Emmanuelle Berthemet

Established in 1995, and already turning over $125 million, Mankind Pharma (New Delhi) is an interesting case study on the Indian market. The company has been posting some of the industry's highest growth rates—12 of its brands have made it to top market position. Their current bestseller, an anti-impotency drug called "Manforce," is one of India's blockbusters, and the company has in its pipeline a number of products tagged for future success. The secret? Mankind's field marketing force: a group of 2800 people. The company's pricing policy is also responsible. Mankind first targeted rural areas at a time when most were looking at urban sectors for sales and adjusted the prices of products to the purchasing powers of the potential clients. R.C. Juneja, the company's managing director, says, "Mankind is the only company that has actively brought the costs of medicine down. We are striving to make our treatments affordable, and we have been successful to a large extent. We are into most therapeutic classes, except oncological, and our sales force works at grassroots level." Yet, the price-lowering policy has found its limits, and at a time when operating expenses are increasing, Juneja agrees that "prices cannot go down anymore.... Mankind will have to increase its prices by 2–3 % this year. However, what is today more essential than sales prices is the product mix." The company is also willing to penetrate nonregulated markets such as the CIS (Commonwealth of Independent States) countries or Latin America and sees the best opportunities for growth in chronic and lifestyle segments.  

But understanding the Indian market's realities is Mankind's true competitive advantage. "We launch 10 products every year, and we have managed systematically to have a number one for the last five years," said Juneja. "The biggest challenge will be the next five years. We welcome tie-ups, as the Indian market has got the potential to be the first market in the world soon. We would then be seeking win–win situations where foreign players come to use our facilities, share their know-how, use our field force, and provide us with access to high-value markets." 

Despite the fact that India's pharmaceutical industry ranks fourth in global production and has the second largest active pharmaceutical ingredient (API) base in the world, the country's pharmaceutical machinery makers have gone relatively unnoticed. This is likely to change as upcoming companies are becoming more bold in their intentions, actions, and talents.  

Take for instance, Chamunda Pharma Machinery Pvt. Ltd. (Ahmedabad), one of India's engineering powerhouses. Presenting itself as a complete solution provider for solid-dosage forms, the company has been growing rapidly and is today on the edge of a major business step. The recipe: an aggressive push on the global markets. "People from the US and Western Europe used to put Chinese and Indian companies on the same level," says Shahil Shah, one of the company's executive directors. "Yet here, the real picture has changed. The Indian intellect is high, and we have been busy applying it to the API sector, the machinery-making segment, research and development of new molecules, etc. The local pharmaceutical industry is changing and the Indian pharmaceutical machinery sector is changing alongside. Expectations are higher, better production performances are required, and the level of services has grown to global standards. This gives us the confidence and the will to succeed beyond our home market." 

Chamunda seems to have a head start compared with its competitors—6000 of its machines are running around the world. The key reason is service: "To retain customers is the most important job, and servicing is crucial," says Shah. "There are a few manufacturers here that believe in this and the future is positive for our side of the industry." 

Emulation is also playing a role in the development of the machinery sector, and not only between local companies. According to Shah, with acquisition opportunities in Thailand, Korea, and elsewhere opening every year, the expected growth rate seems rather encouraging. 

Articles

Case Studies

The story of the Indian pharmaceutical industry is one of a surprise birth, slow infancy, explosive teenage years, and ongoing rebirth to reach well-respected adulthood. In the 1970s, India had hardly any noticeable activity that could have accounted for being part of a domestic pharmaceutical industry. Multinationals were dominating 85% of the trade, and the country's industrialization wasn't considering fine chemicals as a priority. With the advent of the import-substitution policy and the implementation of the 1970 Patents Act, the country started building chemical know-how and industrial tools that would be instrumental to the real birth of the Indian pharma sector.  

Today, the contrast is sharp, to say the least. India is home to more than 20,000 production units, out of which just short of 300 form the real backbone of the industry, accounting for more than 80% of production. The country also has watched a number of local stars go global to become some of the world's best pharmaceutical performers in terms of delivering growth, market penetration, or cost-efficiency. The likes of Cipla (Mumbai), Dr. Reddy's Laboratories (Hyderabad), and Lupin Limited (Mumbai) are indeed carrying the industry forward and aggressively penetrating the world market, displaying a mix of unabated confidence, know-how, and bold moves. Yet, the success of these players should not hide the many challenges faced by the industry, as their number has never been as high as today. 

