India Emerges in Drug Services

Just a few years ago, managers of Indian pharmaceutical firms were people with some time to spare. Arranging a meeting, even on short notice, was an easy thing to do. At trade shows, even casual visitors to Indian company booths were treated like long-lost relatives.

In early December at the CPhI pharmaceutical ingredients trade show in Brussels, the booths of Indian companies were among the most popular. Indians remain gracious hosts, but with their business booming, Indian executives need to spend a lot more of their time with existing or likely customers.

"We're gaining more customers," says Pranay Godha, vice president of generics at Mumbai-based Ipca Laboratories. "Recently, our manufacturing facilities have been audited every 45 days, on average, either by customers or foreign regulators." Buyers of bulk drugs typically inspect their suppliers before making an order. Ipca is one of the world's top producers of the b-blocker atenolol and the antimalarial chloroquine phosphate, Godha says.

This year is an important one for India's pharmaceutical industry. Starting in 2005, as part of its admission to the World Trade Organization, India will recognize patents on drugs discovered abroad. The Indian drug industry, which employs about 500,000 people, has become a major producer of pharmaceuticals partly because its companies have simply reverse-engineered drugs invented in other countries.

But having to play by global rules is not leading to a crisis for India's drugmakers. "Big pharmaceutical companies want to focus on product development and marketing, whereas we want to focus on manufacturing and process development," says R. Ananthanarayanan, president of NPIL Pharma. "It's very complementary." NPIL Pharma is the custom manufacturing subsidiary of Nicholas Piramal India Ltd., one of India's largest pharmaceutical groups.

Reassured by India's increased respect for intellectual property, major pharmaceutical companies from advanced countries, as well as small biotech firms, are purchasing more products and services from India and even boosting their operations there. Indian companies are taking advantage of the new environment by enlarging the range of services that they offer, increasing their production capacity, hiring international executives, and even planning to turn themselves into international players selling pharmaceuticals invented by their own scientists.

THE GLOBAL APPEAL of Indian pharmaceutical companies shows in their financial results. Ranbaxy, India's largest homegrown pharmaceutical firm, achieved sales growth of 21% in 2004. The company derives about two-thirds of its sales from abroad. Foreign sales of Dr. Reddy's, another leading firm, are growing at 25% annually and account for nearly 70% of the company's total. At Wockhardt, another major player, international sales more than doubled in 2004 and account for more than 60% of the total.

These leading companies are confident about the future. Dr. Reddy's says that by 2009, it will be able to start global sales of patent-protected drugs discovered in its labs. Ranbaxy, whose mission is "to become a research-based international pharmaceutical company," plans to increase its annual sales to $5 billion by 2012, from about $1.2 billion in the latest fiscal year. Already starting to look and act like a multinational corporation, Ranbaxy appointed a non-Indian as its chief executive officer and managing director at the end of 2003. Brian W. Tempest is a British national with prior experience at GlaxoSmithKline. He headed Ranbaxy's European and African operations before rising to the top.

Harry Zafran, chairman of D&O Pharmachem, a U.S.-based manager of custom manufacturing and research projects carried out in India and China, says that even though the top Indian drug companies now derive most of their income from abroad, in India they are full-fledged pharmaceutical companies with proprietary marketing channels for distributing their own branded formulations. "Why couldn't they apply their experience in India to the U.S. market?" he asks rhetorically.

A constant source of surprise in India's blossoming pharmaceutical industry is the sudden emergence of previously unknown companies as substantial global suppliers of pharmaceutical products and services. One such example is Hikal.

Hikal, traditionally an agrochemical producer, diversified into the drug industry in 2001 by acquiring a pharmaceutical ingredient plant in Bangalore, in southern India. According to D. Ravi, vice president of pharmaceutical manufacturing, Hikal completely overhauled the facility, implemented current Good Manufacturing Practice (cGMP) standards, and obtained U.S. Food & Drug Administration approval last year.

