Indian Pharma: on point of inflection
India’s drugmakers initially walked the easy path by manufacturing low cost copies of the patented drugs. Legally, it was allowed if the production methods “processes” adopted were different from the ones that were patented. While they were also gaining expertise in producing ingredients for various multinational drug manufacturing companies. However, soon they decided to step out of this limited way of manufacturing drugs and amongst the first to take such initiatives were Cipla Ltd, Ranbaxy Laboratories Ltd and Dr. Reddy’s Laboratories Ltd.
Reddy’s was able to attract many drugmakers to the US in 2001 when one of its drug secured exclusive marketing rights. It was a generic version of the antidepressant drug – Prozac. Around the same time, Cipla Ltd started working on providing medication for AIDS in Africa at very low prices compared to the giants in the market. Millions of poor people in Africa relied on Cipla and it was a rising period for the company. The US inevitably became the largest market for India’s drug companies after the liberalisation of 1991. Indian drugmakers continued to enjoy the huge profits for years until things started to get a little shaky.
At present, the margins and revenues for the Indian drugmakers have significantly reduced and many investors have abandoned the sector. According to an anonymous source drugs that earned about 40-60 percent margins few years ago are now earning only 20-25 percent. There are multiple reasons for this situation in India. Substantially, it is the rising competition and quality issues. As new players are entering the US market, the competition is increasing making it difficult to maintain market prices. The competition is not only amongst Indian firms but Chinese firms are also entering the market now and they are exceptionally good at importing new talent and squeezing costs. While Indian companies are focussing on low-pricing approach, there is a greater need to diversify the product range by incorporating complex generics, biosimilars, specialty and innovative products.
The need of the hour is the focus on developing new strategies. Indian pharma is currently at an inflection point and if the strenuous task of developing a biosimilar organisation or transition to an innovative industry is not fulfilled then it would be difficult to improve the situation. Despite a lack of inherent skills for building a speciality organisation, it is important for Indian companies to focus on it in the next 5 years. Most leading companies have been talking about speciality industry but it’s more difficult and deep than it seems. The skills required to be a specialty company are much greater than the discipline required to be a generic company. If the specialty products do not have a clear clinical advantage, insurance companies and doctors would refuse to cover it. However, specialty drugs are high value products and nearly half of medical expenditure in the US goes towards specialty drugs. Typically, generic margins are just about 50% whereas speciality margins are as high as 90% for some brands, and are much more stable. Specialty drugs have a special handling as they are used for treating chronic and complex conditions such as cancer, arthritis, multiple sclerosis etc. According to several industry reports Indian companies have been very slow in investing in the specialty sector and the ongoing development process is also quite complex and long. The development cost of a biosimilar product or complex speciality product is much higher than a generic product. Biosimilar is also a big opportunity for pharmaceutical companies, it is similar to biologic drugs but the Indian companies are nowhere in this area. It is believed that biosimilars are next important products in the branded space as they constitute about 50% of drugs by value. The industries are shifting from chemical based drugs to biologics, increasing the scope for pharmacies exponentially in biosimilar products. The global sales are also expected to increase. In order to transfer to a specialty company, it takes minimum three years for a generic drug company and the issue of quality is always in question. The investments required for biologics are huge and therefore Indian companies are expected to explore partnerships. Some companies are working on developing biopharmaceuticals such as insulin, monoclonal antibodies and vaccines. However, the cost and risk of launch is very high.
US FDA keep enhancing rules and regulation in order to promote good manufacturing practices and enhance efficiency. The rules have become strict and a plant can be pulled up for violating the standards and norms at any given time. Companies need to look at cost structure and invest in products and markets that offer price stability. Enhancing the efficiency is important to bring profitability and costs can be brought further down. They must make changes to their model in a way that they serve not only the US but other markets like Europe and Japan to attract greater profit. Collaborations would greatly benefit Indian companies and at the same time, exploring new markets and working on technological developments and new drugs is equally imperative. It is time for Indian pharma companies to evolve and be innovative.
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