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Abstract
The global pharmaceutical industry over the past few years has braved dwindling
growth rates, spiraling R&D costs, pricing pressures and drug safety concerns.
Ominous signs for an industry accustomed to high growth rates driven by innovation,
As the Top 10 pharma majors (Big Pharma) recoup to face these challenges, the
successful models of the past need an overhaul. This fast changing scenario is driving
strategic shifts across the global pharmaceutical industry value chain. As a result, huge
Amid this landscape, can India fast track its famed reverse engineering skills, adroit
intellectual capital, treatment naïve patients, quality capabilities and cost efficiencies to
Today, the new-drug discovery and approval process takes longer than ever (15 years),
costs more than ever ($ 1 billion each), but produces fewer new molecules than ever
(only 30 in 2004, from 46 in 1998). Compounding the drug discovery dilemma is the
plethora of drug safety issues, fuelled by rising patient and physician concerns, and
R&D productivity.
Strategic Shifts…Opportunities and Challenges for India 2
Patent expiry management remains a key area to protect the near total sales erosion of
blockbuster drugs, post expiry. Affordable pricing of generics is leading to faster growth
The higher number of generic approvals, mean more generic competition from cost
Huge drug discovery investments are facing uncertain returns, or not paying off
Strategic Shifts
Consolidation to convergence
The plethora of mergers and acquisitions (M&A) in the world pharmaceutical market has
led to a consolidation. Big Pharma like Novartis, GSK and Pfizer achieved No.1 rank
through M&A and it remains an attractive growth option. But very few deals have
ensured sustained market share growth or shareholder value. Most M&A face problems
deals. Convergencei entails sustained long term planning and periodic, smaller,
Strategic Shifts…Opportunities and Challenges for India 3
smarter, strategic acquisitions and alliances, which are complemented with capabilities
Convergence has emerged as the preferred choice across the pharmaceutical value
chain, with every company in the global Top 10, operating with atleast ten cumulative
convergence deals each, over the past decade. Typical convergence areas include drug
design and delivery, promising pipelines, biotech, gene-tech and contract research.
Conspicuous convergence successes have been Johnson & Johnson (J&J), Roche,
SanofiAventis and Boehringer Ingelheim, all pharma majors who have doubled their
Blockbusters to nichebusters
Blockbusters or brands with annual sales in excess of $1 billion, continue to drive world
pharmaceutical growth. Big Pharma markets more than 80% of the total 80 plus
Companies with blockbusters command the respect of physicians, patients and the
trade. Significant value addition and reach can be achieved if a drug can quickly attain
blockbuster sales. But the exit of a blockbuster through patent expiry or due to safety
their franchise.
Strategic Shifts…Opportunities and Challenges for India 4
share, and hence shorter brand reigns. Mature drugs in me-too segments do not
Generic companies are getting better at attacking franchises and taking a significant
To protect their franchise, major players are targeting high value, technologically
innovative and lucrative, nichebusters. Potential areas for nichebusters include cancer,
Ownership to partnership
Outsourcing the value chain to cost efficient but quality conscious players from
developing nations, is fast emerging as a key strategy. Almost a third of the drug
discovery chain is now outsourced to smaller partners, significant, because less than
capacities and capabilities exist, is being increasingly preferred by Big Pharma. Big
Pharma has perfected the art of in-licensing promising early stage molecules from
smaller players, and commercializing them by leveraging their research and marketing
Strategic Shifts…Opportunities and Challenges for India 5
muscle. This strategy frees up major resources blocked in cost and time intensive, but
reach and penetration. Regionally dominant large players like the Japanese majors, co-
market or out-licence their innovations through Big Pharma. Today, bulk of the Top 50
brands worldwide, are not marketed by their innovators, but by Big Pharma.
Big Pharma has focused on new product development in diseases with future
potential, new indications, new delivery systems and high unmet clinical needs. There is
an increasing shift towards dosage variations, multiple indication drugs and combination
drugs across chronic therapy areas. These are areas where developing nations like
India with their quality capacities and capabilities, can add value.
Alternate therapies
The acceptance level of herbals by consumers and physicians is very high as herbals
are traditionally perceived to be pure, efficacious and devoid of side effects. Word of
mouth publicity and faith across generations fuel the demand for these drugs.
Amid growing drug safety concerns, alternate therapies are being increasingly
recommended across all medical specialties. The herbals market is already 16 % of the
world pharmaceutical market, and growing. Europe and Asia are dominant in the
Demographic shifts
A fast growing, aging population is driving the demand for indications like cancer as well
as neurological, kidney and ophthalmic disorders. The working age group, due to stress,
cardiovascular, mental health, diabetes and obesity ailments, at a very young age.
