Indian Firm Plays to Its Strengths

One of the central elements in Nicholas Piramal's business strategy is to avoid potential competition with its customers. This may sound like a banal policy, but it makes the company stand out among India's pharmaceutical custom manufacturers.

Headquartered in Mumbai, Nicholas Piramal India Ltd. (NPIL) is emerging from obscurity to become one of India's top drug companies. Since the firm was formed in 1988, its sales have been growing 30% annually on average, reaching $293 million in the fiscal year that ended March 31, 2004. Sales will likely add up to $350 million in the latest fiscal year. With a sales force of 3,500--the largest in India--NPIL is one of the top five sellers of branded drugs in the country.

Last November, the president of India inaugurated NPIL's research labs in Mumbai. Decorated with expensive works of art and fitted with sophisticated research equipment, the facility is, the company says, India's largest private pharmaceutical lab under one roof.

Located in the city proper, the center will support NPIL's twin ambitions of becoming both one of the world's leading pharmaceutical custom manufacturers and a supplier of patented drugs invented in its own labs. University of New Brunswick-educated H. Sivaramakrishnan, who heads chemistry research at NPIL, says the company invested $20 million in the facility but that it is equivalent to a $100 million lab in California.

NPIL was created in 1988 when the Piramal Group acquired Nicholas Labs from the U.S. company Sara Lee. Numerous pharmaceutical acquisitions followed, and NPIL has become a core component of the group, which is controlled and led by the Piramal family.

Besides pharmaceuticals, the Piramal Group is active in real estate, textiles, and glassmaking. G. Ramesh Krishnan, a custom manufacturing business manager at NPIL, says Piramal is one of the largest owners of real estate in Mumbai.

There are three areas in NPIL's operations. Its bread and butter is the sale and manufacturing in India of branded pharmaceuticals. These products range from prescription drugs used in treating cardiovascular disease to Strepsil-brand cough drops. NPIL assembled its product portfolio mostly by acquiring the Indian operations of foreign firms or licensing the Indian rights to their products.

NPIL'S SECOND core business is custom manufacturing and research, an area where its existing or prospective customers tend to be the same foreign firms from which it has bought businesses or licensed product rights. NPIL's third and newest business area is the expensive and risky pursuit of inventing and testing new drugs to be sold under patent throughout the world. NPIL is still years away from a product launch.

For now, the company is best known outside India for its custom manufacturing work, an area where both its capabilities and customer base are rapidly expanding. Krishnan, whose job is to sell NPIL's know-how to multinational companies and then to manage the execution of contracts, says the custom manufacturing business is growing 50% annually. The company is in talks with 10 of the world's 15 largest drug companies, he says.

One of NPIL's main selling points in discussing potential custom manufacturing work, Krishnan says, is that generics are not one of its core businesses. He explains that international pharmaceutical makers are ambivalent about farming out research and manufacturing work to India because the most capable Indian drug companies tend to be major exporters of generics.

And the most successful suppliers of generics have become aggressive in their attempts to introduce their products in the marketplace, often challenging major drug companies in court about the validity of their patents. For example, the large Indian firm Dr. Reddy's Laboratories challenged Pfizer's patents on Norvasc in a U.S. court in 2002. If Dr. Reddy's had won the case, the company would have reaped a windfall profit because it would have had the right, for 180 days, to be the sole U.S. supplier of a generic version of Norvasc. Ranbaxy Laboratories is challenging Pfizer's patent on the statin drug Lipitor in courts in Europe and the U.S.

Despite potentially huge profit opportunities in generics, NPIL prefers to give priority to its custom manufacturing business. "If we were to try to be the first to file or first to market a generic, it would fly in the face of our attempts to be partners with innovators in early-stage discovery," Krishnan says. He adds that NPIL does produce generics, but only after there is no question that their patents have expired.

NPIL has several plants throughout India, all of which were bought from other companies and upgraded afterward. At a site in Indore in central India, NPIL operates a formulation plant that is "as good as anything in Europe," Krishnan claims. He explains that NPIL is hoping that foreign clients will farm out their production of finished formulations as they do active ingredients. In Chennai, in India's southeast, NPIL operates a plant that makes pharmaceutical intermediates.

Near Hyderabad, the company's huge active pharmaceutical ingredient production complex consists of two adjacent plants that it bought as recently as 2003 and upgraded to comply with current Good Manufacturing Practices (cGMP). The multipurpose plants make a wide range of compounds, either for custom manufacturing customers abroad or for the products that NPIL sells in India. Covering 110 acres and featuring 159 reactors, the Hyderabad facilities are equipped with their own power supply, water treatment plants, and the only loop chlorination reactor in India.

In Mumbai, the new R&D lab is staffed with about 240 scientists at present, although it is large enough to accommodate 400. Many of the scientists are ethnic Indians lured from abroad during the past year and who are still a bit dazed about being back in India after years spent overseas. When the lab is fully staffed, about a quarter of the scientists will support NPIL's custom manufacturing and contract research activities, and the rest will work on the company's proprietary drug discovery programs.

AS IN MANUFACTURING, much of the company's R&D capabilities are the result of acquisitions. For example, the lab has a library of 31,700 microorganisms that were mostly acquired when NPIL bought the Indian R&D operations of Hoechst Marion Roussel in 1998. Sivaramakrishnan, the chemistry research head, says NPIL continues to build up its library of natural compounds in the hope of discovering the active ingredients that give Indian medicinal plants their effectiveness.

Besides the many works of art, one of the more exceptional features of the Mumbai lab is an animal house, the permits for which are difficult to obtain in India. The animals are used to conduct pharmacokinetic and toxicology studies. NPIL now has rats, mice, and guinea pigs and hopes to have dogs in the future. For human testing, NPIL has a subsidiary, WellQuest, that conducts trials at the Wellspring Hospital in Mumbai.

NPIL's proprietary drug discovery program is ambitious. R&D strategy head Ramani A. Aiyer, an Indian who spent decades in California, says the company is aiming for five to eight compounds in human trials by 2007. It is studying drugs to treat diabetes, AIDS, and cervical cancer--diseases that have a relatively high incidence in India.

So far, NPIL has only one compound under trial, a molecule it calls P-276 that shows promise in treating cancer. P-276 will soon begin Phase I clinical trials in Canada and Europe rather than in India because government clearance for human trials can be obtained faster abroad.

To comply with its World Trade Organization obligations, India adopted a law late last month that recognizes international pharmaceutical patents. The development is welcomed by NPIL management. Group Chairman Ajay G. Piramal, a member of the Prime Minister's Task Force on Pharmaceuticals & Knowledge-Based Industries, had long lobbied for strong laws to protect drug patents.

Proponents of the new patent regime say it is facilitating the emergence of a thriving pharmaceutical industry in India, one that is attractive to work in. Whereas in previous decades, India's most brilliant scientists left the country to work, companies like NPIL now offer them interesting challenges, modern facilities, and pay packages that are luring them back.

The most visible Indian companies are those like Dr. Reddy's or Ranbaxy, which are financing drug discovery programs from the cash generated by their sales of generics.

Nicholas Piramal is doing things differently, steering clear of generics in the hope that its stance will help drum up custom manufacturing business from the multinationals. Success could breed hardship for NPIL, however. If its custom manufacturing business keeps expanding by 50% a year, it will likely face competition from emulators.