Hikal's revamped Bangalore facility has little need to envy plants in developed countries. "It's an absolutely world-class facility," says Helmut Rupp, chief technology officer at the German fine chemicals maker AllessaChemie. Hikal is rapidly making itself known internationally. Last September, it acquired a 50.1% stake in Marsing & Co., a Danish drug ingredient distributor with $60 million in annual sales. "The acquisition will speed up our acquisition of new customers," Ravi says.

Although pharmaceutical ingredient producers such as Hikal are growing rapidly, the downstream Indian finished drug industry remains a relatively minor global player. According to a recent report prepared by Cygnus Business Consulting & Research for the Indian Bulk Drug Manufacturers Association, India accounts for only 1.8% of global pharmaceutical sales, even though India produces 8% by volume of global drug output. The report says India's bulk drug industry is highly fragmented, with 15,000 plants nationwide.

Shailesh Gadre, managing director of ORG IMS Research, a Mumbai-based affiliate of the consulting firm IMS Health, says the companies making up India's pharmaceutical industry can be grouped in three tiers. The top tier, with no more than 20 firms, consists of big players that are relatively well known abroad. These companies are highly sophisticated in terms of their manufacturing facilities, R&D capabilities, and understanding of foreign markets.

In the second tier are a few hundred companies that are very good at what they do and that serve foreign customers but with a narrower range of capabilities. These companies typically aspire to move into the top tier. In the lower tier are thousands of firms trying to replicate the success of the top two tiers but that have next to no international exposure.

D&O's Zafran says fundamental forces will propel India forward in the long term. One trend, Zafran says, is the dismantling of chemistry programs in advanced countries. In England, the Universities of Exeter and Newcastle are both planning to close their chemistry departments (C&EN, Dec. 6, 2004, page 5). And the main reason for the closure, he maintains, is that "the jobs are in India." Zafran adds that Ph.D. scientists in India enjoy a higher standard of living than their U.S. counterparts even if their salaries are roughly 20% of what they are in the U.S.

Indian companies, Zafran continues, have been inaccurately portrayed in a negative light for too long. He says their reputation for playing fast and loose with customers' intellectual property is a complete myth. "At D&O, there has never been a case of IP leakage," he claims.

Most of India's fast-rising drug and drug ingredient firms have no ambition to become major pharmaceutical players. Business models vary, but a typical one is to become established as a reliable supplier of bulk active pharmaceutical ingredients (APIs) to foreign companies and then to move into activities such as custom manufacturing or contract research where profitability is higher.

Making its name in bulk actives, for example, is Hyderabad-based Aurobindo. M. Kishan Mohan, manager of international marketing, says the company is India's largest exporter of APIs. Sales are growing fast, from $200 million in 2000 to about $360 million in the fiscal year that ended on March 31, 2004. Mohan says Aurobindo focuses on complex APIs, relying on a stable of 400 R&D scientists to develop the most cost-efficient manufacturing route. In addition, he says, Aurobindo makes some of its own raw materials in China, where costs can be lower than in India.

Aurobindo hopes to become an innovator. Within three to four years, it expects to launch drugs invented and tested in its own labs. The company will test the new drugs in two hospitals that it has established for the purpose of conducting clinical trials on patients.

NEW MARKETS
Clinical Trials: The Next Big Thing?

A handful of Indian companies are betting that the country could become a favorite location for testing new drugs on human patients prior to their global launch. In expectation of this development, these companies are building or acquiring hospitals where Indian patients will be administered experimental drugs.

Venkat Jasti, managing director of Hyderabad-based Suven Life Sciences, says clinical trials are a natural extension of India's growing role in the drug discovery process. "As India increasingly becomes a generator of new intellectual property, more business will move to India, especially in the preclinical and clinical area," he says.

To be effective, clinical trials need to be conducted on patients who have not been previously treated by other drugs. Such patients are becoming rare in the U.S. and other Western countries, Jasti says. By contrast, India has an abundance of people who have never been treated for their ailments. Another factor playing in India's favor is that the cost of conducting clinical trials there is much lower than in the U.S. or Europe.

Until recently, Indian laws did not support the development of clinical trial services. The Indian government did not guarantee that it would not share with other companies the clinical trial data it received through the drug approval process. Even now, although India has agreed to comply with international patent laws starting this year, it has yet to clarify its stance on data exclusivity.

