Most of the multinational firms feel India's introduction of product patents has created new opportunities for them, heralding an era of level playing field in the country's fast-growing pharmaceutical sector. Though with certain degree of caution, MNCs have started launching new products. With easy availability of talent pool and ready cost effective cGMP manufacturing facilities, MNCs are planning higher investment in research and development in India, apart from undertaking clinical trials on large basis.
The strong economic indicators, higher foreign exchange reserves, higher purchasing power of middle class and spreading of health insurance will create necessary business volume for the MNCs. Healthcare reforms are also expected to expand the coverage of organized healthcare to rural areas. This move will in turn lead to increased supply of secondary care.
Several new firms are looking at India as an important base for future growth. Today, India triumphs with the largest number of US FDA approved cGMP facilities in the Asian continent, large market size, greater scope for cost effective clinical trials and R&D efforts. Further, fast development with huge investment in facilities has created healthy business atmosphere for growth.
Outsourcing to India is gaining ground as the Indian companies have successfully established their brand image in the international market. Contract manufacturing and research will play crucial role in future growth, as several MNCs are taking advantage of cost effectiveness. Intensifying generic competition in international market, slower rate of development of new blockbuster drugs, patent expiration, higher cost of clinical trials and cost-cutting measures adopted by several nations will generate additional interest to shift business operations to India.
Major MNC pharma companies are buoyant over investing in India. MNCs who have shown interest to invest in the country include Merck & Co, BMS, AstraZeneca, Chiron Corporation, Daiichi, Eisai, Teva, Ivax, Pliva and Apotex. The investments are being made in the areas of contract research, clinical research, discovery research, marketing and manufacturing.
The companies are eyeing the cost competitiveness of the Indian market without compromising the quality aspect. There is also the important aspect of India implementing WTO regime post 2005. India, with its varied genetic pool and naïve population is once again a favourite destination for clinical research.
However, the government is not taking any final decision on several issues like price control, amended patents act, clarity on definition of patentable invention, data protection and compulsory licensing. MNCs are waiting for more clarity before investing in the country. The pharma analysts pointed out that the absence of a clear, objective and transparent policy on drug price control continues to impact the overall industry direction. This will severely affect industry growth and investment in Indian market.
The government has taken a number of steps such as patent protection, import liberalization and increased spending on healthcare to fuel growth in the sector. The draft National Pharmaceuticals Policy, 2006, (Part A) had been circulated and address issues in relation to integration of drug regulatory bodies, IPR implementation, data protection in clinical trials, price negotiations for patented drugs, trade margins, government procurement, branding and R&D.
The pharma policy aimed at ensuring life-saving drugs at affordable prices, was submitted to the central government by the Union Chemicals and Fertilisers Ministry on December 28, 2005 for implementation. But, the policy ran into rough weather when the pharma industry took serious exception to several issues in the draft, including the price control. Besides, several other union ministers also took a divergent view on the policy, forcing the matter to be left to the discretion of the prime minister.
The Group of Ministers (GoM) on National Pharmaceutical Policy is likely to give its decision in short time after discussing the views of all concerned parties. According to analysts, the government is taking very long time to announce the final outcome of the pharma policy. The government is now insisting on mandatory price negotiations on the newly patented products. This may create another obstacle for the growth of MNCs.
Several MNCs are looking at the option of setting shops in India as they view the country as a cost effective yet qualitative destination for doing research to support drug discovery channel. Merck has awarded discovery research contracts to Indian CROs like Chembiotek Research International, GVK Biosiences, Syngene and Sanmar Specialty Chemicals.
Daiichi, Pharma Co, Japan has also set up a marketing office in the country for marketing the company's innovative pharmaceutical products in India. The company is also looking for partners in contract research in the country. In future, when the IPR regime is fully implemented, the company is planning to set up manufacture base in India for its key anti-cancer and anti-infective products.
AstraZeneca International is planning to invest around $35 million during the next five years in its Bangalore-based subsidiary - AstraZeneca India. The investment will be mainly utilised for its tuberculosis research programme at AstraZeneca Research Centre (AZRC) in Bangalore and conducting clinical trials in India for new molecules discovered at the company's research centres in US and Europe. The company is also planning to conduct clinical trials in India for eight new molecules in the areas of oncology, respiratory diseases, diabetes and neuropsychiatry. Also, Chiron Corporation, an international vaccine major, has commenced full-fledged marketing operations in India.
Besides these pharma majors, international CROs have also initiated the process of setting up their bases in the country. Kendle, a US-based CRO has already set up its office and is in the process of commencing operations in the country. Other international CROs like Icon, Pharmolam, Pharmanet, PPD Pharma Company and Omnicare are looking to expand their activities into India.
