Cross-roads for pharma in India
The Open University
Over the past 50 years, the Indian pharmaceutical industry has gone from being copy-cat followers to partners of choice for multinational companies in their drug discovery research and development efforts. A shift toward weak regulatory policy in the 1970s and a protected market encouraged the growth of an industry which has emerged as a key supplier of cheap and affordable drugs to the needs of low-income users in developing countries. Since the 1990s, Indian regulatory and market environment has changed remarkably.
Strengthening of regulatory regime due to the Trade Related Intellectual Property Agreement (TRIPS) in 1995 forced Indian firms to change their business strategies towards focussing on the generics market in Europe and the USA, investing in innovative R&,D and targeting contract manufacturing market. Indian firms started hiring Indian scientists working in multinational pharma companies (MNC) firms to fill knowledge gaps in innovative R&,D and adopted overseas acquisition strategy to acquire knowledge regarding markets, technology and regulatory skills. The value of the Indian pharmaceutical industry’s overseas acquisition has grown from just US $8 million in 1997 to $116 million in 2004.1 Geographically the overseas acquisition by Indian pharmaceutical firms continues to be directed at companies in advanced markets specifically the US and Europe.
Rise of emerging countries and large pharma’s changing strategies
By 2010, the potential of emerging markets had come to prominence and these markets became extremely important in the global context. The IMS Health Report predicts that 17 high-performing emerging countries, amounting to around 16% of the total world market or US$123 billion in 2009, are set to form new growth markets for pharmaceutical industry overturning the established pharmaceutical order.2 As a result ‘Big pharma’ firms are entering these emerging markets by re-modelling their operations. For example, in 2010 Abbott set up a stand-alone Established Products Division (EPD) specifically for expanding the market for Abbott’s established pharmaceutical portfolio outside of the USA, particularly focused on emerging markets.3
In 2010, GSK shifted its strategy from a traditional blockbuster model and towards driving growth from new products, emerging markets and its consumer business. In 2009 only 30 per cent of GSK’s revenue in the quarter was derived from its traditional “white pill/Western markets” business, compared with 38 per cent in the 2008. By adopting a high volume strategy in emerging markets, GSK plans to significantly reduce prices of its medicine in emerging economies in 2010.4
“In 2010, GSK shifted its strategy from a traditional blockbuster model and towards driving growth from new products, emerging markets and its consumer business.”
Challenge for Indian pharmaceutical industry
India is now among the fastest-growing emerging markets and large pharma companies have devised country-specific pricing and marketing strategies. In recent years, Merck and GSK have launched drugs and vaccines at far lower prices than in their home countries. Indian firms, which traditionally dominated domestic and emerging markets, are now increasingly facing severe competition from MNCs. This transformation has forced Indian firms to reconfigure their strategies.
Indian firms have adopted two major strategies to deal with this new emerging scenario:
A. Collaborate and not compete with MNC firms
B. Divest and consolidate
A. Collaborate than compete
Shorty after the year 2000, some Indian companies such as Dr. Reddy’s Laboratories Ltd., (DRL) adopted the more aggressive strategy of Para IV filings, which involves invalidating existing patents or producing non-infringing process through a costly process of litigation.5 It is a high risk, high return strategy due to the litigation costs involved and the 180-day market exclusivity that the firm wins on a successful challenge. DRL got its reward by winning six-month exclusivity for selling Fluoxentine 40mg capsules in US but soon received quite a few setbacks, losing the AmVaz case to Pfizer being one of them.5 After reviewing litigation and R&,D cost Indian firms have discarded the high risk, high return strategy of Para IV filings and prefer generic deals with MNC firms. For example in January 2006, DRL entered into separate agreements with Merck that allowed it to launch the authorized generic versions of Proscar® tablets (finasteride) and Zocor® tablets (simvastatin).6 Extending this strategy in June 2009, DRL entered a deal with GSK giving it access to more than 100 of DRL’s branded drugs to market in Africa, the Middle East, Asia and Latin America.7 The drugs cover cardiovascular, diabetes, oncology, gastroenterology and pain management, they’ll be manufactured by DRL and revenues will be shared.7 Similarly, in 2010 Zydus Cadila entered a licensing and supply agreement with Abbott for a portfolio of pharmaceutical products that Abbott will commercialize in 15 emerging markets, enabling the company to further accelerate its emerging markets growth.7 In addition, the beginning of 2011 witnessed Cadila Healthcare and Bayer HealthCare, unit of Bayer AG, setting up a joint venture to market Bayer’s products in the Indian domestic market, including women’s healthcare, metabolic disorders and oncology.8 The equal joint venture named Bayer Zydus Pharma would source Bayer’s existing products in India while Cadila Healthcare would contribute its healthcare drugs, diagnostic imaging and other products.
Collaboration strategies have helped Indian firms minimise risks and generate constant revenue from generic markets in advanced countries.
