The Economic Times

India's wake-up call in pharma

Another wake-up call for India's pharma industry, which has grown to prominence mainly through imitation, not innovation.

著者：Ashish Singh And Karan Singh

First published on 6月 19, 2006
min read


India's age-old rivalry with China has suddenly turned sharp in a cutting-edge industry—pharmaceuticals. Last month (May 26), global drug maker AstraZeneca unveiled plans to invest $100 million over the next three years in an 'innovation centre' in China. Three other big pharma firms—Wyeth Pharmaceuticals, GlaxoSmithKline and Novartis—have also recently announced new or imminent R&D centres in low-cost, science-focused China. That's another wakeup call for India's pharma industry, which has grown to prominence mainly through imitation, not innovation. Indeed, if China's drug makers can learn to be both low-cost producers of generic drugs and creative developers of new compounds, big trouble looms for Indian pharma firms. India's generics companies are already under pressure to change the way they do business, as the existing generics business model becomes more and more difficult to maintain. Prices and profit levels will come down, as payers look for savings everywhere they can. Big retailers that used to source generics drugs from distributors now strike deals directly with manufacturers, as Wal-Mart has done with Ranbaxy. To keep pace, Indian generics firms need to avoid desperate moves to grow for growth's sake and aim instead to build the minimum efficient scale-growing only as large as they can preserve their efficiency. Hitting that target will be critical, not only to maintain low-cost leadership but also to fund investment in innovation for the next wave of expansion. India is still very much in the race. Wyeth has also teamed with GVK Biosciences and GlaxoSmithKline has partnered with Jubilant Organosys, for expertise in advanced chemistry, process engineering and database management. Pfizer, Eli Lilly and Novo Nordisk are outsourcing clinical trial activities to Indian sites. And, overall, India's 10 largest drug firms are expected to increase their R&D spending from $170 million in 2004 to more than $200 million in 2006. Yet there's no denying that India lags China in total R&D spending—at about 0 .77% of GDP for India last year, compared to 1.3% of GDP in China and 2.7% in the US. And within pharma, industry perceptions cast doubt on whether India is moving fast enough. "Only 17% of global pharma executives believe that innovation is a key asset of Indian drug makers today, according to a recent survey by Bain & Company and Knowledge@Wharton. "For 35 years, Indian companies were doing reverse engineering," observed Ranjit Shahani, vice-chairman and MD of Novartis India Ltd and president of the Organisation of Pharmaceutical Producers of India." "But in terms of drug discovery, nothing happened." Clearly there's ground to make up. Nearly 90% of a survey's respondents—pharma executives from firms based in North America, Europe, Asia and India - believe that China has become a better choice than India for low-cost drug manufacturing. There's good news, as well: six out of 10 survey respondents believe that Indian pharma firms will expand rapidly during the next five years, taking on more risks, building greater product depth, and developing substantially increased scale and deeper expertise. The question is, will they move quickly enough? To build efficient global scale in time, Indian firms can take three important steps. First, they can position themselves as indispensable service providers to global pharmacos along the path that drugs travel from R&D through manufacturing to new life as generics. The discovery and development partnerships being formed between Indian companies and global players are a good foundation, providing the skills and capabilities—and, potentially, the products—that Indian firms will need to become more productive in their own R&D. Indian pharmacos can also begin acquiring small-scale drugs discovered by multinationals but shelved because the market is too small to justify further investment. Novartis has a "mature products" division, Bristol Myers Squibb has "off strategy brands", but they have struggled like all global pharma companies to make the most of these products. Second, Indian firms can focus on innovation geared to their strengths. That is vital, because innovation is critical, but expensive. Bain research shows that it costs global drug companies nearly $1.7 billion to bring a drug to market, and that "blockbuster" drugs are getting harder and harder to develop. While some of those costs will be lower in India, innovation remains costly. To innovate more efficiently and effectively, Indian pharma companies can take a number of steps. They should pick the most attractive therapeutic areas and achieve scale in them. They need to target the right mix of novel and less-novel compounds in development. They need a strong emphasis on outcomes, to zero in quickly on the most effective compounds. And they need to link to marketing early, to ensure that compounds are clinically differentiated. Indeed, this is the R&D model that's evolving among multinationals to manage yields and high innovation costs. Third, Indian pharma companies have an opportunity to profit from Big Pharma's reluctance to invest in developing countries, other than the largest ones in India and China. Indian companies have the skills and the expertise to run those operations more profitably than Big Pharma can, given their history of thriving under tough competition in India. The key here is for Indian companies not to focus largely on large developed markets in the US and Europe, as they have historically done, but to look to developing countries where Big Pharma needs effective commercial partners. The stakes are large, but India's pharma companies have a successful role model near at hand: India's IT industry has started to move up the global value chain, from providing basic, low-cost outsourcing services to higher-value applications and systems development. That's a strategy worth copying. By pursuing focused innovation, forging the right partnerships with multinationals and quickly entering developing-country markets, India's pharma industry could eventually become the innovation model that others emulate. (The authors are with Bain & Company India and leading members of its global pharmaceutical practice)

India's age-old rivalry with China has suddenly turned sharp in a cutting-edge industry—pharmaceuticals. Last month (May 26), global drug maker AstraZeneca unveiled plans to invest $100 million over the next three years in an 'innovation centre' in China.