The Tokyo-based Eisai Co, Ltd has established its pharmaceuticals marketing subsidiary, Eisai Pharmaceuticals India Pvt. Ltd (EPIL) at Mumbai in October 2004. EPIL is planning to sell and promote pharmaceuticals developed by Eisai, including aricept, an Alzheimer's disease treatment and aciphex/pariet, a proton pump inhibitor. The company will establish a production-cost structure, apart from providing a stable supply of quality products and appropriate product information for safe and proper usage to meet the medical needs of Indian patients.
MSD Pharmaceuticals, an Indian arm of Merck & Co, USA, has introduced zienam, a broad spectrum of antibiotic in the Indian pharmaceutical market. Zienam is a highly effective drug for treating patients who have developed resistance to antibiotics. MSD Pharma is planning to invest in sales, marketing and research operations. MSD is establishing an Indian medical and clinical research division, which will co-ordinate research projects with clinical investigators in India's leading hospitals and universities.
According to estimates, manufacturing in India could be done at one-fifth of US and one-third of European costs. R&D could be done in India at one-third of the US & European costs, whereas clinical research could be done at one-fifth of what costs in Western.
Currently, there are eleven listed MNCs - GlaxoSmithKline Pharmaceuticals (GSK), AstraZeneca Pharma, Pfizer, Aventis Pharma, Abbott India, Merck, Solvay Pharma, Novartis, Fulford, Wyeth Ltd and Matrix Laboratories - in India. Recently, Mylan of US has acquired 71 per cent stake in Matrix Lab. These companies were focusing on cost cutting measures during last couple of years by reducing fixed assets as well as manpower. The MNCs are moving cautiously and reduced their investment in expansion.
The total assets of ten MNCs (excluding Solvay Pharma from above list) increased by 16.3 per cent to Rs 6,883 crore in 2006-07 from Rs 5,920 crore in the previous year. The net fixed assets moved up marginally by 7.3 per cent to Rs 883 crore. Their reserves went up by 20.1 per cent to Rs 4,480 crore from Rs 3,729 crore.
The net sales of these MNCs only increased to Rs 5,934 crore in 2006-07 from Rs 5,583 crore, while net profit moved up by 6.8 per cent to Rs 1,356 crore from Rs 1,269 crore in the last year. MNCs are enjoying investors' confidence with strong financial position and getting higher returns in the form of dividend. The total dividend amount distributed by 10 MNCs increased 16.2 per cent to Rs 539 crore from Rs 463 crore in last year. There was mixed trend in profitability during the current year and the setback to Novartis in respect of Glivec patent case in India may put some pressure. The analysts pointed out that MNCs would enter into more and more tie-ups with Indian companies for outsourcing, CRAMS and clinical research activities instead of own expansion programmes.
Novartis on decline
Novartis India suffered a setback during the first quarter ended June 2007 due to lower pharmaceutical and OTC sales. The net profit declined by 11.3 per cent to Rs 22.84 crore from Rs 25.74 crore in the corresponding period of the last year. Its net sales also dipped by one per cent to Rs 138.83 crore from Rs 140.28 crore. With fall in profit, earnings per share also came down to Rs 7.15 from Rs 8.05 in the last period.
The company's pharmaceutical sales declined by 5.6 per cent to Rs 95.75 crore from Rs 101.40 crore and that of OTC products reduced by 4.5 per cent to Rs 19.72 crore from Rs 20.64 crore. However, the sale of generics went up by 25.6 per cent to Rs 14.07 crore from Rs 11.21 crore.
While addressing the 58th annual general meeting of shareholders, R Shahani, vice-chairman and managing director, said, "Novartis' net profit was under pressure during first quarter on account of price reduction of its third largest product tegrital by 30 per cent. Pharmaceutical sales contributed 71 per cent of total sales. With the fall in prices, return on sales worked out to 16.3 per cent, down from 20.3 per cent in the last period."
Regarding shareholders queries about Glivec legal battle in the Madras High Court, Shahani pointed out that the petition goes to the root of the debate about intellectual property rights, patents, innovation and patient access to medicine. Denying patents and thereby stifling innovation, actually harms the interests of patients and future generations as it makes access to life-saving medicines like Glivec difficult. It effectively denies the crucial role that incremental innovation plays in research and development of new medicines.
GSK posts high profit
GlaxoSmithKline Pharmaceuticals has failed to maintain its growth rates during the first half of 2007. Its net profit increased by 8 per cent to Rs 207.75 crore from Rs 192.29 crore on the back of higher other income, rise in interest income and reduction in consumption of raw material. However, its net sales declined by 2 per cent to Rs 817.07 crore from Rs 833.50 crore. The earnings per share worked out to Rs 24.5, up from Rs 23 in the last period.