The global pharmaceutical industry has been lobbying the Indian government for years to protect clinical trial data, and many observers expect the government will do so. The drug companies pay for the expensive research that yields the data and do not want to freely share the results.

Clinical trials are split into four phases. Phase I requires fewer than 100 volunteers to determine dosing and identify unwanted side effects. Phase II, conducted on 100 to 300 patients, aims to further establish the efficacy of the tested compound. Phase III is similar to Phase II, but it is conducted on a larger sample of up to 3,000 patients. Phase IV consists of follow-up activities after market introduction.

S. Ananthanarayanan, president of NPIL Pharma, says that for now, Phase I clinical trials cannot be conducted in India on behalf of foreign companies. But Phase II and III trials can be conducted in India as part of a global study. Sensing an emerging opportunity, NPIL's parent company, the Nicholas Piramal group, launched Wellquest in 2000 to provide clinical trial services on a contract basis. Wellquest occupies four floors at the Wellspring Hospital in Mumbai, where it has 60 beds and an intensive care unit.

Foreign companies are also becoming active in this area. Pfizer started to conduct trials in India several years ago. Kendle, a U.S. company performing clinical trials on behalf of drug companies, said earlier this month that it was starting an operation in New Delhi.

Shailesh Gadre, managing director of the consulting firm ORG IMS Research in Mumbai, says India has an abundance of physicians, investigators, and support staff to conduct the trials. But foreign companies will need time to adjust to the idea of conducting their clinical trials in the country. The Indian government will also need to establish its credentials in protecting the data that companies share with it.

HEADQUARTERED IN Mumbai, the Nicholas Piramal group is growing exceptionally fast. Its sales have grown from $3.5 million in the first year of operation 16 years ago to $350 million today, NPIL Pharma's Ananthanarayanan says. The main thrust of his unit is to become the custom manufacturer of choice to major international pharmaceutical companies. "We can supply any quantity, from kilograms to multitons," Ananthanarayanan says.

To establish its credibility, Nicholas Piramal has avoided competing with its customers. "We have never reverse-engineered a patented product, even when doing so was allowed in India," Ananthanarayanan says. Within India, its business has mostly grown by the acquisition of Indian subsidiaries of foreign drug companies such as Roche, Rhône-Poulenc, and Hoechst. Through the acquisition of established foreign brands, Nicholas Piramal has become one of the top producers of branded formulations within India.

Outside India, Nicholas Piramal hopes that it will be able to team up with foreign companies in discovering new drugs. The company just opened a 350,000-sq-ft research lab in Mumbai equipped with an animal house for toxicology studies. The facility is large enough for 400 scientists, 260 of whom are already there.

Ipca Laboratories expects that India's growing reputation as a supplier of APIs will carry over into finished dosage formulations. "We want to be known as the most cost-efficient manufacturer of formulations," Godha says. He adds that most of its 150 people in R&D focus on developing cost-efficient engineering processes. Rather than making everything itself, Ipca often buys its ingredients from other Indian manufacturers, Godha says.

Venkat Jasti, managing director of Hyderabad-based contract research firm Suven Life Sciences, says the trend of outsourcing pharmaceutical research to India will, if anything, accelerate. Including preclinical and clinical trials, he says there is a $60 billion global market for outsourced pharmaceutical research, of which India now has less than $200 million. Suven now employs more than 150 scientists, nearly four times the number it had two years ago.

Although India's change in patent regime is leading to a transformation in its pharmaceutical industry, the changes are not universally welcomed. Y. K. Hamied, chairman and managing director of India's second largest homegrown pharmaceutical company, Cipla, continues to claim that recognizing product patents is unethical. The practice makes drugs too expensive for poor people, he asserts.

Perhaps because many Indians can't afford modern drugs, the Indian pharmaceutical market does remain tiny by international standards. According to a joint survey by management consultants KPMG and the Chemtech Foundation, per capita drug consumption expenses in India are less than one-hundreth those in Japan, the world's highest per capita consumer. But if the multinationals continue to consume the country's products and services, its pharmaceutical companies won't remain tiny for long.