The Creation of a Globally Sustainable Generic ... - ACS Publications

Chapter 15

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The Creation of a Globally Sustainable Generic Pharmaceutical Model Sudhir Nambiar* Dr. Reddy’s Laboratories, Ltd. Integrated Product Development Bachupally, Qutubullapur, Telangana, India *E-mail: [email protected].

The Indian pharmaceutical industry has emerged as a major global supplier of affordable medicine. Indian pharmaceutical industry accounts for 9.3% of the global pharmaceutical production by volume and 1.5% of the global pharmaceutical production in terms of value. This industry has recorded a cumulative average growth rate of around 14% during the last 5 years. The factors that led to the birth and growth of Indian pharmaceutical companies, the largely local challenges faced by them, and challenges in the global environment are explored. The challenges faced by entrepreneurs in raising capital, negotiating government policies, recruiting talent and spotting opportunities among favorable demographics, rising income levels, growing health awareness, increasing incidence of lifestyle diseases, increasing penetration in rural market and insurance coverage, some of the key factors driving growth of the local pharmaceutical industry are discussed. How Indian companies are gearing up to face regulatory and marketing challenges and thrive globally are briefly covered.

© 2016 American Chemical Society Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


Introduction Over the years, the Indian pharmaceutical industry has emerged as a major global supplier of affordable medicine. According to India’s Ministry of Commerce and Industry, India has more than 550 manufacturing sites registered with the US Food and Drug Administration (FDA), of which about 323 are FDA approved, as of March 2013. Additionally, there are more than 350 manufacturing sites in India endorsed by the EU for their Good Manufacturing Practices as of April 30, 2013. Indian pharmaceutical industry accounts for 9.3% of the global pharmaceutical production by volume and 1.5% of the global pharmaceutical production in terms of value. This industry has recorded a cumulative average growth rate of around 14% during the last 5 years. In this article, the factors that led to the birth and growth of Indian pharmaceutical companies, the largely local challenges faced by them, and challenges in the global environment are explored. The challenges faced by entrepreneurs in raising capital, negotiating government policies, recruiting talent and spotting opportunities among favorable demographics, rising income levels, growing health awareness, increasing incidence of lifestyle diseases, increasing penetration in rural market and insurance coverage, some of the key factors driving growth of the local pharmaceutical industry are discussed. Similarly the Hatch Waxman Act (1) opened up the US markets to generic products, and countries like India started drug exports to the US and other regulated markets with great success. Working in an international environment has its own challenges especially in the regulatory and marketing areas. It also opens up the quality systems and practices of suppliers for evaluation by international regulatory agencies; e.g., FDA. How Indian companies are gearing up to face these regulatory and marketing challenges and thrive globally are briefly covered. The success of a few companies has also spawned several new entrepreneurial efforts: support for existing companies, competition with existing companies, and identification of new areas for business especially in an international context. These factors have led to Hyderabad and Bangalore becoming international centers for the pharmaceutical and biotech industries, respectively, in India.

Background on the Global Pharmaceutical Industry The global pharmaceutical market is incredibly large, with sales expected to hit $1.1 trillion annually in 2015. Within this industry, the 10 largest drug companies control over one-third of the entire market. In 2013, North America alone accounted for 41% of global pharmaceutical sales, compared with Europe, which accounted for 27.4%. The global generic industry constitutes roughly one-fifth of the global pharmaceutical industry, and was worth around $200 billion in 2014. However, it is expected to grow at a compounded annual growth rate of 11% until 2018 when several blockbuster drugs will lose their patents, adding a potential $150-billion to the opportunity. Like the global pharmaceutical market as a whole, the United States represents the largest market for generic medications, accounting for 45% 132 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.

of the market. As of 2014, the top ten global generic companies accounted for 64.1% of market share. Within the generics market, cardiovascular and other central nervous system (CNS) agents are the leading market segments, together constituting roughly 35% of the global generic pharma market.