The company's other income increased by 47.4 per cent to Rs 37.76 crore, while interest income went up by 38.3 per cent to Rs 20.65 crore from RS 14.93 crore. The total cost of raw material also declined to Rs 324.19 crore from Rs 344.36 crore.
The company has decided to sell its Qualigens Fine Chemicals (QFC) business to Thermo Electron LLS India Pvt Ltd, a subsidiary of Thermo Fisher Scientific Inc.,(TFC) a leading American company for a total consideration of Rs 240 crore. QFC division was engaged in the manufacturing and marketing a range of fine chemicals, diagnostic kits and laboratory products, including glassware, culture media, instruments and filter papers.
Aventis Pharma focuses on clinical trials
Aventis Pharma, a part of sanofi-aventis, is undertaking several clinical trials in India to generate new evidence and strengthen existing indications. The company has completed a large scale practice survey of diabetes management across the country as a first wave in over 100 centres coving 1300 patients. The second wave of this study will be conducted in 2007 in another 80 diabetic centres.
Aventis has also completed another clinical survey in gastric cancer patients in over 300 cases in four cancer hospitals in India. Apart, it also has completed two major studies to evaluate the prophylactic use of its product Clexane in immobolised patients, who are at high risk of developing thromboembolism. Another study was carried out in over 500 diabetic patients in India who failed to respond to oral treatment to observe the effects of insulin treatments including company's product lantus.
The company has launched one new product - Allegra suspension - and two line extensions - Cetapin 500 mg XR and Cetapin 1g XR and Daonil M - in India during the second half of 2006. India is the first country to have Allegra suspension from sanofi-aventis Group. Allegra (fexofenadine hydrochloride) is the world's leading antihistamine in the management of allergies such as allergic rhinitis and urticaria. Aventis launched this product in July 2006 for paediatric patients in a palatable raspberry-vanilla flavour.
The company launched Daonil M, a line extension of the gold standard brand Daonil, which has been the leading portfolio or the last 34 years. Daonil M is a fixed dose combination of Daonil and metformin. This brand is likely to contribute significantly to its diabetes portfolio in 2007. The company is expanding its presence in larger geographies in India. Its 11 major products achieved a growth of 17 per cent during 2006 and contributed to around 79 per cent to the domestic sales. The rest of the portfolio on comparable basis grew by 14 per cent. Its 32 per cent product portfolio is coming under the purview of the current Drug Price Control Order (DPCO) and under the mandatory price control regime.
Moody Merck dips
Merck Ltd, an Indian arm of Merck KGaA, Germany, has suffered heavy setback during the Q2 ended June 2007, mainly due to profit on sale of Life Science and Analytics (LSAA) business in the corresponding quarter of the last year. The company's Q2 net profit declined by 80.6 per cent to Rs 16.31 crore from Rs 84.24 crore in the same period of the previous year. The company had shown Rs 65.50 crore as gain from sale of its LSAA business with effect from April 1, 2006. The company's Q2 net sales increased by 4.1 per cent to Rs 83.5 crore from Rs 79.77 crore. The earnings per share fell to Rs 9.68 from Rs 49.96 in the last period.
The company's pharmaceutical sales increased to Rs 68 crore from Rs 65.63 crore and that of chemicals moved up by 16.55 crore from Rs 16.01 crore.
For the first half of 2007, the company's net profit declined by 68.6 per cent to Rs 32.25 crore from Rs 102.78 crore in the similar period of the last year, due to fall in sales of chemical division. The net sales also declined by 15.3 per cent to Rs 153.45 crore from Rs 181.23 crore. Its pharmaceutical sales increased to Rs 124.12 crore from Rs 118.09 crore. However, the chemical division sales declined to Rs 31.81 crore from Rs 67.61 crore.
AstraZeneca posts higher profit
AstraZeneca Pharma India, the Bangalore-based multinational company, has achieved satisfactory performance during the first half ended June 2007. The net profit increased by 15.7 per cent to Rs 24.45 crore from Rs 21.13 crore in the similar period of the last year. Its net sales also increased by 14.3 per cent to Rs 142.29 crore from Rs 124.46 crore. The earnings per share improved to Rs 9.78 from Rs 8.45 in the corresponding first half of the last year.
During the first half of current financial year, the company's service income touched o Rs 3.97 crore from S 2.63 crore, while its other income moved up to Rs 4.42 crore from Rs 3.62 crore in the previous year.