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Big Pharma comes calling to India

By P B Jayakumar in Mumbai
June 19, 2009 09:27 IST
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Dr Kallam Anji Reddy, chairman of Dr Reddy's Laboratories, would be wondering at how the world of pharmaceuticals has turned topsy-turvy.

For the past 25-30 years, Dr Reddy, a visionary scientist turned entrepreneur, built his Rs 5,000-plus crore (Rs 50 billion) business empire, confronting the might of multinational pharmaceutical companies through patent challenges and litigation. Thanks to the favourable patent regime in India till 2005, his team of scientists and he worked in small research and development laboratories in Hyderabad and successfully reverse-engineered patented drugs of multinationals to make low-cost generic drugs.

Similarly, Ranbaxy, Sun Pharma, Cipla, Wockhardt and many other players emerged as suppliers of cheap generics to the world.

Multinationals, which make billions of dollars from their patent-protected drugs, viewed generics as a nuisance or a 'dirty business' (as termed by the chief executive of one of the largest companies).

Most of Big Pharma shunned generics, as its manufacturing required different process chemistry skill sets. Margins are very thin and require huge volume business to generate decent profits.

Compared to this, each of their patent-protected blockbuster drugs enjoyed a monopoly and gave multi-billion dollar sales. MNCs adopted strategies such as litigation and authorised generics to block entry of generics, which were eating into their profits and sales.

In an emerging trend, the same MNCs are now queuing to join hands with generic specialist companies such as Dr Reddy's and Aurobindo Pharma to market their low-cost drugs in global markets.

"Multinational drug companies are under pressure, as their new drug pipelines are dwindling and many existing drugs are going off-patent in the near future. In the field of generics, branded generics offer the largest margins and this is an area where we will soon see many deals by Big Pharma with Indian generic companies," said Dominic Hollamby, global head -- healthcare group, Rothschild, one of the largest private banks.

Last week, GlaxoSmithKline, the second largest drug maker in the world, teamed with Dr Reddy's to market its 100 branded pharmaceuticals in emerging markets such as Africa, West Asia, Latin America and the Asia-Pacific, excluding India. Dr Reddy's will manufacture the drugs, license these and supply to GSK.

In March, the world's largest drug maker, Pfizer, had acquired rights from Aurobindo Pharma for 39 generic finished-dose products in the US and 20 in Europe, plus an additional 11 in France. Later, Pfizer expanded this supply pact for another 60 products, for selling in several countries through Asia, Latin America, Africa and West Asia.

Two months later, Pfizer entered into a partnership with Ahmedabad-based Claris Lifesciences, an injectable drug maker, to commercialise off-patent drugs in the United States, Canada, Australia, New Zealand and Europe.

"Such deals are a win-win situation for both Big Pharma and generic companies. Multinational companies enjoy big brand equity and have extensive sales and marketing set-ups, which will help the generics players to tap new markets and business," said Sarabjit Kaur Nagra, vice-president of research, Angel Broking.

It is estimated that about $70 billion worth of branded drug patents are set to expire through 2012. Big Pharma, trying to protect margins and revenues, is now looking at generics as a serious business.

At present, a dozen-odd Indian drug companies such as Piramal Healthcare, Jubilant Organosys and Dishman are engaged in contract research and manufacturing services for Big Pharma.

Indian contract manufacturing was estimated at $869 million in 2007 and is projected to grow at a rate of 41.7 per cent to $2.46 billion by 2010, says a study by KPMG and CII. According to a YES Bank and Organisation of Pharmaceutical Producers of India estimate, contract manufacturing in India will grow from about $625 million in 2007-08 to $3.2 billion by 2015.

"Chemistry skills required for generics manufacturing are totally different from that of innovative drug development. India has big skills in process chemistry and, coupled with that, the ability of Indian pharma to make drugs at 40 per cent cheaper than that in the western world attracts Big Pharma," said R B Smarta, managing director of Interlink Marketing Consultancy.

Dominic Hollamby noted that many Indian companies are supplying drugs to Big Pharma and the role of the multinational is just to put its label and sell the drug in the market. The entire generic cycle of dossiers to manufacturing and other regulatory clearances are handled by the generic company.

Pfizer, which last year formed an established products division to enter generics, has a generics division known as Greenstone. It is also scouting for generic assets and deals in the Asian market.

Switzerland-based Novartis owns one of the largest generics companies in the world, Sandoz. Besides, in May, Novartis bought a specialty generics drug maker, Ebewe Pharma, a closely-held Austrian company, for $1.2 billion.

Sanofi-Aventis recently bought Czech generic company Zentiva, and Medley, a family-owned drug specialty generic manufacturer in Brazil for $660 million.

GSK also entered a drug outsourcing deal with Aspen Pharmacare of South Africa to source generics for developing markets.

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P B Jayakumar in Mumbai

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