The Hindu Business Line : From IT Inc to Pharma Inc

Over the next decade, the Indian pharma industry could grow five-fold to touch $35 billion. More important, it has to merge with the global industry at all points of the value chain — A. Roy Chowdhury.

IF THE 1990s belonged to information technology , the 21st century belongs to the pharmaceutical industry that is accelerating India's knowledge revolution.

Until recently, India was seen as a country which excelled in process chemistry that re-engineered the drugs developed by the advanced world into branded generics for use in India and other emerging markets. India's patent regulations, which recognised process patents but not product patents, not only helped the Indian pharmaceutical industry be technologically independent but also helped it build skills in cost-competitive manufacture.

As India enters the product patent regime, the industry is becoming more confident of its capability to develop its own original molecules. Even the western world is beginning to admire the way the Indian pharma industry can reduce healthcare costs in the advanced markets.

The potential global scene

The Indian pharma industry stands at $7 billion, with the domestic market making up $4.5 billion and exports totalling to $2.5 billion. Over the next decade, the industry could grow five-fold to touch $35 billion. More important, the Indian pharmaceutical industry has the potential to merge with the global industry at all points of the value chain ranging from raw materials, intermediates and active pharmaceutical ingredients at one end to the generic and outsourced formulations and drug discovery and development at the other end.

The industry is also likely to synergise its capabilities in the fields of IT, biology, medicine and pharmaceutical sciences to provide a host of services ranging from bio-informatics, bio-pharmaceuticals, clinical studies and IT-based services. With 80 per cent of global retail sales estimated at $466 billion, concentrated in the developed markets of the US, the EU and Japan, there is ample opportunity for the Indian pharma industry.

Structural preparedness

Any growth in the global arena has to be supported by structural strategy that enables competitiveness at three levels, national, the industry and the company level. A climate conducive to innovation is what is needed at the national level. If Indian pharma has to be globally competitive, a model of life-sciences education that replicates the highly successful IIT and IIM models has to be established.

The pharmaceutical educational scene is marked by a host of colleges that are inadequately equipped. The challenge is one of stipulating minimal standards of laboratory infrastructure and teaching and research capabilities and establishing apex institutions in each State. In order to upgrade private enterprise in life sciences education, leading pharmaceutical companies need to set up or participate in pharmaceutical education. This would also improve the pool of resources

and enable industry-institute collaboration in pharmaceutical research. Tax-breaks for investments in pharmaceutical education could help kick-start this process.

Dedicated investments by a Centre-State collaborative grant model would encourage government participation in higher pharmaceutical education.

Collaboration with leading global life-science institutes in the US, Europe and Japan would further encourage world-class educational teaching and research. The government should upgrade the drug regulatory infrastructure and patent office infrastructure in India to ensure that intellectual innovation and protection, product development and manufacture and quality and compliance in India are maintained at global standards.

Industry initiatives

The Indian pharmaceutical industry as it stands today is hardly a prototype of sustainable global competitiveness. While the makings of a possible re-organisation are faintly visible with a few firms seeking to become end-to-end integrated majors and a few others attempting to become specialist niche players, the pace of transformation is too slow to prepare the industry for a visible impact on the global scene.

The determinants of success in the pharmaceutical industry are rooted in product discrimination (ability to have dedicated facilities for product development and manufacture), environmental integrity (ability to maintain environmental class and aseptic conditions) and regulatory compliance (ability to run product development and manufacture as per a set of stringent standard operating procedures). These entail a need to commit investments and develop skills that are practice-specific rather than volume or profit driven. The Indian pharmaceutical industry, accordingly, needs to organise itself into three distinct layers. The apex level would comprise a few global, end-product manufacturers which are diversified and integrated players with competencies across the spectrum of bulk drugs, formulations and drug discovery.

The second, senior level would include several global manufacturers that are specialists in bulk drugs, formulations or drug discovery. The foundation level would comprise several national manufacturers which provide basic materials, intermediates or services.

Corporate initiatives

Strategies of individual corporates in the context of global opportunity ought to develop sustainable competitive advantage for the Indian pharma industry.

The more differentiated the strategies of the corporates are, the more sustainable would be their competitive advantage, individually as corporates, collectively as industry and nationally as India, Inc.

The current trend appears to be an undifferentiated pursuit of a singular strategy of participating in the global generics space, without seeking to differentially leverage diverse industry level comparative advantages or firm level competitive advantages that are feasible. Life-sciences is an ever-growing, intellectually challenging field with multiple evolving disciplines constantly re-shaping products and services. A review of the growth and profitability of leading companies and leading industries on a global scale shows that Corporates which pursue differentiated business models that are technology-based innovationand characterised by flawless execution often achieve leading positions. Indian pharmaceutical corporations, perhaps, need to take a step back and re-strategise for differentiated growth.

The Indian pharmaceutical industry is at the cusp of dominating the global industrial space. If the government, industry and individual companies act in concert to usher in reforms that strengthen knowledge and compliance, reshape industrial structure and enable differentiated corporate strategies, India will be positioned to emerge as the Pharma Inc of the globe, blazing an archetypal odyssey in competitive transformation.

(The author is Deputy Managing Director, Orchid Chemicals & Pharmaceuticals Ltd, Chennai. The views are personal.)

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