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Indian pharmaceuticals
Generic genius
Sep 28th 2000 | DELHI AND HYDERABAD
From The Economist print edition
India’s drug firms have set their sights on generics markets in rich countries

AMONG India’s 20,000 or so drug makers, Anji Reddy is the most visionary. He decided long ago that Indian pharmaceutical firms could not prosper forever by copying patented foreign inventions and selling them to India and the rest of the poor world. So Dr Reddy’s Group, his Hyderabad-based company, started coming up with inventions of its own. It has licensed two new diabetics drugs to a Danish firm, which is testing them on human subjects. That makes Dr Reddy’s the leader in the vaunted conversion of Indian drug firms from copycats to innovators.

Sexy as they are, new drugs are not the only thing in Dr Reddy’s mind. He is thinking about the low-margin business of generics, drugs whose patents have expired. In effect, Dr Reddy and others like him want to extend their traditional business of reinventing drugs, minus the legalised piracy, to the rich home markets of their inventors. He thinks Indian firms can capture a quarter of the world market for generics, which is set to grow enticingly: drugs with sales of $40 billion are likely to lose patent protection in the next three years, says C. Visalakshi of Kotak Securities in Mumbai.

These hopes are not unfounded. Indian firms are accustomed to cut-throat competition (there are some 40 Indian brands of Ranitidine, an anti-ulcer drug), which is what awaits them in rich-country markets. Manufacturing costs are perhaps two-thirds of rich-country levels, a big advantage in such a low-margin business as generic drugs. “India is the best place in the world to manufacture pharmaceuticals,” declares Brian Tempest, president of Ranbaxy Laboratories, India’s largest drug maker.

That has not made India the world’s preferred supplier. “Made in India” has been no more a byword for quality in drugs than it has been in cars or consumer electronics. American drug companies import raw materials from Indian manufacturers, but few finished products such as pills.

The image of shoddiness is changing. To comply with the rules of the World Trade Organisation, India will begin to protect product patents in 2005. That has prompted big Indian drug firms not only to invent new drugs but increasingly to adopt developed-country standards for making existing ones. Lupin Laboratories, a Mumbai firm, claims to have the only factory in Asia that is certified sterile (for injectible drugs) by America’s Food and Drug Administration (FDA). Cipla, a neighbouring company, has FDA approval to make ingredients for 15 years and is now seeking it for finished products.

The drugs that emerge from these factories have to be FDA-compliant if they are to be sold in America. Indian companies are pouncing on expiring patents and filing abbreviated new drug applications (ANDAs)—the sort needed to sell off-patent drugs in America—at a furious pace. Two Indian companies, Ranbaxy and Wockhardt, were among the ten firms approved to sell Enalapril, a medicine for high blood pressure that has American sales of over $900m.

Scrambling for a fix

Some wonder why Ranbaxy, Dr Reddy’s and the rest should want to break into the generics market. At $12 billion in America, it is worth only a small fraction of the $125 billion drugs market. Every patent expiry triggers a scramble among generics makers that sends prices crashing (that of Enalapril fell 95%). The scramblers generally have bigger portfolios and better ties to wholesalers than do Indian firms. Some Indian firms prefer the rewards and risks of inventing new blockbusters to the thin recompense of producing sequels. While generics are a “short-term opportunity, [they] fall short of the real creation of shareholder value,” says Swati Piramal, chief scientific officer of Nicholas Piramal, a Mumbai-based drug firm.

Companies that disagree propose several ways around such hurdles. One is to fill underpopulated niches rather than to copy bestsellers. Lupin has “not gone after every product going off patent,” says the head of its American operations, Vinita Gupta. It concentrates instead on those, such as fancy antibiotics, to which entry is restricted by “high technology barriers”. Another strategy is to give generics a novel twist, which could be as simple as masking the taste of a bitter pill or as complex as finding new ways of delivering familiar drugs. Cipla, for example, has worked out how to deliver an anti-incontinence drug via a skin patch.

There are a number of ways to establish a presence on new ground. The commonest is to piggyback on an American generics company, either as a supplier or as a revenue-sharing partner. Cheminor, the part of Dr Reddy’s Group that specialises in selling generics to the rich world, has formed a series of alliances with American generics firms. Wockhardt has a joint venture with New Jersey-based Sidmak Laboratories, which markets two of its formulations; the two firms split the profits evenly.

Ranbaxy, the most ambitious Indian firm in the international market, is using most of these ploys. It has bought an American company; it is targeting difficult-to-make products; and it is innovating, specialising in new ways to control the release of a drug into a patient’s system and thus reduce the number of times he must take it.

But Ranbaxy wants to enter the major leagues as a generics company as well as an inventor of patented drugs. To do that, it needs a drugs portfolio big enough to attract the wholesalers and health-management groups that buy much of America’s generic supply. Building that has been expensive. With sales expected to be $60m-70m this year, Ranbaxy is about to break even in America, says Mr Tempest. A sign in the firm’s American headquarters reads “This is the year we make money.” If the likes of Ranbaxy and Dr Reddy succeed, other Indian drug makers are sure to follow.

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