The most recent and decisive factor of change was the enactment in 2005 of an amendment to the 1970 Patents Act that, in effect, has made copying drugs patented after 1995 illegal. An industry that had been developing and flourishing based on the production of pharmaceutical copies suddenly found itself in need of redefinition and redirection. After years of being shielded from the global market's realities, the industry has had to adapt fast. At the same time, a number of Indian patents were put at risk, and the cost of post-1995 patented drugs grew out of reach for many Indians, in a country where there is no real state health insurance, and where most of the population is unable to afford  health coverage.   

The entry into force of this new regime has led the Indian pharmaceutical industry to redeploy its efforts toward pre-1995 molecules, as well as to develop and nurture its strengths in innovative directions. The first, most noticeable avenue of growth has been in the export market. From an inward-looking industry enjoying the benefits of a cozy intellectual property regime, India has found itself exposed to the rigors of global competition and has succeeded rather convincingly in the exercise. With a total sales value of $5.3 billion, $3.7 billion (70%) is now drawn from exports. Compare this with the less than $600 million the country was bringing in from exports when India joined the World Trade Organization in 1995.  

In just over a decade, Indian manufacturers have mastered the secrets of global trade so well that the country today accounts for more than 20% of the world's generics production. The trend exemplifies how capable and swift-moving the industry is and has been to date. When examining some of the 300 players that account for most of India's pharmaceutical revenue generation, a number of business models appear, building on the industry's traditional strong points, from manufacturing know-how and reverse engineering capabilities to a solid chemical industry base and excellent human resource pools. The fact that India has the largest number of FDA-approved facilities after the United States testifies to the radical transformation of the industry. The actors of change, local manufacturers in particular, are following diverse directions for their businesses, and respond to many different impulses. But it is possible to distinguish the dynamics at work, as outlined below. 

Motivated by leading companies in terms of value and volume, a group of export-driven companies is pursuing a very aggressive development scheme that was rendered compulsory during the 2005 legal changes. These players looked outside India for growth indicators and started hitting big when health budgets turned into globally depressing matters. Low-cost Indian generics penetrated the US and European markets and established a presence that continues to grow. Meanwhile, these leaders were reinforcing their backward integration to benefit from one of the Indian pharmaceutical industry's strengths: active pharmaceutical ingredient (API) production. Most of these companies secured supply sources that were, at the time, providing extra lines of revenue because Indian materials were making their way into North American and European storage rooms. To further ensure efficient and long-lasting penetration of the western markets, Indian companies established offices and purchased a number of local players to benefit from approved abbreviated new drug applcations (ANDAs), drug master files, sales networks, local brand names, and experience. This model was replicated by most of the largest Indian players, who have been very busy acquiring European and North American small to mid-sized companies during the past decade.  

The clear challenge for this category of players is to sustain growth and investors' confidence. As a result, export-driven leaders have been busy reinventing themselves, developing services alongside their product sales in an effort to explore innovative routes. 

This group of players comprises relatively large companies by Indian standards that have been trying to emulate the model of the export-driven leaders. With the onset of globalization, many have felt the sting of competition, as most of their local clients in the formulation field targeted the same unpatented molecules and drove down production material prices. In turn,  API producers ended up churning out the same active ingredients, and many ultimately decided to pursue export sales and develop their own finished dosage forms. But the jump hasn't been so easy, and with price erosion, some are finding themselves stuck between a rock and a hard place.  

Internal competition—not to mention competition from China—has been unforgiving. API producers have had to expand services, focus more on customer relationships, and increase their scope of production to strengthen their profiles and come out of this transitional period on top.  

The advent and fast development of contract research and contract manufacturing organizations (CROs, CMOs) are direct results of India's changing pharmaceutical environment. Drawing on the industry's know-how in fine chemistry, low production costs (as much as 70% cheaper than in some other countries), and scientific talent, these organizations have developed rather quickly during the past decade. Today, they represent potential growth for India's industry and provide much-needed services to the global pharmaceutical sector.  