The lifestyle segment is set to take-off, as an image conscious but aging society is
willing to pay high prices to slow down the natural aging process. Drugs for obesity,
depression, sexual dysfunction, skin wrinkles and smoking cessation comprise this
segment.
physical activity, under the garb of convenience. Startling facts have emerged from an
obesity survey, published in the Times of India, Mumbai, dated 6th March, 2005.
“ New data emerging in the field of obesity in Mumbai suggests that a family can gain 8 kilos for
every mechanical gadget acquired. If a family has a television, air conditioner and car, we are
Such evident demographic changes drive worldwide drug demand in chronic therapies.
But these trends assume significance, as they would open up huge drug research
opportunities in countries with treatment naïve patients and diverse disease profiles, like
India.
Strategic Shifts…Opportunities and Challenges for India 7
Advantage India
The Opportunities
The Indian pharmaceutical industry has evolved into a highly skilled, but value-wise
bred entrepreneurial skills and technological tenacity, have propelled India to the
fourteenth largest market by value, fourth largest by volumes and a 1 % market share.
The ensuing world wide strategic shifts are in sync with Indian capabilities. If India can
leverage its skills across the pharmaceutical value chain, it can swiftly move up the
The competitive intensity in India is the highest in the world with more than 10,000
players. However, recent years have seen dwindling growth rates and margins, due to
pricing pressures and the spectre of product patents. These resistors have led Indian
companies account for a third of all the drug master file (DMF) applications and Indian
players have helped in the drug development and discovery of top blockbuster drugs.
India’s buoyant, active pharma ingredient (API) industry churns out 400 bulk actives,
probably the world’s most prolific producer, but certainly the most economical. India’s
quality credentials in formulations and APIs are vindicated in the distinction of having
the largest number of USFDA approved plants, outside the US. Contract manufacturing
for Big Pharma has commenced in India, and can provide higher value realization.
A great generic opportunity beckons quality Indian players as patents worth $ 60 Billion,
12 times the size of the current Indian pharmaceutical market, expire over the next 5
years. Generics entail no discovery procedures, nor time and cost outlays, but only cost
efficiencies and reverse engineering skills, areas where Indians enjoy pole position.
India’s thriving Biotech industry has crossed the $ 1 Billion mark and looks set to
achieve its goal of $ 5 Billion by 2010. Policy and regulatory measures conducive to
growth are being enacted across the pharmaceutical spectrum, which will propel the
Indian demographics are also driving the demand for chronic therapies and areas of
unmet medical needs. Indian players could help find affordable solutions through
India’s billion plus population, long considered a liability, can actually help propel India’s
pharmaceutical aspirations. India offers the most diverse disease profile in the world
and a treatment naïve patient population, ideal factors for clinical research. Organizing
clinical trials and analyzing data is much faster and cheaper in India than in western
countries.
India teems with the world’s largest intellectual capital, endowed with superior
chemistry, info-tech and English speaking skills, which can provide synergy in bolstering
Alternate therapies have been prevalent in India since the dawn of civilization. Ayurveda
has been the traditional therapy across India and enjoys the trust of physicians and
patients due to its proven safety and efficacy. The Indian herbal market is one fifth of
the Indian pharmaceutical market in sizeii. The increasing shift worldwide towards
alternate therapies, is a happy augury and opportunity for India, considering its
The Challenges
Indian industry has to contend with strong external and internal threats that can stymie
their best laid plans. Big Pharma and generic majors, realizing the cost advantage that
Strategic Shifts…Opportunities and Challenges for India 10
Indian firms enjoy, are setting up their own quality research and manufacturing facilities
in India to ensure value pricing, and to neutralize the Indian cost advantage.
in quality (WHO-GMP, Schedule-M), duties / taxes ( Excise duty on MRP, Excise duty
free zones, VAT) and patents (WTO/GATT). The advent of product patents will initially
retard growth, as it will arrest the free flow of legally reverse engineered molecules,
Conclusion
Key Words- Strategic shifts, Global pharma industry, Indian pharma industry
Amit Rangnekar is pursuing a PhD in Business Strategy from Narsee Monjee Institute of
Equipped with a Masters in Marketing Management from Mumbai University and 15 years of
around the key dynamics and demographics, affecting global pharmaceutical strategy and
Bibliography
• IMS
• Scrip
• Pharmabiz www.pharmabiz.com
• USFDA www.usfda.gov
• Forbes
• Economist
References
i
Mergerstat, February 2003 and Cap Gemini Ernst & Young analyst report, Perspectives on lifescience
ii
The Pharma Review- Alternate Medicine October 2003