Three other big pharma firms—Wyeth Pharmaceuticals, GlaxoSmithKline and Novartis—have also recently announced new or imminent R&D centres in low-cost, science-focused China.

That's another wakeup call for India's pharma industry, which has grown to prominence mainly through imitation, not innovation. Indeed, if China's drug makers can learn to be both low-cost producers of generic drugs and creative developers of new compounds, big trouble looms for Indian pharma firms.

India's generics companies are already under pressure to change the way they do business, as the existing generics business model becomes more and more difficult to maintain.

Prices and profit levels will come down, as payers look for savings everywhere they can. Big retailers that used to source generics drugs from distributors now strike deals directly with manufacturers, as Wal-Mart has done with Ranbaxy.

To keep pace, Indian generics firms need to avoid desperate moves to grow for growth's sake and aim instead to build the minimum efficient scale-growing only as large as they can preserve their efficiency. Hitting that target will be critical, not only to maintain low-cost leadership but also to fund investment in innovation for the next wave of expansion.

India is still very much in the race. Wyeth has also teamed with GVK Biosciences and GlaxoSmithKline has partnered with Jubilant Organosys, for expertise in advanced chemistry, process engineering and database management. Pfizer, Eli Lilly and Novo Nordisk are outsourcing clinical trial activities to Indian sites.

And, overall, India's 10 largest drug firms are expected to increase their R&D spending from $170 million in 2004 to more than $200 million in 2006. Yet there's no denying that India lags China in total R&D spending—at about 0 .77% of GDP for India last year, compared to 1.3% of GDP in China and 2.7% in the US. And within pharma, industry perceptions cast doubt on whether India is moving fast enough.

"Only 17% of global pharma executives believe that innovation is a key asset of Indian drug makers today, according to a recent survey by Bain & Company and Knowledge@Wharton. "For 35 years, Indian companies were doing reverse engineering," observed Ranjit Shahani, vice-chairman and MD of Novartis India Ltd and president of the Organisation of Pharmaceutical Producers of India."

"But in terms of drug discovery, nothing happened." Clearly there's ground to make up. Nearly 90% of a survey's respondents—pharma executives from firms based in North America, Europe, Asia and India - believe that China has become a better choice than India for low-cost drug manufacturing.

There's good news, as well: six out of 10 survey respondents believe that Indian pharma firms will expand rapidly during the next five years, taking on more risks, building greater product depth, and developing substantially increased scale and deeper expertise. The question is, will they move quickly enough? To build efficient global scale in time, Indian firms can take three important steps.

First, they can position themselves as indispensable service providers to global pharmacos along the path that drugs travel from R&D through manufacturing to new life as generics.

The discovery and development partnerships being formed between Indian companies and global players are a good foundation, providing the skills and capabilities—and, potentially, the products—that Indian firms will need to become more productive in their own R&D.

Indian pharmacos can also begin acquiring small-scale drugs discovered by multinationals but shelved because the market is too small to justify further investment. Novartis has a "mature products" division, Bristol Myers Squibb has "off strategy brands", but they have struggled like all global pharma companies to make the most of these products.

Second, Indian firms can focus on innovation geared to their strengths. That is vital, because innovation is critical, but expensive. Bain research shows that it costs global drug companies nearly $1.7 billion to bring a drug to market, and that "blockbuster" drugs are getting harder and harder to develop. While some of those costs will be lower in India, innovation remains costly.

To innovate more efficiently and effectively, Indian pharma companies can take a number of steps. They should pick the most attractive therapeutic areas and achieve scale in them. They need to target the right mix of novel and less-novel compounds in development.

They need a strong emphasis on outcomes, to zero in quickly on the most effective compounds. And they need to link to marketing early, to ensure that compounds are clinically differentiated. Indeed, this is the R&D model that's evolving among multinationals to manage yields and high innovation costs.

Third, Indian pharma companies have an opportunity to profit from Big Pharma's reluctance to invest in developing countries, other than the largest ones in India and China. Indian companies have the skills and the expertise to run those operations more profitably than Big Pharma can, given their history of thriving under tough competition in India.

The key here is for Indian companies not to focus largely on large developed markets in the US and Europe, as they have historically done, but to look to developing countries where Big Pharma needs effective commercial partners.

The stakes are large, but India's pharma companies have a successful role model near at hand: India's IT industry has started to move up the global value chain, from providing basic, low-cost outsourcing services to higher-value applications and systems development.

That's a strategy worth copying. By pursuing focused innovation, forging the right partnerships with multinationals and quickly entering developing-country markets, India's pharma industry could eventually become the innovation model that others emulate.

(The authors are with Bain & Company India and leading members of its global pharmaceutical practice)