India's Road to Success
by Sarah Fister Gale
April 2008
India is establishing itself as a global leader for pharmaceutical research, and increasingly, commercialization.
Photography by Tom Pietrasik/Getty Images
Although India makes headlines as a one-stop shop for IT outsourcing, it gets far less attention for another of its booming economic sectors—pharmaceuticals. Over the past 10 years, India’s pharmaceutical industry has experienced enormous growth. Its estimated value in 2007 was US$13 billion, ranking it 13th in the world in terms of value, and fourth in terms of volume in 2005, according to an October 2007 report from Boston Analytics, a Boston, Mass., USA-based customized knowledge services company.
Overall, the Indian pharmaceutical industry now represents nearly 1.5 percent of India’s gross domestic product, and the market—which is growing at a compound annual growth rate (CAGR) of 13.5 percent—is projected to reach US$10.3 billion in revenues by 2010.
This dramatic growth isn’t linked to one unique factor, but rather a combination of events that together created the perfect economic storm for this emerging market, says Partha Ghosh, chairman of Boston Analytics. A booming middle class, a vast and highly skilled English-speaking workforce and a government anxious to support economic development all are working together to make India a hot destination for pharmaceutical manufacturing and distribution.
A Generic Foundation
India has long been a destination for research and development by major multinational pharmaceutical companies, and that hasn’t changed. Companies such as GlaxoSmithKline and Bristol-Myers Squibb continue to invest in this region, building facilities and spending millions on research and development opportunities.
At the same time, Indian companies have spent decades tapping into a pharmaceutical gold rush by taking advantage of the Indian Patent Act of 1970, which, until recently, permitted Indian pharmaceutical manufacturers to reverse engineer patented molecules developed by other companies and sell them domestically and to certain foreign markets as generics, well before the patents ran out. That law laid the foundation for a prosperous generic drug manufacturing economy in India, leading to the meteoric rise of key Indian pharmaceutical companies, such as Dr. Reddy’s, Sun Pharma and Ranbaxy.
The Patent Act gave India the foothold it needed to grow its pharmaceutical industry, while meeting the needs of its extremely poor population with low-cost drugs, notes Ritha Chandrachud, vice president and head of the Indian marketing department for Dr. Reddy’s Laboratories, the Hyderabad-based global drug manufacturer vying to become among the top pharmaceutical companies in the world.
“For a country like India, generics made all the difference in giving people access to medicines,” she says. Dr. Reddy’s, which opened its doors in 1984, surpassed US$1 billion in revenues for the first time in 2007, thanks in large part to its prosperous generics business.
Though amendments to the Patent Act in 2005 now require India to adhere to global patent protection laws as part of its accession to the World Trade Organization — according to the Agreement on Trade Related Aspects of Intellectual Property Rights — the knowledge base and market already are in place.
The Patent Act gave the country more than three decades to hone its pharmaceutical manufacturing skills. In an economy where low cost is always the leader, Indian pharmaceutical manufacturers have become experts at finding ways to cut costs while meeting quality control expectations.
Uday Baldota, vice president of investor relations for Sun Pharma, a global drug manufacturer based in Mumbai, adds that although India’s drug prices are among the lowest in the world, the company has experienced 30 percent annual growth since 2000.
“We’ve learned how to survive and be successful in a highly competitive low-cost market,” he says. The company relies on being first to market with affordable, high-quality products, a well-developed supply chain and relationships with specialists to maintain its competitive edge.
Baldota also points out that all of Sun Pharma’s facilities are approved by local authorities and a few of these even by the U.S. Food and Drug Administration (FDA). “We take pride in quality and use it as an opportunity to communicate with customers.”
In fact, India hosts the most FDA-inspected and approved manufacturing facilities, and has filed more Drug Master Files than any other country besides the United States. And the recent agreements to respect patent protection laws in India prove the country is committed to becoming a global peer in this industry.
Even though many of India’s population are not educated and may not be completely aware of the quality issues around drug manufacturing, Sun Pharma’s market base is not the consumers, Baldota says. “The doctors look very closely at quality, cost and availability, and they are the decision makers.”
Finding Balance
Meeting the needs of consumers has factored largely into India’s dramatic growth. While the country is still mired in poverty, with more than 30 percent of the population living on less than a dollar a day, according to The Asian Development Bank, a burgeoning middle class is slowly emerging. The country has seen an estimated 7 percent growth in gross domestic product over the past five years, with continued steady growth predicted. That translates into more expendable income, part of which will be spent on better health care.
“There is a tremendous opportunity to sell pharmaceuticals in India because the population is so underserved,” says Ghosh. The bulk of Indian pharmaceutical sales is currently attributed to anti-infective drugs (18 percent), gastro-intestinal drugs (11 percent) and cardiovascular drugs (10 percent).