The Indian Pharmaceutical Industry The Indian pharmaceutical industry ranks among the top five countries by volume in terms of production and accounts for about 10% of global production. Turnover within the industry has grown from $0.3 billion dollars in 1980 to 21.73 billion in 2009-2010. Some of the main factors that have supported this growth have been low-cost skilled manpower and innovation. However, the Indian industry is fragmented, with roughly 10,000 manufacturers in the organized and unorganized segments. Roughly 77% of manufacturers produce formulations, while the remaining 23% manufacture bulk drugs. India has been dominant in the generic space, filing almost 50% of the global drug master files (DMFs). But why did India “go generic” and how did it get to be so good at it?

The Quest for Affordable Medicine: The Generic Way The story of India’s route to the generic market is related to the country’s quest for affordable medicine, beginning at the end of British colonization in 1947. For nearly two decades the existing patent laws and lack of access to technology resulted in relatively low amounts of bulk drug synthesis in India. As a result, most of the medicine in the country came from western countries or Japan, leaving the people with no access to affordable medicine. To make medicine more accessible to the public, the Indian government created two public limited pharma companies. These two companies would later become the forerunners to most of the generic companies that exist today: Dr. Reddy’s, Ranbaxy, Sun, and others. In the period of 1980 – 2000 Indian companies began to take advantage of the technological advances they had over their neighbors, establishing joint ventures in neighboring countries where they were the dominant partners. Then, in the 1990s, companies like Ranbaxy, Wockhard, and Sun began using Brownfield investments (2) as a policy for internationalization in developed countries like the United States with the goal of gaining access to the markets. In doing so, they began acquiring smaller companies in the United States and Europe through which they could access the market. Additionally, they also began offering contract services for R&D and manufacturing for multinational companies. The first such venture was Ranbaxy’s tie-up with Eli Lilly of Japan. As a result of its international ventures, a lot of FDI has been flowing into India and the country has maintained a strong GDP growth rate of around 8-9% between 2005 and 2015. Similarly, the Indian market’s percentage of global GDP 133 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


has also been growing, holding 4.17% of the global market in 2005, and moving up to 6.28% by 2015. This is particularly interesting as the population has also been increasing both in India and in the world. At a certain point during this period, generic research exploded as a result of the Indian government’s support of generic drugs in India. Once this action was taken, it opened the doors for several Indian companies to start generic companies and develop their own technology. While the government of India now officially recognizes patents, the 20-30 year window that was provided by the government was integral in laying the foundation of the generic industry in India.

Indian Pharma Industry SWOT Analysis Strengths The continuing and large growth in Indian GDP has led to increases in the disposable income of the Indian public and fostered a more positive attitude towards spending a portion of private earnings on healthcare. Moreover, the cost competitiveness of the Indian market provides an advantage for companies operating in the pharma industry. What is more, India is home to a very large low-cost and highly skilled English-speaking labor force. Weaknesses The all-around poor infrastructure is a major challenge for India and serves as a disadvantage. Additionally, other areas of concern are the stringent price controls, lack of data protection (though this is increasingly an issue of the past), as well as poor health insurance coverage. Opportunities The Indian market has many opportunities for growth. Currently, the global demand for generic medication is rising, and there is rapid growth in both the overthe-counter (OTC) and generic markets. Moreover, market penetration outside the cities is also on the rise with more non-metro markets being tapped. This has created a large demand for quality diagnostic services and increased healthcare insurance coverage. Furthermore, this has created increased opportunities for investing in multinational corporations (2) and for public-private partnerships in strengthening infrastructure. Threats Despite its already large and rapidly growing population, India is still threatened by potential labor shortages. In addition, other areas of concern are the potential for wage inflation, a government expansion of the Drugs Price Control Order (DPCO), counterfeit medications, and competition from emerging economies. 134 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.


