sales in India for about 2 0 years, the controls have "eroded the bottom line," he says. But there is an upside. "India's low costs are due to manpower avail ability and its established infrastruc ture. But the price controls have had a good effect in forcing producers to find ways to reduce costs." Availability of locally made equip ment is another factor contributing to the low cost of Indian pharmaceutic cals, Kurdekar says. Hyderabad-based Virchow Laboratories makes its own equipment, says the firm's managing director, N. V. Reddy. The 18-year-old firm, which is ISO 14001-certified— meaning that its environmental man agement systems are followed consis tently—produces about one-third of
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the world's requirements for sulfamethoxazole, an antibacterial agent. Foreign competitors claim that India gains a cost advantage by ignoring environmental concerns. Virchow Laboratories was a 1 9 9 7 - 9 8 recipient of the Andhra Pradesh state award for "Best Effort in Environmental Improvement in Industries Located in the State." But not all companies can boast of a shining environmental performance. Until recently, environmental standards in India were very low. In a report published in March, the Italian Association of Manufacturers of Intermediates & Active Ingredients for Pharmaceutical Use observed that Indian producers were gaining a cost advantage due to lesser efforts toward environmental protection. Indian producers counter that the accusation is unfair. Laws are getting stricter and are being better enforced. In its November 1 9 9 9 issue, Indian trade publication Express Pharma Plus reported that the Andhra Pradesh Pollution Control Board was investigating alleged b r e a c h e s of environmental
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n o r m s by c o m p a n i e s b a s e d in Hyderabad. But it is not a polluted environment or weak environmental regulations that is most hurting India's business prospects in the eyes of non-Indians. Rather, it is the lack of enforcement of international drug patents, a decision made by India in the 1 9 7 0 s in order to develop its pharmaceutical industry. Indians have since been free to produce patented drugs and to export them to countries with similar p o l i c i e s on drug patents. "Once patent laws were relaxed, the industry developed most rapidly," comments Neuland's Rao. "We moved from high prices to the cheapest in the world." By 2 0 0 5 , when India is required by the World Trade Organization to harmonize its laws according to the international patent regime, R&D will be much more important to Indian firms in the pharmaceutical sector. The most prominent companies in India's bulk pharmaceutical sector are taking advantage of the time remaining to beef up their research infrastructure.
jor obstacle to entering the U.S. market. He explains that it takes two to three years to complete the approval process. But he adds that the effort is worth it because the U.S. represents 40% of the m a r k e t in which the company competes. The firm, which exports 90% of its production, according to Raju, is the world's third largest producer of the diuretic furosemide and the second largest producer of the antidiabetic drug glibenclamide. At Virchow Laboratories, Managing Director N. V. Reddy says that once his firm obtains FDA approval, sales will increase by 500 metric tons per year. The current output is 2,400 metric tons. In recent years, sales have grown about 20% annually to the current $20 million. Not surprisingly, the Internet is proving to be a successful tool to boost the sales of Indian producers, many of which have fairly informative websites. Doshi says improved communications, such as with the Internet, help India's bulk pharmaceutical industry: "Communications allow us to be transparent and to be in touch with the advances abroad."
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Lulla says that, although several Indian companies are raising their environmental performance and R&D capabilities, most are not. He comments: "I don't know why everyone wants to paint such a nice picture of our industry. Why not see reality as it is? Like anywhere, we have good and bad companies/' Though Cipla exports some bulk pharmaceuticals, 80% of the company's sales are within the Indian market. The Mumbai-based firm was founded in 1935 and is the second largest in terms of domestic sales after Glaxo Well-
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come. Indian investment analysts praise the firm's R&D capabilities and state-ofthe-art production facilities. Most of the company's sales arefromformulations. At Aurobindo Pharma, P. V. Rama Prasad Reddy observes that there is less competition among Indian producers than there used to be. He credits an increased emphasis by the government on protecting the environment. 'The Central Environmental Agency has made a good effort in the past two or three years to control effluents. There were too many companies before. There has been a consolidation in each pharmaceutical segment. The bigger companies are meeting environmental standards; small companies are sidelined. There is less price speculation," he says. Over the next few years, Lulla predicts, most companies in India's drug industry will "disappear." He explains: "India will achieve higher visibility internationally in the next few years because of its ability to quickly supply off-patent formulas. But this visibility will be achieved by only 20 to 40 companies at the top of the chain." The biggest threat to India's bulk pharmaceutical industry comes from China, Lulla says. In recent years, he has been offered such low prices from Chinese producers that he says he has had no choice but to buy from them. Chinese producers are not producing at a loss, because the low prices have prevailed for several years, says Lulla, who was originally trained as an accountant. Producing at low prices for so long is not sustainable, he explains. 'The Chinese began with intermediates, then bulk pharmaceuticals, and soon it will be formulations. The Chinese will knock Indians out. Few realize [that]," Lulla says. There is evidence of the threat to Indians posed by Chinese producers. Satyanarayana Cherukuri, managing director of Hyderabad-based Inventaa Chemicals, says his firm used to export 75% of its production. This has dropped to 50% because of competition from Chinese firms. His company is the world's single largest producer of trimethoprim, an antibiotic. But Cherukuri says that last year the company completed construction of a state-of-the-art trimethoprim plant. The facility has been inspected by several multinational firms such as HoffmannLa Roche and Schering-Plough. The firms also completed an environmental audit. He is now awaiting the inspection by FDA as well as his European Certifi-
cate of Suitability, which is the European equivalent of FDA approval. The European requirements are higher than those of the U.S., Cherukuri adds. Excellence is becoming a requirement for Indian companies, Cherukuri says. "The industry in India has realized that to be a serious player, you need to be a world-class player." Hyderabad's Bulk Drug Manufacturers Association
ment from international pharmaceutical companies that saw their patents being violated. Throughout this period, Indians gained access to a broad range of moderately priced medicine. Now, the system is changing. By 2005, when India joins WTO, so many commonly used drugs will be off-patent that drug prices in India may not go up much. But India's capabilities, at the top companies at least, will have sufficiently developed that the industry will be able to continue growing. The six bulk pharmaceutical produc-
tion facilities of Dr. Reddy's Group—the parent of Dr. Reddy's Laboratories— have all been U.S. FDA inspected and certified, says G. V. Prasad, managing director of Dr. Reddy's Cheminor Drugs unit. He explains that Dr. Reddy's Group exports to 40 countries, but most product goes to the U.S. and Europe. In recent years, he says, the group has invested heavily and expended much effort to turn itself into a world-class outfit. He says of the customers' response: "We don't have an image problem."^
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