From pure CROs to the full-fledged hybrids, the opportunities in this sector are wide and can be tailored to suit any need the industry might have. At a time when blockbusters are facing uncertainty, and when Big Pharma is in search of across-the-board cost-cutting opportunities, India is coming into play. Approximately 70% of the cost of getting a drug on the market is incurred during development—any attempt to trim down this phase while ensuring a fast, reliable, and controlled-drug development would certainly be welcomed worldwide. And the market answers rather well to this exciting new array of pharmaceutical services: research and development outsourcing, and contract manufacturing and services are estimated to be worth $32 billion globally, and are expected to grow to a whopping $64 billion by 2010, according to a 2006 Frost & Sullivan report. India alone is set to draw $2.5 billion out of these outsourcing activities by 2010. The country's talents in reverse engineering and clinical trials, along with its lower filing costs, intellecutal property rights, duties, and English-friendly environment are all compelling elements. They allow India to redeploy its efforts and become the outsourcing destination of choice. Only China can expect to rival it on the cost front, but despite India's rising prices, notably on the human resources side, China cannot match India's integrated package. 

Compared with its drugmakers and API producers, India's pharmaceutical machinery makers are relatively small, but are emerging as a group to be reckoned with. From serving local customers with machines copied through reverse engineering, to locally producing equipment for global clients, the learning curve has been steep. Today, Indian pharmaceutical machinery makers are positioning themselves for even faster growth ahead.  

Considering the favorable investment environment in India's pharma sector, thanks to manufacturing free zones, general modernization, the current good manufactring practice trend, and the growing demand for global outsourcing, the future is bright at home for Indian industrialists.  

Abroad, cost constraints on generics producers and originators, as well as geographical redistribution of manufacturing locations, offer plenty of opportunities to the Indian machine makers to score foreign sales. Designs, services, and efficiency have improved, rendering machines made in India serious competition for those made in Europe or the US. This opens up opportunities for cross-border partnerships, despite a few shortcomings. For example, some Indian technology is a bit outdated (e.g., radio-frequency identification hasn't made it through to Indian labelmakers or labeling machine producers); Indian producers lack the marketing networks necessary to establish a long-term overseas presence; and access to capital is tight. Market leaders are turning over less than $50 million, and despite great potential for spectacular development in the years ahead, are relatively small compared with their western competitors.  

All together, these groups do not represent each and every player in the Indian pharmaceutical sector, but they do allow a better understanding of the strategies and actors at work. The industry's dynamism is a striking reality, as exemplified by the number of ANDAs filed by local manufacturers, the highest in the world after the US. Local actors are well aware of their strengths and of the challenges ahead, and have taken to the global stage just as global actors are taking notice. A few high-profile acquisitions such as that of Matrix Laboratories Limited (Secunderabad) by US generic company Mylan Laboratories Inc. (Canonsburg, PA) demonstrate that India is on the minds of the global industry's decision-makers. At a time of risk and opportunity, fast-growing pharmaceutical countries such as India cannot be ignored. 

How the Indian pharmaceutical sector is reinventing itself

Revolution in Progress

In a nation of more than 1 billion people, the importance of vaccines goes beyond healthcare—it is a matter of national security.  Armed with this belief and a philanthropic vision that most Indians could be protected against hepatitis, DT–Polio, and other afflictions, Dr. Varaprasad Reddy entered the nascent Indian biotechnology sector in 1992 and has since managed to threaten the monopoly of large laboratories. That year, the Hepatitis B vaccine cost $33 per shot, and yet some families were subsisting on less than $1 a day. Meanwhile, India was importing only 180,000 doses per year.  

"I wanted to do something about this, but I received harsh responses from companies when I mentioned producing here," says Reddy, managing director of Shantha Biotechnics Ltd. (Hyderabad). "We therefore decided to do it ourselves, and with the help of a financial partner from Oman, we revamped a full lab. I also wrote to 70 Indian scientists that were working abroad and asked them to join the project. Three of them came, and we started our team from there."  

Thus began a movement in India that can be credited for the birth and rise of most of what is today India's biotechnology sector. "In October 1995, we could open our first facility, by which time we had cloned, fermented, and purified the antigen and were ready for scale-up. The country went from 180,000 doses in 1992 to today's 90 million doses, out of which 50 to 55 million doses are produced by Shantha." The move also triggered an influx of new entrants, which unexpectedly eroded prices and put the relatively young sector in difficulties. From $1 a dose, prices fell rapidly to the price of 4 rupees, slightly less than a single US cent. 

Companies like Reddy's had to move to new markets to  survive: Following successful prequalification by the World Health Organization, the first granted to an Indian company in 2002,  Shantha struck a deal with UNICEF, the United Nations Children's Fund, and today supplies 52% of the UN agency's  hepatitis vaccine for global use.  

