Finding The Right Cure
The Belgium-based vaccines major, Smithkline Beecham, has contracted the Serum Institute of India, Pune, to manufacture 100 million doses of a new five-in-one paediatric vaccine. This is the first tie-up between a drug multinational and an Indian research laboratory to mass produce vaccines based on foreign technology.
The Rs 879 crore Ranbaxy Laboratories is consolidating its number one position in the industry. It recently merged with Croslands Research Laboratories to strengthen its research base as well as get a foothold in further therapeutic segments. Besides, leading Indian pharmaceutical companies like Lupin Laboratories, Torrent Pharmaceuticals and Kopran have all set up manufacturing bases in countries from UK and South Africa to Poland, Thailand and Uganda.
The events mirror the frenetic activity that is encapsulating the whole industry. The goal is the 2005 deadline when India will, under its commitment to the World Trade Organisation, allow product patents. As the rules of the game are set to change, pharmaceutical players are gearing themselves for the future by evolving fresh strategies. These range from strengthening their own research and development (R&D) to striking alliances with global drug majors to increasing their presence overseas.
The pharmaceutical industry has been growing at an average of 12 to 15 per cent per year over the last few years and is amongst the highest growth sectors. For instance, bulk drugs production rose by 20 per cent from Rs 1518 crore in 1994-95 to Rs 1822 crore in 1995-96. In the same period, formulation production grew 15 per cent from Rs 7935 crore to Rs 9125 crore. Since 1970, the number of formulators and bulk drug manufacturers have multiplied. From a mere 800 formulators and 125 bulk drug firms two-and-a-half decades ago, there were 15,000 formulators and 600 bulk drug manufacturers in 1990. In 1995-96, the total number of units in the country was estimated at over 23,000.
Despite the huge numbers, the industrys total turnover is a mere Rs 9000 crore, about the same as any large corporation like Reliance. And it accounts for a mere 1.2 per cent of the world pharma products output. Even so, it has become a name to reckon with in the international pharmaceuticals market, particularly in the bulk drugs sector.
According to World Pharmaceuticals Ingredients Congress, an Amsterdam-based industry watcher, India accounts for six per cent of bulk drugs exports. It is followed by China at four per cent. Total Indian drug exports, bulks and formulations, have grown from Rs 76.18 crore in 1980-81 to Rs 2337 in 1995-96. The Indian Drugs Manufacturers Association (IDMA), estimates 1996-97 exports at Rs 2681 crore.
With increasing competition from the Chinese, Indian drug exporters are looking at new strategies. They are now focusing on the growing generics market, comprising drugs that have gone off patent. In the US, over 40 per cent of the prescription market is generic, and is slated to grow further. Indian companies are relying on their low manufacturing costs and process development skills to capture this market. (See page 2)
Indian companies will also have to get into formulations. At the moment, Indian products dont have any worthwhile presence in the formulations sector. The only exception is herbal drugs, where India has a $100 million market.
Says J K Shah, an industry analyst, In the years to come, Indian companies must go in for end-products because that is where the profits lie. Also for long term sustainability of the industry, Indian companies must get into formulations in a big way, not just generic drugs, but those produced from patented formulae.
Development of drugs and processes will have to take a priority at home too. The biggest concerns in the domestic market today are both the changeover to product patents as well as pricing constraints under the Drug Price Control Order. The industry has grown under the shadow of the 1970 Indian Patents Act which allowed only process patents and thereby legitimised piracy of internationally patented drugs. But this copycat phenomenon will have to give way.
The changeover has divided the industry with the opponents voicing concern over the survival of Indian players. Says Dinesh S Patel, President of the Indian Drug manufacturers association (IDMA), Small scale industries are the backbone of the industry. They should be protected at all costs.
Deb Bhaduri, president, Organisation of Pharmaceutical Producers of India (OPPI), points out, The fear of multinationals wiping out Indian companies is highly unrealistic because at any point of time, not more than 10 per cent of pharma products are under patent. With patents available for a maximum of 20 years, products keep moving out of the purview and new ones come in. So the remaining 90 per cent indicates a huge market.