B. Consolidate on heath value chain
Some of the Indian companies have diverted from non-core businesses to focus and consolidate on narrow band of capabilities (Table 1). For example in 2010 top Indian pharmaceutical firm Piramal Healthcare sold its Healthcare Solution Business to Abbott Laboratories for almost $3.6 million.9 Piramal Healthcare is now investing in strengthening contract manufacturing / R&,D and innovative R&,D businesses while this acquisition helped Abbott in capturing market leadership in the Indian pharmaceutical market and further accelerated the company’s growth in emerging markets.
“Collaboration strategies have helped Indian firms minimise risks and generate constant revenue from generic markets in advanced countries.”
Table 1: Large pharmaceutical firms acquisitions deals in emerging markets (Source: Annual Reports, 2009)
In 2009, Ranbaxy sold its pharmaceutical business to Japanese firm Daiichi Sankyo to fund investment in setting up a high-end chain of hospitals. Ranbaxy had a presence in 90 countries all over the world and more than 80% of its sales are from overseas markets. This acquisition augmented Daiichi’s generic product portfolio and expanded the company’s presence in the emerging markets.9
Another Indian firm, Matrix, the world’s largest supplier of generic anti-retroviral APIs (active pharmaceutical ingredients) sold its pharmaceutical business to Mylan laboratories, a major generic firm in 2006.9 This acquisition allowed Mylan to improve its geographic diversification and develop a broader therapeutic portfolio. It also allowed Matrix to become the world hub of manufacturing for Mylan albeit still its strong focus on anti-retrovirals.9
Similarly, in May 2010 Aurobindo, an Indian firm, licensed out 55 solid oral dose and five sterile injectables in 70 markets to Pfizer.9 Two months earlier, Aurobindo sold rights to 39 generic solid oral dose products in the USA and 20 in Europe, and another 11 in France, as well as rights to 12 sterile injectable products in the USA and Europe.9
These acquisitions provided large pharmaceutical firms with access to generic product development, manufacturing facilities and excellent distribution network
Implications of transformation in the Indian pharmaceutical industry
These changes in Indian pharma’s strategic direction have major implications regarding access to healthcare to low income users and the future direction of pharmaceutical policy in developing countries.
“These changes in Indian pharma’s strategic direction have major implications regarding access to healthcare to low income users…”
These acquisitions may point towards a next phase of development for the industry that can potentially limit the role of emerging country firms, and Indian firms in particular, to being a supplier of cheap and affordable drugs to developing countries.
Whilst both large pharma and firms in emerging economies are engaging with diseases afflicting low income populations in developing countries they are doing so in conjunction with the public or not for profit sectors. It is also clear that the pharma sector is currently undergoing change and it is unclear what the current round of mergers and acquisitions will signify for emerging economy firms and for large pharma.
I’m not arguing against a role for the private sector tin constructing new approaches to engaging with the health needs of low income users in developing countries, however, we have to question whether the private sector alone can provide a durable innovation architecture that will deliver ongoing benefits and engagement over time.
These trends have also sparked debate regarding pharmaceutical policy in India and demands for protective measures are increasing. It has been reported that the Indian government is thinking about restricting foreign direct investment (FDI) to 49 per cent of a pharmaceutical company’s equity. It is clear that restrictive steps will harm the Indian pharmaceutical industry in long term, however, questions regarding access to affordable healthcare to lower income populations remains a bigger concern.
1. KMPG (2006) The Indian pharmaceutical industry: Collaboration for growth, http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/The-Indian-Pharmaceutical-industry.pdf
2. IMS (2010) Pharmerging shake up – New imperatives in redefined world, http://www.imshealth.com/pharmergingreport2010.
3. Kale (2007) Internationalisation Strategies of Indian Pharmaceutical firms, IKD Working Paper 23,
4. Financial Times, (2009) GSK to cut drug prices for developing countries, http://www.ft.com/cms/s/0/9848b498-dd14-11de-ad60-00144feabdc0.html?nclick_check=1 last checked on 29th November, 2009
5. Athreye, S., Kale, D. and Ramani, S. V. (2009) “Experimentation with Strategy and the evolution of Dynamic Capability in the Indian Pharmaceutical Sector”, Industrial and Corporate Change 18 (4):729-59
6. Kale (2007) Internationalisation Strategies of Indian Pharmaceutical firms, IKD Working Paper 23,
7. Chataway, Kale and Hanlin (2010) New drugs and health technologies for low income populations: Will the private sector meet the needs of low income populations in developing countries?, IKD Working paper, 58
8. Economic Times (2011) India’s Cadila Healthcare, Bayer unit to form JV,
9. Chataway, Kale and Hanlin (2010) New drugs and health technologies for low income populations: Will the private sector meet the needs of low income populations in developing countries?, IKD Working paper, 58
About the author:
Dinar Kale is a Lecturer of International Development and Innovation at The Open University. He can be contacted here at the following email address: firstname.lastname@example.org.
Where next for the pharmaceutical industry in India?