Global demand diversified and combined vaccines such as DT–polio, and newer products such as erythropoietin (EPO) or interferon were rapidly added to the company's products list. 

Despite being a global company and a seasoned biotechnology player, Shantha has a turnover that ranges from one tenth to one hundredth of most direct western competitors. "Equivalent hepatitis products to ours are sold for $70 in the US, $40 in Europe, and we are selling our vaccine at 23 cents. The same thing happens for our EPO." In these conditions, the results posted aren't that impressive, but Reddy is confident that they will triple within a few years.  

Shantha captured the attention of French vaccine powerhouse BioMerieux, and by the end of 2006, the Lyon-based company acquired a 60% majority stake in Shantha. With this incorporation in BioMerieux's global network, Shantha is expected to become a major research and development center for the French company and a global hub for vaccine development.  

"Indian companies will look forward to find western sponsors for contract development and contract manufacturing," said Reddy. "We cannot have our own intellecutal property, because of lack of resources, but our innovation in India will be useful for western companies." 

Life isn't so relaxing at the top. Ranking first among Indian pharmaceutical companies, Dr. Reddy's Laboratories (Hyderabad) is in itself a model that a lot of companies in the Indian industry have either drawn inspiration from or at best imitated. Since 1986, when the company started as an active pharmaceutical ingredient (API) producer, until today as a $1 billion-plus fully integrated company, Dr. Reddy's is one of India's true multinationals.  

Like most of the country's life-science powerhouses, the company has expanded its know-how from APIs to formulations but has also put the emphasis on two elements that make the company a genuine leader: global approach and innovation. A year after inception, the firm was already selling APIs to Europe and rapidly establishing manufacturing bases in Russia and the Middle East. In 1994, Dr. Reddy's entered the US generic market and set up a manufacturing facility there. Meanwhile, strong efforts were made to increase research and development, with the notable creation of a state-of-the-art laboratory in Atlanta, Georgia. In 1997, the company filed its first abbreviated new drug application (ANDA) and from then on, experienced a number of successes. Dr. Reddy's was the first Indian company listed on the New York Stock Exchange and the first to launch the generic drug fluoxetine (a generic version of Eli Lilly's Prozac). The company expanded by acquiring distribution players in the United Kingdom, API producers in India, and Germany's fourth largest generic manufacturer, Betapharm (Augsburg). It established Auriegene Discovery Technologies (Bangalore), a contract research company, in 2002, a move that was intended to help Dr. Reddy's learn more about drug discovery through contract research.  

In time, the company became a one-stop shop for the global industry and put together its Custom Pharmaceutical Services (CPS). As explained by G.V. Prasad, the company's vice-chairman and CEO, "CPS is focused on innovators to get their innovations to market much faster. We have a large experience in sensitive organic chemistry, formulation development, and GMP manufacturing, and we use these skills to help biotechs as well as large pharmas to quickly take their innovation to registration stage and then follow on with manufacturing.... We started four years ago and should generate over $130 million out of it for this year."  

Within the industry, innovation is the real goal, and being the first Indian player to register a new chemical entity (NCE) is the end game. "We have the highest research budget in India and we have done a lot in the discovery area, process area, and formulation area," said Prasad. "We have a strong discovery pipeline, so I would believe we are a research organization.... Dr. Reddy's has always done things ahead of the curve. If a company is to succeed, it should not imitate but truly innovate."  

With a successful foray into the international market (Dr. Reddy's sales in the US alone reached $548 million in 2006), it might be time for the company to focus on India's growing potential. The company is going to have to fight hard to maintain its top position. A quick review of the country's talents and endeavors shows a number of companies catching up to Dr. Reddy's, demonstrating that it's not always comfortable being number one. 

Like many companies involved in the Indian life sciences, machiney makers are grinning broadly these days. Their client bases are growing steadily as competitive pressure pushes manufacturers evermore into global markets with stringent regulations and the need  to upgrade their facilities and acquire faster, cleaner, and safer machines for production. This trend marks the days of the best machinery makers, while those less capable are being left behind. Yet, for those who have invested the time, the future is bright.  

Ambica Pharma Machines (Ahmedabad) is one of them. A small player by any western standard, the company has been posting incredible growth rates, as much as 150% in the past couple of years, mainly because of foreign sales. Specialized in filling, capping, and washing machines, the company has noticed a new interest from the US market, in particular for its filling machines.  

