India?s value proposition in the global pharma value chain strengthens by the day. The downturn may mean some short-term pain but the smart players are moving to ensure that they reap rewards through the slowdown. MNCs are in the process of upping their stakes in Indian subsidiaries. Swiss-based Novartis plans to raise its stake in Novartis India to nearly 90% from the current level of 50.9%.
The interest is explained on many counts. Globally, pharma companies are facing a lack of new products. MNCs, which have long followed the blockbuster approach, find that as their most popular/ largest-selling molecules lose patent protection, the market is flooded with generic copies of the same, causing massive price erosion. For example, Lilly lost 90% of its Prozac prescriptions over a year and $35 billion of its market value in a single day!
Most pharma MNCs, traditionally focused on chemical-based medicines, are today looking at biotech sources of tomorrow?s blockbusters, and the past few months have therefore seen mergers like Pfizer?s takeover of Wyeth, followed by Roche re-acquiring Genentech and then Merck, who had vowed to stay away from M&As, couldn?t seem to resist picking up Schering-Plough.
Indian companies are looking for value buys to enter niche segments or expand geographically through M&As. Sun Pharma refuses to give up on its quest for Israel?s Taro. There is also Piramal Healthcare?s Minrad International acquisition, after its Avecia and Morpeth buys. Others are in the consolidation phase and pulling out of unviable geographies. Dr Reddy?s German buy Betapharm was proving difficult to digest given the way the German market is turning to tenders, which is a low-value, high-volume business, with wafer-thin margins. Here, with production shifting out of Germany to Dr Reddy?s Indian facilities, margins are slated to improve and the worst is behind the company. Others like Avesthagen are re-structuring to make it easier to attract investors who may want to invest in only a particular part of the product portfolio.
Reliance Life Sciences has decided to go a step at a time. True to the larger than life presence of Reliance Industries in the petrochemicals industries, the initial plan was to create an integrated pharma company. The company was to scale up manufacture by investing in a Rs 1000 crore SEZ at Jamnagar, Gujarat. For now, it will start with a reduced portfolio, from its pilot facility at Navi Mumbai. But Reliance will make its mark on the global pharma scene by focusing on niche high-value bulk drugs in the oncology and steroids segments.
A recent Jones Lang LaSalle Meghraj (JLLM) report says that around 10 pharma companies based in North America and Europe have plans to set up or expand R&D centres, testing centres and offices in India. Over the next seven years, they would need about 15,000 acres of land. This development, apart from growing the pharma market, would also boost the Indian realty industry and in a year of slowdown, this is more than welcome news.
India?s large pool of patients, low manpower cost, and availability of talent and infrastructure for R&D remain main magnets. But the government needs to add to industry friendly measures. The JLLM report lists 100% FDI in pharma, 7.5% import duty on medical equipment, exemption of clinical trials for new drugs from service tax, intellectual property protection, and incentives to companies setting up facilities in pharma SEZs. Stumbling factors include a perceived shortfall in quality and adherence to regulatory norms. Ranbaxy fell foul of US FDA, but the recent clearances from European and Australian regulators have put to rest most concerns on this count.
Still, India?s clinical research infrastructure has to gear up fast and regulators need to prevent incidents like the case of an insulin spray being launched before adequate trials. The fact the India will soon have offices of the FDA and the UK regulator MHRA, is a double-edged sword: it will mean faster clearance but also greater oversight. Is the industry ready for that?
viveka.r@expressindia.com