Terra pharma

Updated: May 30 2007, 05:30am hrs
The Indian pharmaceutical industry, having purchased a series of units making generic drugs overseas, has embarked on global operational integration. Many leading pharma firms plan international supply chains that optimise the use of resources in different countries to meet market requirements wherever on earth they cost-effectively can. This involves cross-border reallocation of constituents of the value chain. Dr Reddys, for example, may use its low-cost Indian production facilities to supply its German generics unit Betapharm with ready-to-sell drugs. Ranbaxy, meanwhile, may prefer to export active ingredients in bulk for its Romanian unit, Terapia, to convert into finished dosages and distribute across Europe. These companies, among many others, already have their local drug plants inspected by the US FDA, and since their generics are already making advances in the US off-patent drugs market, quality is not the issue. Cost is. In general, the global pharma industry shares with computer software an important characteristichigh fixed costs and low marginal costs. If this is what creates conditions for the blockbuster drug phenomenon, it also incentivises the generation of huge volumes on every single drug under manufacture. Globalisation helps achieve this objective, and since Indian firms operate primarily in the low-cost generics zone of play, they need to do whatever it takes to raise tonnages and pulverise costs as quickly as possible.

That would necessitate smoothening out any rough patches in the global supply chain. First and foremost, overland transport and port infrastructure must be fixed fast to permit just-in-time operations across borders; even a few hours spent idle by a containerful of drugs in some holdup or the other would set off a domino sequence of timetable stumbles. Heart patients, say, in the Czech Republic should not have to suffer an Indian power cut. Next, Indias complicated set of regulations must not be a stumbling block. While the aims of the Drug Controller and National Pharmaceutical Pricing Authority are well defined in relation to domestic market necessity (India still accounts for a third of the worlds spurious drugs, and price controls cannot be wished away), so long as the policing processes that local regulations justify are not sufficiently transparent, we must restrain our global optimism.