The other apprehension that product patents will crease the costs for consumers may also be unfounded. The large number of manufacturers and the intense competition among them, the OPPI believes, will ensure that prices are kept low.
Indian companies have already started responding positively. And research and development (R&D) is receiving a new thrust. (See page 3) The strengthening of in-house research units by most of the top 10 Indian companies underlines this trend.
The government too is chipping in. Says a senior official from the Ministry of Chemicals & Fertilizers (MCF), We have set up speciality facilities under the Department of Science and Technology, which drug companies can use for a modest payment since some facilities like DNA gyrase screening and quantity-structure-activity relationship requires huge investments.
The MNCs too are looking afresh at India. So far, they had been hit by Indian companies cheaply copying their patented processes and drugs. But now they can access patented products from the parents. However, the parent companies are still wary and waiting for the patents act to be changed before they bring in their products.
Nevertheless, capital inflows into the industry have increased post 1995, when the 40 per cent equity cap on multinationals was relaxed. The MCF estimates that over $ 50 million worth of capital has flowed in since 1995. Glaxo-Wellcome Plc has increased its stake in Glaxo India from 40 per cent to 51 per cent and in Burroughs Welcome from 32 per cent to 51 per cent. Hoechst AG, Ciba Giegy and Pfizer have applied to set up 100 per cent subsidiaries, which are yet to receive government clearance. Pfizer wants to contract drug development work among Indian companies and research laboratories. This will be the trend among multinationals in coming years, says Shah.
Indian ayurvedic formulations, in turn, could find their way abroad. Recently, a US patent was granted for a novel Indian ayurvedic compound which enhances the effectiveness of popular anti-tuberculosis and anti-leprosy drugs, Refampicin and Isoniazed. This was the first time the US Patent Office recognised an Indian ayurvedic formulation that improves upon western-developed drugs. The formulation, called Piperine, was isolated from the plant species piper nigrum by the Regional Research Laboratory, Jammu.
In fact, Indian companies could tap the growing herbal drugs market overseas. (See page 4) For instance, the herbal drug markets in the European Community and Japan are estimated at $6,000 million and $2,100 million respectively. According to J B Mody of the Basic Chemicals, Pharmaceuticals & Cosmetics Export Promotion Council (Chemexcil), Exports of 17 popular herbs and their value-added formulations could fetch Rs 5,000 crore by the turn of the century.
Indian companies are also addressing the quality question to boost exports. According to C S Sastry, vice-president, Cadilla Healthcare, It is very important for Indian companies to get the stamp of good manufacturing practices (GMP). A GMP certificate ensures that the product has come out from a facility that meets quality and pollution control norms. Says Sastry, Simply put, GMP means your product is no less in quality than its competitor from the US or Europe.
So drug majors like Ranbaxy, Dabur, Piramal Healthcare, Torrent and Ambalal Sarabhai have all keyed themselves on GMP and ISO 9002 norms. Says Dabur chief Anand Burman, We have audited the quality management system of our manufacturing facilities and had them ISO 9002 certified.
Back home, concerns over the Drug Price Control Order (DPCO), which constrained margins and therefore inhibited R&D spend, remain. Although the DPCO was relaxed in 1995 with the number of drugs under price control coming down from 142 to 73, it is still cause for heartburn.The governments promise to set up an autonomous National Pharmaceutical Pricing Authority (NPPA), for one, has yet to be fulfilled. Then, the private sector is not allowed into the manufacture of five drug types: vitamin B1, vitamin B12, folic acid, antibiotic tetracycline and antibiotic oxytetracycline. And genetically engineered drugs, considered the future of medicine, require a special license needing time-consuming clearances.
In spite of the problems, both multinationals and Indian drug companies are buoyant about the industry. Thats because there is still a huge market waiting to be tapped. The National Council for Applied Economic Research estimates that the population covered by modern medicines will rise from 25 per cent in 1991 to 45 per cent by 2000, or from 220 million people to 450 million. This represents an annual growth of eight per cent. That explains the frenetic activity in the industry.