Innovation and Entrepreneurship Innovation in the Indian pharma industry has largely focused on the generic space, which has been largely a result of the previously mentioned historical reasons. The reverse engineering of complex generics has resulted in a plethora of sophisticated and innovative approaches that have resulted in the reduction of medication costs for the consumer. Complex generics are just a step away from innovative medicine, seeing this as a progression to eventually discovering new medicines. There has also been a noticeable increase in collaborations between Indian generics companies and reputed faculties of international universities. This is significant because as the problems of the industry become more complex, it is increasingly important to understand the fundamentals of the science. This has created a more sophisticated approach by Indian companies. From an entrepreneurship perspective, the initial success of five or six major Indian generics companies (3) have led to the rise of several other large Indian generic companies—Hetero Drugs, Divis, MSN Pharma, to name a few of them—in addition many smaller players. Of these smaller companies, many work to supply key materials: active pharmaceutical ingredients (APIs) and intermediates, to the key pharma companies. As a result, a network within the pharma industry has been formed, each company working together and supporting one another. Because of this trend, the cost of APIs has decreased tremendously, some going to the regulated markets and others to the unregulated markets. Conversely, what has also occurred is a ‘commoditization’ effect. Any new player that comes into the market has lower overhead costs than an established one and is forced to make their product slightly cheaper than their competition. The result is that prices continue to be driven down. Furthermore, the importance of chemistry to a certain degree is declining in the originator pharma space and yielding its position to biology.

Affordability, Access to Medications, and Innovation The main focus, challenge, and theme of the Indian government have been to provide affordable medication to the masses. Through the development and use of generic medicines, the government has largely been able to achieve this main goal. However, India still has not spent enough money or time on discovering new medicines and is now paying the price for it. Currently, India does not have any new drugs to fight tuberculosis, malaria, and other tropical diseases. This has resulted in continued negative health impact for many people of India and for those who live in other tropical countries. When searching for solutions to these problems, it is difficult for India to work with more established western companies because there is not enough profit in developing medication for tropical diseases. As a result, there are no new drugs to treat these diseases. Therefore, the innovative challenge for Indian pharma will be to discover affordable medicines moving forward. 135 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.

Owing to a lack of credible discovery programs in the country by multinational companies, the “drug hunting” culture in India is relatively weak. There are several potential factors causing this deficiency: a. b.


c. d.

e.

Government policies, including price control. A fragmented market that is relatively low in value. This results in few multinational companies being attracted to the Indian market. Tropical diseases and vaccines are low on the priority lists of most companies. Most Indian pharma companies are relatively small and do not have the financial strength to handle the entire development cycle. There was a time when many of Indian companies had a full development cycle, but they did not have the funds to maintain them. As a result, they have taken different approaches, such as out-licensing their medicines to the big players. However, even with this model, financial constrains still remain a major problem. Lack of a unified plan: the government, academia, and industry have not been collaborating as much as needed.

The Future In India, the government, academia, and industry are beginning to actively work together to make a road map for creating a drug hunting culture in the future. Unlike other large developing countries such as China, it has taken India a longer time to develop this culture, but over time it should succeed. Current plans that are underway include supporting biotech start-ups through venture capital, angel funding, government support, and other sources.

References 1.

2.

3.

Generic Pharmaceutical Association. Hatch-Waxman: Driving Access, Savings & Innovation; http://www.gphaonline.org/media/cms/ Hatch_Waxman_Driving_Access_ Savings_and_Innovation.pdf. Investopedia. What is the difference between a green field and a brown field investment? http://www.investopedia.com/ask/answers/043015/whatdifference-between-green-field-and-brown-field-investment.asp (accessed Jan 28, 2016). Business Maps of India. Pharmaceutical Companies in India; http:// business.mapsofindia.com/india-company/pharmaceutical.html ((accessed Jan 28, 2016).

136 Cheng et al.; Chemistry without Borders: Careers, Research, and Entrepreneurship ACS Symposium Series; American Chemical Society: Washington, DC, 2016.

The Creation of a Globally Sustainable Generic ... - ACS Publications

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