India is currently among the top five global manufacturers of active pharma ingredients (APIs). The production of APIs continues to swell with an increasing number of international companies making a beeline to India to meet their supply needs.
The massive and unfolding US generics opportunity is one avenue, which is going to make India as a global sourcing hub for APIs. In recent years small and mid-sized pharmaceutical companies have established their reputation as quality suppliers of active pharmaceutical ingredients (APIs) and intermediates for international and domestic markets. Some of these companies have moved up the value chain to offer high-value custom synthesis and contract manufacturing services for patented molecules.
The pharma companies, involved in development of generics, are expected to get a big push with rising costs of drugs in the US markets. With Indian drug companies actively setting up bases for the manufacture of active pharmaceutical ingredients (APIs), most of the overseas generic companies are looking towards outsourcing from India.
Indian active pharmaceutical ingredient suppliers are striving to become global players. Expansion strategies have included having their plants inspected by the US Food and Drug Administration, and by alliances with, and acquisitions of, US and European players in this market.
Indian companies are presently a close 2nd to the US in terms of DMF (Drug Master Files) filings with the US FDA. Also there are over 70 US FDA approved manufacturing facilities in India, which makes India the country with the largest such plants outside the US. Today, any generics pharmaceuticals manufacturer with a coherent strategy anywhere in the world has to contend with the threat, or indeed the opportunity offered by Indian manufacturers.
Although the API industry in China is continuing to develop rapidly, it still lags behind its Indian counterpart. Today, China continues to be mostly a supplier of older, off-patent molecules, while Indian API manufacturers often focus on newer, still-patented molecules. As a result of the introduction of product patents in India in January 2005, we may, however, see increased interest in older molecules by Indian API manufacturers, though the full impact of this change is difficult to determine at this point of time.
In fact Indian manufacturers too have taken up the challenge and are actively seeking to expand overseas. Indian companies' investments abroad is, in fact, much higher as a proportion of GDP or of FDI (Foreign Direct Investment) into its economy, as compared to China.
Although people in the US are moving towards low-cost drugs, India with its strength in cost effective APIs, can still take off in a big way.
Indian pharma companies are going for alternative business models to draw on competition and opportunity. They have shifted from business-driven research to research-driven business. So much so, in fact, that Indian pharma companies topped drug filings with the US Food and Drug Administration (FDA), having filed a total of 126 Drug Master Files, accounting for 20% of all drugs coming into the US market, higher than Spain, Italy, Israel and China. Of the 108 abbreviated new drug applications pending approval from the FDA in February, as many as 52 were patent challenges, and nearly half of these were for first-to-file (180 day market exclusivity) applications.
As the companies are focusing on accelerating productivity, collaboration is the way forward for several US and European companies faced with a resource crunch. With its abundant high quality/low cost technical manpower, India is emerging as a partner of choice.
The emergence of Indian pharma giants, taking an active place in global R&D fields, has also helped. Indian companies have developed manufacturing processes for eight of the world's top 10 blockbuster drugs.
Though embattled in several patent disputes with innovator companies, the Indian firms are giving a great challenge to the innovators. In the case of latanoprost, Pfizer's glaucoma treatment Xalatan, the District Court of New Jersey found in July 2004 that Par's ANDA infringed the innovator's patents. In the olanzapine (Eli Lilly's anti-psychotic Zyprexa) case, a U.S. district judge decided in April 2005 that Ivax, Dr. Reddy's Laboratories and Teva failed to prove that Eli Lilly's patent should be struck down.
At the same time, Indian companies are embarking intelligently on number of strategic overseas acquisitions. Many such acquisitions took place in the recent past. Ranbaxy's acquisition of RPG Aventis' France business; Wockhardt's acquisition of CP Pharmaceuticals in the UK; and Zydus Cadila's acquisition of Alpharma in France - all of which have catapulted these Indian companies into the global league.
Inbound investments by MNCs
There was a lot of inbound investment as well. Multinationals like Roche, Bayer, Aventis and Chiron have made India as their regional hub for advanced pharmaceutical ingredients and bulk supplies. Clinical research outsourcing is seeing fast growth too. Pfizer doubled its R&D spending in India to around $13 million.
Others such as Novartis, AstraZeneca, Eli Lilly and GlaxoSmithKline have also committed to making India a global hub for their clinical research activities. Less high profile but more significant may be the new companies to do contract R&D for global ones. Divi's Labs, Vimta Labs and Matrix Labs are some new stars in this firmament.
R&D is no longer confined to the government or big companies. It is sprouting everywhere. For example, patent applications in India have shot up from 4,000 in 1995 to almost 15,000 last year. As per estimates, Indian filings for US patents rose above 1,750, up from 185 in 1997.
Indian advantages
1) Reverse engineering skills
2) Proven expertise in process development, synthesis
3) API and formulation development
4) Inherent cost advantage
5) The chemistry expertise and other advantages
Indian players can evolve to be partners of choice for chemistry and chemistry related services.
API alliances: An increasing trend
A number of the fast-growing "second wave" of Indian generic companies and API manufacturers have continued to forge alliances with generics in the US, with an increasing number of the Indians focusing on supplying the finished dosage form as opposed to just the active ingredient. For example, Strides Arcolab has recently joined forces with both KV Pharmaceutical and Akorn.
We have also begun to see more acquisitions of US companies by Indian companies. For example, in April 2005, Indian company Jubilant Organosys announced that it had signed a memorandum of understanding to acquire 75% stake in an undisclosed US generics company. And in May 2005, Chennai-based Malladi Drugs announced the acquisition of Novus Fine Chemicals, which is believed to be the first such cross-border acquisition by an Indian pharmaceutical company in the API segment.
There is also much activity in the reverse direction, with US and Western European generics continuing to acquire or take ownership stakes in Indian manufacturers.
To conclude, Indian companies to meet the post patent regime are gearing up themselves from all the sides. On one side, the Indian companies are upgrading their manufacturing facilities to meet US FDA norms and acquiring manufacturing bases in the regulated markets to tap the ready overseas markets. On the other side, giving serious consideration to R&D with the increased allocations.
Also, Indian companies are tapping the huge off-patent API market with their cost effective manufacturing skills. At the same time through ANDA route they are challenging even MNCs to take an early share in the patented products market.
- (The author is country head, Firstcall India Equity Advisors Pvt. Ltd Mumbai)