Saturday, April 28, 2007


Why Pharma MNC's lag behind


Try this for size. At $48 billion (Rs 2,11,200 crore), Pfizer, the world’s largest pharmaceutical company, is roughly six times as large as the Indian pharma market. The turnover of its Indian affiliate should also make readers sit up, but for different reasons. At Rs 765 crore ($170 million), Pfizer’s India sales are less than 15 per cent of the country’s top drug maker — the $1.4-billion (Rs 6,070-crore) Ranbaxy Laboratories. The story repeats itself with respect to other pharma multinationals in India, whether it is Europe’s No. 1 Sanofi-Aventis or UK’s GlaxoSmithKline. Strange, given that some of the most enduring drug brands in India, such as Gelusil, Voveran and Zinetac are foreign-owned. Make no mistake, it is not the early mover advantage that they lacked. US-based Pfizer, for instance, has been here since 1950 — a lot earlier than some on our top 20 list. So, what explains the undersized nature of MNC drug makers in India?

It is tempting to lay the blame at the door of India’s patent law. Between 1972 and 2005, India allowed copying of drugs that MNCs discovered in the West by Indian players. The only rider: they had to use a different process. The result was a booming domestic pharma industry that thrived by launching cut-price copies of MNC drugs. Initially, for every MNC launch, there would be tens of Indian copies. Later, many Indian companies began putting copycats on the market even before the original could get there from foreign shores. A recent example is Pfizer’s much-touted impotency drug Viagra. Copies came in over five years before the original. In reaction, the MNCs did two things. Many stayed away from putting new drugs on the market, others practised differential pricing: a lower price for the Indian market and a higher one for the developed world. But that worked only up to a point. Often,they gave up market share instead.

Their argument was that they had to recoup the millions of dollars invested in research and development. So they had to price their drugs accordingly. The other problem was piracy — discounted drugs meant for emerging markets, they said, ended up in the West. Ten years ago, there were two pharma MNCs — GlaxoSmithKline and Switzerland-based Novartis — on the top 20 list. Now, they have dropped out. But patents alone cannot be the reason. What is equally true is that companies have not been investing in growing the market. There has always been potential: by one estimate, only 30 per cent of the Indian population has access to modern medicine. However, the state of India’s healthcare infrastructure barring urban areas — whether it is hospitals, dispensaries or even pharmacies — is abysmal, affecting market access. “It is not just about the pill. It is to do with infrastructure and access,” says Hasit Joshipura, managing director, GlaxoSmithKline, the largest pharma MNC in India.

To add to this, prices may not justify the investment. India has 10 per cent of the world’s pharma volumes, but just 1.5 per cent of its value, according to a report by YES Bank. The government still controls drug prices. Besides, the extent of an MNC’s abilities to influence market development is limited to its product portfolio. Newer products from MNCs are directed at diseases in the so-called chronic segment. These drugs, for ailments such as cancer, diabetes, depression and so on, are prescribed by specialist doctors concentrated in urban and semi-urban areas. “MNCs do not have the flexibility of the generic (copycat) business to launch any and every molecule,” says Joshipura.

Importantly, the Indian companies have substantial exports. The sale of cheaper, off-patent drugs to the West has catapulted the likes of Gurgaon-headquartered Ranbaxy, and the Hyderabad-based Dr. Reddy’s to billion dollar status in the past decade or so. Today, more than half their revenues are generated from outside India. But MNC subsidiaries did not have this lever since the parent already had a presence in all major countries. At best, exports were focused on emerging markets.

Things are changing, however. In 2005, India altered its patent law to prevent copying. More new MNC drugs are now lining up for their place in the Indian sun. As the economy grows, companies such as Glaxo are figuring out what Joshipura calls the ‘touchpoints’ of this growth with healthcare. “We have to identify how we should be present in these markets, either in terms of new initiatives, structures or processes, to participate in this growth,” he says. There are also strong signs that MNCs will increasingly leverage India to compete with Indians in the West. One example: Novartis is using the Indian operations of its generics arm, Sandoz, to develop and manufacture off-patent products for western markets. This, it hopes, will allow it to remain competitive vis á vis the Indian and Chinese onslaught of cheap, patent-expired copycats. Perhaps, 10 years from now, the story will be a little different.

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