Hindustan Times
Is India losing its pharma edge?
There is a minor ripple of concern following the announcement that US-based Abbott Pharmaceuticals would be buying the healthcare division of Piramal Laboratories. With this, and along with Ranbaxy’s being bought by Daiichi Sankyo, observers have noted, India’s pharma sector is now roughly half owned by foreign multinationals – a situation the country hasn’t seen since the 1970s.
That was when India effectively legalized medical piracy.
Patents were restricted and Indian firms became experts at reverse engineering drugs. Prices were low, not least because the huge research and development costs for new molecules were being borne by the multinational firms.
The introduction of intellectual property rights into the World Trade Organisation brought an end to this cozy affair. Some Indians feel this marked the beginning of the end of Indian pharma, that the multinationals’ picking up Indian firms today is a consequence of that decision.
That’s part of the story. But the fact is that Indian firms were also pressured by the country’s drug price control system. Firms like Piramal depended on overseas sales to compensate for the thin margins they made on sales at home.
Another factor was the rise of generics. Previously multinationals didn’t bother with the generics business. Today, most recognize this has to be part of their portfolio. Hence Daiichi Sankyo’s decision to go for Ranbaxy.
A key question is why Indian firms were unable to develop their own research and development capability, to generate their own original molecules. Ranbaxy was among the foremost in trying this path. Others, like Cipla, focussed on generic production of off-patent products.
But it was always a gamble. No firm can predict if they will ever get a viable medicine no matter how much money the spend on their laboratories. Often, even multinational firms depend on two or three drugs for the bulk of their profits. Once patents expire and if they don’t get a new discovery, they are doomed.
From a distance, it looks an absolutely bizarre business model. Indian firms were always going to have a problem of size. It takes half a billion dollars or so to produce a new molecule. With a constricted domestic market thanks to price controls and an overseas market characterized by regulatory hassles and fighting expensive legal battles over patents, that sort of money was always going to be hard to find.
So is it over for Indian pharma?
One, I don’t think it really matters whether the pharma sector is foreign or Indian. Ownership doesn’t matter. What does matter is that all these firms are setting up research centers in India, doing clinical trials, and otherwise employing and training Indians. I spoke with a senior Abbot executive just weeks before the Piramal buyout and clearly using India as a base for product development was part of his firm’s vision.
Two, it was inevitable that the Indian pharma sector was going to see some consolidation. After the top 30 firms, the rest get less than one per cent of market share. There will be some more foreign purchases, largely by firms looking for a generics capability. But the multinational share will stabilize at some point.
Three, as India’s economy grows and, hopefully, the government looks beyond simply cheap drug prices and to the idea of providing material incentives for pharma innovation, Indian firms will start to get the internal capacities to generate new molecules. Indian firms own more US Federal Drug Administration approved pharma plants in the world than any country except the US itself – so they are getting some traction in global markets.
And, pharma may yet see its entire business model turned on its head if gene therapy starts to take off.
Whether India is ready for that, of course, is another story altogether.
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Jagdish Reply:
May 28th, 2010 at 9:19 am
National security is at stake. Therefore a giant Indian consortium of Drug companies is needed. No sector can simply be left and accepted that foriegn companies can dominate it. Many drugs such as glucophage known as metformin were based of Aryur-vedic formulations. Indians never profitied from this. Indian companies should recieve government subsidies so they can compete.
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