The global generics pharmaceutical industry is at the threshold of a new era - one that poses obstacles and opportunities alike for Western multinationals and generics manufacturers based in emerging markets such as India.
On the one hand, the industry is facing challenging times as more and more companies vie for the same markets with the same set of products, creating heavy pricing pressures. On the other hand, the global generics market is expected to grow at a healthy pace to an estimated US$70 billion, doubling its current size by 2010 - 2011. Growth is triggered by an aging population, as well as pressures on Western governments to contain healthcare costs, pressures on policymakers in developing countries to increase access to drugs, and scores of upcoming patent expirations.
As Indian companies rapidly penetrate Western markets - a move welcomed by many public and private healthcare players - the country has taken an integral role in shaping the future of the global generics industry. At the same time, Indian companies are increasing their focus on research and development of innovative drugs and delivery systems.
Enacting a new product patent regime in India in 2005 has spurred multinational brand companies to set their sights on India as a target for sales growth. They are also taking advantage of the low-cost operating environment. Successful players will be those that can reinvent their business models and convert obstacles into opportunities.
Global consolidation
For many generics companies, survival and growth hinge in large part on a successful merger and acquisition (M&A) strategy. In the global generics industry, Indian companies have substantially increased their M&A activity. In general, this activity is aimed at:
*Combining core strengths
*Generating scales of economy
*Integrating manufacturing capacity
*Attaining depth and breadth in the product pipeline
*Betting on geographically diversified revenue streams Of the 150 or so generics players worldwide, the top 5 players currently enjoy about a 50 percent market share.
This percentage likely will increase as the consolidation trend continues. Indian companies are poised to play an increasingly active role globally, thanks to their core strengths, competitive advantages, and desire to grow operations in new markets.
Routes to the future
India has many advantages in the pharma industry, including:
*A competent workforce
*Capacity for innovation
*Cost-effective chemical synthesis
*Quality and low-cost manufacturing capabilities
Indian companies also enjoy two decades of experience in launching generic products in the highly competitive Indian market, 7 to 10 years ahead of their release in Western markets. As a result, they have learned how to develop and manufacture drugs in a highly cost-efficient way - and to thrive in one of the industry's lowest-priced markets by constantly improving processes. That's why, despite significant competition, they have gained significant market share in the generics market for recently launched products like ciprofloxacin, citalopram, and fluconazole.
Indian companies are aggressive in their approach and response to industry developments, yet their ability to compete globally is limited by the size of their balance sheets. As they acquire, merge, and collaborate with pharmaceutical and biotech companies in foreign markets, they are also tasked with globalizing their operations to focus on the varying characteristics of each new market they enter.Challenges facing Indian companies that are expanding their operations globally include:
*Focusing on differentiators that go beyond cost
*Exploring new and more viable ways of operating and innovating
*Increasing integration with the global markets
* Professionalizing the management structure
*Managing cross-country cultural barriers
A catalyst for change
Across the global generics industry, India is serving as a catalyst for change. As Indian pharma companies transition from international companies with successful export strategies to multinational companies with a significant presence in multiple foreign markets, they face a host of considerations. Through M&A, alliances, low-cost structures, and ingenuity, they will readily take a more prominent seat at the table.
(The author is executive chairman, Matrix Laboratories Ltd, Bangalore) Courtesy:Ernst & Young