Pharma firms shift foreign units output home

After making big-ticket acquisitions abroad, leading Indian pharmaceutical companies like Dr Reddy's Laboratories, Ranbaxy Laboratories, and Aurobindo Pharma are rapidly shifting production to their Indian facilities.

Dr Reddy's, for instance, will soon feed the entire product pipeline of Betapharm, the fourth-largest generic (off patent) drug company in Germany that it acquired last year for $572 million, from India.

The company hopes to get regulatory approvals to source all of the company's 20 products from India within a year.

"The contract with the German suppliers to Betapharm will be cancelled as soon as we get the approvals," Dr Reddy's Managing Director and COO Satish Reddy said.

As in other markets, prices of generic medicines have eroded sharply in Germany due to greater competition, as also government intervention to slash the prices of generic drugs for institutional procurement.

Analysts say Betapharm could save at least 15-20 per cent by sourcing products from India. Indian companies, which enjoy around a 22 per cent share in the $65 billion global generic drug market, can improve the bottom line of their overseas subsidiaries by over 10 per cent by relocating production to India, they added.

Ranbaxy, which acquired Romanian company Terapia for $324 million in 2006, has a slightly different strategy. It has made Terapia the hub of its European operations and is manufacturing medicines in the EU approved facilities in Romania by using raw materials or bulk drugs sourced from India.

"Going forward 'Terapia Ranbaxy' will become the strategic hub of the company's operations in the EU and CIS markets and we see significant operational efficiencies to be derived in the future. Recently, we made additional investments in the critical areas of manufacturing and R&D, which reinforces our commitment to this region," said Ramesh Adige, executive director, Ranbaxy.

Aurobindo Pharma, which acquired Milpharm Limited "" a UK-based generic formulation pharmaceutical company "" for an undisclosed amount in 2006, also plans to use its overseas subsidiary as a marketing base.

Similarly, Dabur Pharma is leveraging its overseas acquisition, Bioscience in Thailand, as its marketing arm to supply cancer medicines produced by Dabur in India.

Aurobindo Managing Director Ramaprasad Reddy indicated that his company has sufficient manufacturing capacity in India to cater to its marketing arms abroad.

In other words, Aurobindo's future acquisitions will be based on the marketing skills of a company and not its manufacturing capacity.

With the country acknowledging only process patents and no product patents till January 1, 2005, Indian companies developed strong skills in process chemistry, or the capacity to re-engineer a product through a different process.

As a result, there are over 100 generic drug facilities in the country approved by the United States Food and Drug Administration (FDA).

This gives Indian pharmaceutical companies a distinct edge over their global generic competitors.

US FDA standards being among the world's toughest, Indian manufacturing facilities with USFDA approvals find it easy to negotiate approvals with drug regulators of European countries.