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National Story
 
PHARMA INDUSTRY: GENERICS PLAYERS
Choose your battle & win the war
Recent acquisitions by MNC firms make people wonder whether its curtains for Indian generics pharma players. That may be an unfounded fear, if they learn to play their cards right
Issue Date - 15/09/2011
 
One of the most intense and bitterly fought legal battles in the history of the Indian pharmaceutical industry is apparently on its last legs in the Supreme Court of India as we speak. On August 9, Novartis commenced its final appeal to the apex court to allow it to prolong the patent rights of its cancer drug Glivec, on the grounds that its efficacy is around 30% better than that of the original drug Imatinib Myselate, which it patented in 1998. However, section 3(d) of the Indian Patent Act, which prevents evergreening of patents beyond the stipulated period of 20 years based on small improvements is acting as a barrier to Novartis’ plans.

This is one of many such cases in India, where MNC firms have come face to face with Indian patent laws. It is a case being eagerly watched around the world, and health activists are up in arms as they view it as another case of Big Pharma monopolising the drug industry. While for Big Pharma, it is a ‘logical’ reward for years of R&D investment; it is also a major human rights issue, since it is a question of providing affordable medicines to people in developing and underdeveloped nations. Also, there are talks in India now of extending the Drug Price Control regime to all 354 drugs on the essential medicines list rather than just 74 currently. In addition, the debate on whether or not to continue with FDI through the automatic route in pharma is still ongoing. Eight big ticket inbound acquisitions have taken place over the past three years and raised the same alarm, that more such acquisitions could push drug prices beyond the common man’s reach. With the likes of Ranbaxy, Piramal, Dabur Pharma, et al going under the block, there has been a lot of speculation about the industry and where it is headed. That same uncertainty prevails in the global environment as well, and Big Pharma is equally concerned about its future. So increased competition, legal battles and lobbying are expected to only intensify in the coming time for a share of a market that is estimated to be valued at around $20 billion by 2015 according to McKinsey. Is the Indian pharma industry, which consists of over 500 organised firms and several unorganised players, up to the task in this environment? B&E discusses the nature of the next wave of competition between generics players & Big Pharma.

 
Around $89.5 billion worth of drugs are expected to go off-patent in US during the period from 2010-15 (IMAP Pharma report 2011). NME (New Molecular Entities) approvals with the US FDA were 24 in 2008, 26 in 2009 and fell to 21 in 2010. FDA states that NME applications have not been increasing, and the number of applications in 2010 (23) is the second lowest in over 15 years. Mandatory Risk Evaluation & Mitigation Strategies (REMS) enforced by the FDA have made it difficult to approve new drug applications, and the resistance to measures like evergreening in a country like India is increasing concerns for pharma majors. One of the ways in which Big Pharma is combating its inability to replenish the pipeline is M&A. While 2009 saw $161.2 billion worth of M&A transactions, the value in 2010 was significant too at $51.6 billion. India was the third largest market for pharma M&A with 48 transactions and a combined value of around $4.8 million. These acquisitions give MNCs access to developing markets and generic drugs, though they are also targeting innovators. Another method they are using is to optimise R&D and outsource it to third world countries. Brian Tempest, Partner, Hale & Tempest and former CEO, Ranbaxy, points out in his report, “Contract Research and Manufacturing (CRAMS) has led to restructuring in most of the top 20 pharmaceutical companies in recent years, and the consequent loss of jobs in the R&D-based industry continuing through 2010. In September 2010 alone, the US industry lost 6,069 jobs.” Besides, these companies are also tapping the biosimilar market, where the US is projected to constitute around 90% of top seven markets by volume in 2014.

Indian generics players, in turn, do have enormous opportunities with the patent cliff getting steeper. Sujay Shetty, Partner, PwC, comments to B&E, “Both large and medium sized Indian pharma firms are preparing since a long time for the documentation and manufacturing work on these expired patents.” However, they have to also factor in the costs of regulatory delays, competition and litigation costs, which could even bankrupt a smaller company. For instance, Ranbaxy was just waiting to get a headstart on its generic for Pfizer’s blockbuster drug Lipitor, but US generics firm Mylan has already sued FDA for granting this exclusivity and said that Ranbaxy’s manufacturing violations must be considered. CRAMs is more viable, where they share R&D risks with global firms and also move up the value chain. The global market for this is around $67 billion and 64% relates to contract manufacturing (ICRA). For India, the total market in 2010 was $3.8 billion and $2.3 billion is accounted for by contract manufacturing. As only 20% of global R&D is currently being outsourced, Indian firms have to be more aggressive here. Also, they must also not lose their focus on India, where 90% of the market by 2015 will still be generics ($18 billion) according to McKinsey and the relatively ambiguous laws are still in their favour. In fact, McKinsey claims that the patent drugs share could be even lower than the projected figure depending on how optimistic MNCs like Novartis turn with respect to Indian regulation. Indeed, India will be key to their long term survival strategy.

          

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