The great Indian pharma challenge

DEBATE

Has the Ranbaxy-Daiichi agreement raised the spectre of more such deals? Or was it just driven by cold business rationale?.

SATISH REDDY,
MD and COO, Dr Reddy's Laboratories

Acquisitions or alliances between large Indian companies are difficult as there are too many overlapping business segments

Much has been ascribed to the Ranbaxy-Daiichi deal. People are talking about it as if similar deals are the only way out for the Indian pharmaceutical industry. It is not so. The Ranbaxy-Daiichi deal is an interesting model, and it suits Ranbaxy. But I doubt if others will also be driven by the same motives. We need to see the deal from a larger (global) perspective.

Consolidation in the global generic industry is happening, and we find bigger players like Mylan and Teva making acquisitions. But that does not mean that tier-II companies, like Dr Reddy's and Ranbaxy, have no future. We still have space for growth. There are newer markets and there are more number of medicines going off-patent. The Indian model has not failed.

However, one needs to understand that growth, beyond a limit, can come only from innovation and discovery of new molecules. New product development will not be easy in the initial stages. One has to go through the low-cost base generic business and then go up the value chain. Dr Reddy's intends to tread that path. You can have several models to pursue this goal.

A huge number of research alliances and out-licensing models are possible. The Ranbaxy-Daiichi model need not be the only one. If you look at the global pharmaceutical industry, both big pharma (research-oriented innovative drug companies) companies and generic drug makers are going through a consolidation phase.

With an increasing number of drugs going off-patent, fewer new drug introductions and growing product-safety issues, the pharma industry is going through a tough patch.

The US market is not looking as lucrative as it used to a few years back, with some level of commoditisation occurring in the generic segment. The lucrative potential of Para IV challenges (where a generic company questions the validity of a drug patent) is also on the wane with the entry of authorised generics. Companies are increasingly looking at innovative ways to settle litigations in order to improve certainty of a launch.

The Ranbaxy-Daiichi deal is also one such move "" a hybrid model where strengths of both companies are bringing in lot of synergies. Daiichi will leverage on the generics strength and global presence of Ranbaxy, while Ranbaxy will benefit from the research strengths of the Japanese company. This displays the intention of big pharma companies to make a foray in to the generic market.

The consolidation of domestic pharmaceutical market is certain. However, acquisitions or alliances between large Indian companies are difficult as there are too many overlapping business segments; not much value is created.

Thus, alliances with foreign companies for complementary strengths, will be a better option. Dr Reddy's as a company will be looking at collaborations, but not any involving stake sale by the promoter family.

This may not be the case with smaller players, and there could be acquisitions in future. Such situations should be seen independently and not considered a general trend.

I would consider the Ranbaxy-Daiichi deal a good one "" it makes business sense. It is good for the company. Business decisions are not emotion-driven.

(As told to Joe C Mathew)

RANJIT SHAHANI,
Vice-chairman and MD, Novartis India Limited

The pharma industry will see a period of consolidation, not just between national and global companies but between national companies themselves

Indian generic companies had begun to make footprints in the international markets, including acquisitions of reasonable-sized generic companies, over the last few years. Therefore, the acquisition of Ranbaxy, the largest Indian pharmaceutical company, by Daiichi-Sankyo not only came as a surprise to most people, but it also augurs as a landscape-transforming deal with a significant impact on the rest of the generic industry in India. At the emotive end, the sell-off by the leading Indian Pharma MNC raised the spectre of more such deals. On the other hand, it was cold business rationale that brought the two together "" patent expiry of blockbusters in developed countries and large volumes in emerging markets. This complementary business combination dramatically enhances global reach, in addition to leveraging an effective value chain from compound synthesis to optimised global sales and marketing, creating a win-win situation for both partners. The deal is significant also as the only other large innovator company to pursue a twin strategy of having a patented products arm and a generics products arm is Novartis. Whether this is a harbinger of things to come in the pharmaceutical industry in general, only time will tell.

The growth of the Indian pharmaceutical industry post 1970 was the result of the process patent regime where there was no product patent protection; this led to a strong capability to reverse engineer medicines. With the advent of patent protection in the country, it has become imperative for the Indian pharmaceutical industry to look at its business model anew if it wants to not just survive in a changed environment but also if it wants to grow both profitably and sustainably.

Indian pharmaceutical companies are on the cusp of a great opportunity "" the opportunity to make a positive change in global health by creating novel medicines. In some cases, this will call for a sale of stake. In others, it will call for increased partnership and collaboration with research-based global MNCs. One thing is imminent: We will see a new wave of globalisation. The Indian pharmaceutical industry will see a period of consolidation, not just between national and global companies but between national companies themselves. This is likely to propel the Indian pharma industry into the major league given the market opportunities not only for the $100-billion products going off-patent by 2015, but also collaborative research alliances to bring down cost of R&D.

When product patents were introduced in India in 2005, the country took the first big step towards becoming the country of choice for research and development as well as for clinical trials. These areas present huge opportunities for both global and national pharmaceutical companies out to make a mark for themselves. Of course, these opportunities will not be realised until the patent law is amended in line with internationally-accepted practice and till data protection becomes a reality. Available data shows that pharmaceutical companies spend up to $1.7 billion on researching, developing and testing to create a single drug. As a global pandemic becomes a reality and preventable diseases continue to take lives, the challenge will be to work towards shortening the amount of time it takes to bring a product to the market. The large scientific talent pool along with the rich genetic pool available to facilitate clinical trials can provide valuable inputs for both ends of the spectrum. India is tipped to play a pivotal role in the global pharmaceutical industry, both as being a provider of authorised generic drugs as well as being a seat of pharmaceutical research. The Ranbaxy-Daiichi deal is a bellwether deal that has well set the stage for the future of things to come in the global pharmaceutical space.