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Nath Balakrishnan

THE last decade has seen a significant scaling up in the competitive abilities of the domestic pharma industry. Some of the frontline Indian majors such as Ranbaxy, Dr. Reddy's Laboratories and Cipla have gradually acquired a reputation of companies that can stare giant MNC companies in the eye.

The ability to take on multinationals in their own backyard is not an across-the-board phenomenon, yet. But that a few Indian companies get to be spoken of in the same breath as some of their more distinguished global peers is indeed emblematic of their efforts to get rid of the `copy cat' tag. Neither has the success that Indian companies have met with in the highly regulated pharma markets such as the US come about overnight. Consequent to India becoming a signatory to the WTO agreement on trade-related aspects of intellectual property rights, the country has to start respecting product patents from January 1, 2005.

Unlike the process patent regime, which enabled copies of a patented drug to be made as long as the process used is non-infringing, the new regime would place the prospects of companies that thrive on making lower-cost imitations in jeopardy.

This is now a threat that may strike only a few years later as MNCs may take time to warm up to the new environment in India; for instance, in spite of the patent laws granting exclusive marketing rights for a period of five years, in case a patent application in approved during the transitionary period, MNCs have not been in a tearing hurry to launch in India either (the only EMR has to date has been awarded to Novartis).

Companies such as Dr Reddy's and Ranbaxy realised that the best route to circumvent the impediment that would be imposed by the new regime is to look at the export markets. Initially, developing and less developed countries were the target of their export efforts. The success of the domestic pharma export story is borne out by the numbers: in FY94, exports of bulk drugs and formulations have risen six fold over the past decade to touch Rs 12,000 crore in FY03, representing a compounded annual growth rate of 23 per cent. And the lucrative US market corners a sizeable chunk of the exports, accounting for a sixth of exports.

This number is likely to rise considerably, as a clutch of Indian companies target the burgeoning market for off-patent drugs (called generics) in the US market. Over the next few years, drugs worth $35 billion are expected to lose patent protection in the US.

Consolidation at the global level over the past decade saw the coming together of Glaxo with Burroughs Wellcome first and then with SmithKline Beecham, Pfizer with Warner Lambert, and subsequently Pharmacia, Ciba Geigy and Sandoz (leading to the formation of Novartis), and Hoechst and Rhone-Poulenc (which led to the creation of Aventis). The Indian outfits of these MNCs also went through restructuring to reflect the changes at the global level.

Indian companies, too, went about acquiring domestic companies to capitalise on either a strong product line or to improve scale economies. Ranbaxy's acquisition of Croslands, Wockhardt's take over of Merind, and Nicholas Piramal's take over of Boehringer Mannhein's Indian arm, Sumitra Pharma and ICI's pharmaceutical arm were on a consolidation mode. Now, as Indian outfits target more lucrative developed markets of Europe and the US, cross-border acquisitions appear to have become the order of the day. Ranbaxy and Wockhardt have already taken the lead with acquisitions in France and the UK, respectively.

As the pharma market globally throws up opportunities of varying nature, Indian companies have also positioned themselves differently to capitalise on such opportunities. For instance, Dr Reddy's follows a strategy that is typically high-risk, high-return, as it attempts to challenge existing patents held by MNCs in the US; Ranbaxy, on the other hand, has built up a pipeline of generic launches aimed at the US market.

The last decade has seen the pharma industry move into a better state of preparedness, be it in seeking better opportunities in overseas markets or in terms of understanding the imperatives of innovation. The decade ahead, though, could well be its defining one.

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