Sun Pharma attributes 60 percent of its revenue to sales in India, 90 percent of which are for finished prescriptions, according to Baldota. “The pharmaceutical market in India is maturing, and the overall economy is doing quite well,” he says. “There is an increased standard of living per capita, and health care is getting a share of that increase.”
That growth should translate into greater demand for current popular drugs as well as other underserved chronic therapy areas, including psychological and neurological treatments.
Health insurance to cover hospital expenses and routine medication also is gaining popularity among middle-class Indians, giving them steady access to medical care. Although most Indians still pay for prescriptions out of pocket, the proliferation of privately owned insurance companies promise to change that, Chandrachud says. “Health insurance is very attractive to the middle class, and the sheer numbers here make it a profitable business.”
However, there is still a huge section of the population that has neither the money nor the access to treat their medical needs. “The number of doctors per million people in India is still quite low,” Baldota says. “While doctors are available in the big cities, in the second- and third-tier cities and rural areas, access to medical care must be improved.”
The shortage of doctors, combined with a lack of good roads, hospitals, pharmacies and transportation leave many communities isolated from medical care. But Baldota sees change coming that he believes will result in millions more consumers having the economic status and infrastructure in place to meet their medical needs. “It’s going to take time, but efforts are in place to make improvements,” he says.
That transition will be both helped and hindered by the 2005 amendments to the Patents Act. It prohibits Indian manufacturers from reproducing new patented drugs at generic prices; however, it draws attention and investment to the Indian economy as it moves toward the future, and that investment should benefit the masses.
“India has always been a commercial market, but it will evolve with the introduction of the new patent protection laws,” says Louise Dunn, vice president of communications for GlaxoSmithKline International. “When companies launch patent-protected medicines in India, the marketplace will change. There will be increased availability and choice of newer innovative medicines—at the moment the market is generic. However, there will be cost implications, and the industry and governments need to work together to find solutions to this.”
But, she points out that the change in the patent protection laws was necessary for India to attract ongoing research and development dollars.
Although the big generics companies may lose growth opportunities in new patented drugs, they expect to continue manufacturing those drugs that were patented prior to 2005 while investing heavily in their own research and development infrastructure.
“The loss of generics is a threat that we have seen looming for some time,” says Chandrachud, who points out that Dr. Reddy’s has been investing in biologics research for several years to prepare for the transition. “We still have a considerable number of basic drugs to meet the needs of the population.”
Low-Cost, Highly Skilled Labor
While Indian consumers are spending more on health care and prescription drugs than ever before, Indian companies also are looking to the global community as they prepare for the future. Many of the larger companies are buying manufacturing facilities around the world in an effort to establish a more global presence. “The skills we developed to meet the needs of the people in India will help us to be successful in our international pharma sector,” Baldota says.
Along with investing in new facilities, they also are gearing up to do more of their own research and development in-country to compensate for the loss of generics opportunities. Dr. Reddy’s, for example, sees biologics as the new differentiator for its business. “There is a growing popularity of biologics development that will be an important continuing part of Dr. Reddy’s success,” Chandrachud says.
And Dr. Reddy’s is not alone. Michael Rosen, senior vice president of new business development for the Science and Technology Group of Chicago, Ill., USA-based Forest City Enterprises, a developer of bioscience parks, predicts that India will be at the forefront of biologics development in the future. India has more FDA-certified manufacturing facilities then any other country outside the United States.
“India is gearing up its capabilities to manufacture biologics, and the cost comparison will allow it to compete on a global scale,” says Rosen, who also is the co-founder and board member of the Illinois Biotechnology Industry Organization. “It’s not just a traditional generic drug business any more. Biologics are the next stage of research in India, as evidenced by Indian biotech companies such as Biocon.”
Rosen believes that the lower cost of doing business in India could help ease the cost and time constraints of bringing drugs to market, which is drawing more investment and development to the country by contract research organizations, contract manufacturing organizations, big pharma and big biotech.
A steady stream of multinational drug companies already take advantage of the country’s educated workforce and low cost of doing business, which has established India as a key destination for a growing volume of outsourced production to CROs and CMOs. The Indian pharmaceutical outsourcing market shows a CAGR of 37.6 percent and is expected to increase from US$929 million in 2006 to US$3.33 billion by 2010. In 2006, clinical trials accounted for 52 percent of the total outsourcing market of CROs in India, followed by pre-clinical trials, which constituted about 30 percent.
“Today, India is a key destination for clinical trials, which is the most expensive part of the process,” says Rosen, noting that because most of the working population speaks English, India is a more attractive destination for American-based companies than China, its closest competitor. Also, India, like the United States, is a democracy, he says.
“India is also an old country with alternative medical wisdom deeply embedded in its culture,” Ghosh adds. “Because of that, India’s labor pool brings a diverse set of perspectives to the marketplace that could lead to increased innovation and to the development of solutions.”
Despite its emerging status, India is culturally advanced in many ways, with a highly diverse population and leadership skills, Ghosh notes. “That innate integration capability of the nation could potentially help Indian leadership create a strategic advantage that the rest of the world can learn from,” he says.
