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Getting to Know Indian Pharma

Conference and trade fair reveal opportunities and limitations for India's pharmaceutical sector

by JEAN-FRANÇOIS TREMBLAY, C&EN HONG KONG
March 14, 2005 | A version of this story appeared in Volume 83, Issue 11

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Credit: PHOTO BY JEAN-FRANÇOIS TREMBLAY
With more U.S.-approved facilities than its closest competitor, Italy, India stands ready to export pharmaceutical ingredients and formulations. Pictured here, a Nicholas Piramal plant that produces the cardiovascular drug diltiazem.
Credit: PHOTO BY JEAN-FRANÇOIS TREMBLAY
With more U.S.-approved facilities than its closest competitor, Italy, India stands ready to export pharmaceutical ingredients and formulations. Pictured here, a Nicholas Piramal plant that produces the cardiovascular drug diltiazem.

Further evidence of the ascendance of India as a supplier of materials and services to the global pharmaceutical industry was provided at a conference in Hyderabad, India, last month. But several industry insiders are cautioning that growth in the Indian industry has its limits.

Reflecting the rising interest in India, attendance at the two-day conference, organized for the seventh time by the Mumbai-based publication Chemical Weekly, was much better than it had been in previous years. The conference usually provides a general overview of India's chemical industry, but there was increased focus this year on the pharmaceutical fine chemicals segment. Attendees numbered about 300, 50% more than at the last conference, held two years ago in Mumbai. About 20% of attendees were from abroad, compared with a negligible number previously.

Immediately following the conference, ChemSpec India was held for the first time at Hyderabad's Hitex trade show complex. ChemSpec is aimed at manufacturers of specialty chemicals and pharmaceutical ingredients and takes place several times a year around the world. Attendance in India exceeded expectations. There were 5,000 attendees on the first day, whereas organizers were hoping for 3,000 to 5,000 over two days.

At the conference, the most enthusiastic speaker was probably Dinesh Dua, president of Wockhardt's biotechnology business. A human encyclopedia of facts and figures about India's pharmaceutical industry, Dua has more than 20 years of experience at Wockhardt and other Indian drug companies. In his presentation, he argued that India is in an ideal position to take advantage of numerous pharmaceutical business opportunities.

THE MOST EXCITING sector, Dua said, is generic pharmaceuticals. The world generic drug market was worth $43 billion in 2003 and is growing 10% annually. The biggest opportunity today is Japan, a generics market worth at least $6 billion. Pharmaceuticals sold in Japan will no longer have to be made in Japan after April 1, he said. Opportunities in France and Spain are almost as good because, as in Japan, the market share held by generic drugs is low, he said.

Drugs with combined worldwide annual sales of $80 billion will lose patent protection before 2012, Dua added. If history is a guide, competition from generics will cause the prices of these drugs to collapse. But even if prices fall by 90%, these generics are a "staggering" opportunity worth at least $8 billion. India will excel in this environment, Dua predicted. "India provides value for money, not cheap products. We provide quality and bring down costs by various means."

Over time, Dua said, Indian generics manufacturers will become full-fledged pharmaceutical companies marketing drugs invented in their own labs. But he warned that a new generics company could require 25 years of steady success to become a major international player such as Israel's Teva Pharmaceutical Industries. And it takes even longer to develop the capabilities to introduce new drugs in the global marketplace.

Over the past few years, the importance of India and China in the global pharmaceutical ingredients industry has grown so much that competitors in other countries feel threatened. Enrico T. Polastro, a vice president of management consultants Arthur D. Little in Belgium, addressed these concerns head on with a presentation titled "The Fine Chemicals Industry: West Out--India and China In?"

Polastro believes that India's pharmaceutical industry will remain prosperous in coming years. This perspective is only partly the result of the new patent protection regime that India inaugurated on Jan. 1 and that upholds foreign patents on pharmaceuticals. The main factors in favor of India, he said, are its abundant scientific workforce and its citizens' eagerness to work hard and for long hours.

"India graduates more engineers in a year than the total number of engineers working in a country like Switzerland," he said. Other factors in India's favor are that it is relatively free of the "not-in-my-backyard" syndrome and that its environmental regulations are not unrealistic, he noted.

The global fine chemicals industry is in the doldrums as a result of overinvestment, Polastro noted. In this context, India, with its lower costs and abundant human resources, finds itself in a strong position. But over the long term, he expects that Western producers of pharmaceutical fine chemicals will remain competitive through innovation and their ability to provide better service.

Echoing Polastro's comments, Goutam Das, chief operating officer of Syngene, one of India's most successful pharmaceutical contract research firms, said that his competitors in Western countries will continue to remain relevant. "When major pharmaceutical companies want something fast, they don't come to India," he said.

According to Das, U.S.-based contract research companies routinely charge five times more than Indian ones for identical work. But they can deliver more quickly, primarily because it is easier to source lab chemicals in Western countries. Even though lab chemicals distributor Sigma-Aldrich recently opened a branch in India, it is still difficult to obtain delivery in a timely manner.

Das also warned that Indian euphoria over the rapid pace at which multinational companies are increasing their outsourcing is misplaced, because the market is not that big. Excluding Phase II and III clinical trials, which focus on human testing, drug companies worldwide spend a total of $20 billion per year on pharmaceutical research. But only 25% of that $20 billion is outsourced, he said, and of that, only 25%--or $1.25 billion--is outsourced to developing countries.

India already enjoys a 30% share of that number, but this is worth no more than $400 million. Market leaders like Syngene are doing relatively well, Das noted, but there may not be enough business for everyone. At least 22 Indian contract research companies exist, he said.

Earlier this year, Yusuf K. Hamied, chairman of Cipla, one of India's largest drug companies, warned in an interview on Indian television that the outlook for the Indian pharmaceutical industry is dark. As a result of India's adoption of the new patent regime, only the large Indian drug companies will do well, because they rely on exports of generics to rich countries for most of their sales. Small Indian drug companies will be decimated by foreign competition entering the country, he predicted.

Hamied doubts that Indian firms will be able to launch new drugs on the international market. Pfizer's annual R&D budget amounts to about $7 billion, he pointed out, whereas India spends a grand total of $3 billion a year in all its R&D activities, including pharmaceutical and nonpharmaceutical research in both government and private labs. Cipla's R&D budget is about $50 million. "How can I compete?" he asked rhetorically.

Undaunted, most of India's largest pharmaceutical companies are hoping to launch patented drugs on international markets. Although it is too early to tell whether any will be successful, it is clear that India's pharmaceutical industry is undergoing a profound transformation as it opens to the world.

 

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