Dr. John Balian, senior vice president of global pharmacovigilance and epidemiology for Bristol-Myers Squibb, in Lawrenceville, N.J., USA, agrees that India’s education systems, English capabilities, and highly talented and skilled talent pool, coupled with the new adherence to patent protection laws, promises to cement India’s position as an international pharmaceutical leader.
“The Indian government is taking genuine steps to prove it respects intellectual property rights. That’s an important factor for Bristol-Myers Squibb, and for any research-based company,” says Balian. “Intellectual property is the linchpin of the discovery of innovative medicines. Without these protections, it can’t be done.”
Recognizing the government’s willingness to adhere to global rules, last year Bristol-Myers Squibb launched a center for pharmacovigilance in Chennai, India. The center, which furthers Bristol-Myers Squibb’s efforts to expand its research and development capabilities in India, reflects the company’s strategy for growth and global access to talent, Balian says. “We looked at several countries in the Far East, Latin America and Eastern Europe, but India held the most appeal,” he says. “It’s got a large talent pool, the English language is spoken, it has high-quality academics and now there is increased protection of intellectual property.”
The new center will undertake the processing and coding of adverse event data and the generation of regulatory reports on safety as well as physician medical review of adverse events. Pharmacovigilance—safety data monitoring to ensure optimal use of medicines—entails the capture, assessment and reporting of potential side effects to medicines. The collaboration is for end-to-end safety case processing and includes specialized activities, such as medical review of the reported adverse reactions.
Balian says the stricter patent protection will only foster more growth in India in the future with additional pharmacovigilance centers and other facilities cropping up around the country. “We’ve seen positive progress across the country,” he says. “Along with patent protection laws, there is a growing number of academic courses and medical schools allowing students to develop pharmaceutical expertise, ongoing infrastructure development and increasing connectivity. It’s given us a lot of confidence in India.”
Overcoming Obstacles
Ghosh says that companies that take advantage of the diverse knowledge base in India, as Bristol-Myers Squibb has, could have a leading value proposition—if they can embrace and enrich, not undermine or underplay, what is unique about the culture. “If Indian pharmaceutical companies become too much like the rest of multinationals, they may lose the distinct possibilities of their individualities, which in turn could diminish their innovative capabilities,” he says.
The other major hurdle for India is bringing the quality of life for its masses up to a much higher standard. By actively focusing on the needs of the top 10 percent of the population for the past several years, the Indian government created an elite class and that today draws the attention and investment of global companies. “This contributed dramatically to the sustained growth of the country,” Ghosh notes. “Investing in issues like telecommunications infrastructure was important because it attracted investments that help the country stay competitive,” he says.
In the meantime, however, the country’s poverty, illiteracy and malnutrition issues have festered, creating long-term obstacles to the country’s ability to establish itself as a global leader. “If these issues aren’t addressed, it could seriously limit what the country is able to achieve in any industrial sector,” Ghosh says.
It’s a difficult balance to strike because the country is in need of so much infrastructure. By choosing to develop a free market economy and investing first in global assets, such as Internet access, highways and airports, the government created an economy that can now reinvest in development to support the rest of the population. These investments include clean water, roads, schools and hospitals for the masses. But with such a massive population, it could be decades before the change is visible.
“The challenge that the government, industry and people in India face now is providing health care to all of its citizens,” says Dunn. “There is still a great disparity in the distribution of wealth, access to health care and medicines that needs to be dealt with.”
The educational infrastructure also is severely limited. While India turns out some of the world’s most brilliant doctors and scientists, the country has a literacy level of 60 percent with more than 400 million people who can’t read or write.
“We have a population of a billion people who need access to doctors, but you can only graduate so many people each year,” Baldota says. “It will take a long time to improve availability of doctors.”
However, strides are being made. With support of loans from the Asian Development Bank, for example, the Government’s Rural Roads Program has improved nearly 87,314 kilometers of rural roads in the past six years, while the Karnataka Urban Infrastructure Development Project, which was completed in 2004, gave 1.5 million people in the towns around Bangalore better access to water, sewage systems and other urban amenities.
Continued investments like these will lead to greater change, and give India the opportunity to prove itself as a global player, Baldota says. “Things are changing, and efforts to improve are being made, but it will take time.”
In the meantime, local and multinational companies continue to benefit from their growing presence in India, which promises to have a global impact for decades to come.
Send us Your Comments
Web Exclusives
- An Unbalanced Burden
-
A Q&A with Dr. Kathleen Squires, director of the infectious disease department at Jefferson Medical College in Philadelphia, illuminates the gender differences in the diagnosis and treatment of HIV.
- Turning the Corner
-
After decades of neglect, leading to a rapid increase in incidence, tuberculosis started gaining attention from industrialized nations over the past 10 years. With this new focus, TB’s incidence has started to decrease—but barely.