The company's chairman and managing director Ashok Mistry explains that Ambica has reacted accordingly: "We have totally renovated our own factory, installed two computer–numerically–controlled machines from the US (one milling machine, one turning center), obtained ISO 9001 certification, and taken steps to improve the quality and revamping of our production tool. The market has reacted very favorably, and we have the feeling that we did the quality improvement exercise right in time, both for local and global market." 

As is the case for so many products, the Chinese competitive threat looms large, but Mistry is confident that the machines' quality and the postsales services aren't there quite yet. "Chinese machines might look quite okay at first, but actually cannot sustain comparison with our products. The metallurgy in particular is of substandard quality.  Meanwhile, our machines are today able to compete with western products." 

Cadila Pharmaceuticals Ltd. (Ahmedabad) is long established in India and could make global headlines in the near future. Established in 1951, the company has transformed into a vertically-integrated, multi-disciplinary player with a strong emphasis on research and development (R&D)—the field that makes India such a promising territory for the future of the global life-sciences industry.  From active pharmaceutical ingredients (APIs) to machinery, finished dosages, and vaccines, Cadila has developed an intuitive approach to what is required from the industry today. It is therefore unsurprising that contract research and manufacturing (CRAM) activities have been added to its list of capabilities.  

Indravadan A. Modi, the company's chairman, explains that Cadila's "CRAM activity is nascent. We have three small ongoing projects, all involving foreign partners. We have also just entered an agreement with one of the multinationals to develop two new generic products." This illustrates once again the rapid rise in interest on the part of multinationals to the cost and time-saving opportunities held in India. Cadila is a good example of a company that has successfully managed the transition into the post-2005 patent regime. It opens the doors of its formulation units to foreign companies and is making a point of respecting intellectual property, said Dr. Bakulesh Khamar, Cadila's executive director for research. 

Although Cadila's profile is largely in generics, it is investing heavily in R&D to develop a hybrid profile and to bring new chemical entities to the market, in particular in the field of adjuvants. The company is also working on drug-delivery systems. Recognizing the dual nature of his organization, Khamar adds, "We support the large generic companies as far as APIs are concerned and work in partnership with them, but today we also have a platform to work with the innovating companies on a partnership model. "  

Cadila is representative of various players that may soon bring additional value to the industry, both locally and globally. Modi, who has been at the forefront of the sector as president of the Indian Drug Manufacturers' Association (IDMA) and chairman of the Basic Chemicals, Pharmaceuticals, and Cosmetics Export Promotion Council (CHEMEXCIL), has been credited many times over for his belief in the strength of the public-private partnership and the positive impact of the 1970 Indian Patents Act on the industry. Today, he aims to provide a clear international approach to his organization and is proud to point out his company's five abbreviated new drug applications with the US Food and Drug Administration. The applications will be followed by two to three more this year, and as many as six in 2008.  

Meanwhile, on the API front, Cadila, under the leadership of Rajiv Varma, president of the company's API business, has 15 drug master files and will be submitting 10 to 12 per year going forward. It seems clear, therefore, that Cadila's dynamism isn't about to wane—rather, Cadila is a company to watch. 

Profile: Dishman Pharmaceuticals and Chemicals Limited

Contract research and manufacturing services (CRAMS) is a favored model among many Indian pharmaceutical companies. Some have added these activities to their core business alongside development, realizing its potential for outsourcing to the West.  Others established their companies with CRAMS from the onset. Take Dishman Pharmaceuticals and Chemicals Limited (Ahmedabad), one of India's largest companies. Since its establishment in 1989, the company's managing director, J.R. Vyas, has taken a unique approach compared with other local manufacturers. "Most of the companies here went after generic APIs [active pharmaceutical ingredients], then generic formulations," he explains. "The awareness for CRAMS has risen later, in particular for mid-sized companies. But opportunities lay for this size of companies: The model will become stronger and stronger in the years to come as Big Pharma companies who can also do it have already put their priorities somewhere else, like in formulations, creating their own field forces in Europe and the US and geting better value from their formulated products."  

With a strong base in specialty chemicals and a solid research and development backbone established following a $100 million investment, Dishman can help formulators develop compounds on scales from grams to tons. But the unusual aspect of the company's model is its strong noncompetitive dimension—the company is not a generic player. "We are a pioneer in the CRAMS profile and have to create our own structured models," explains Vyas. "We are not into generic APIs although we are producing intermediates and have the capabilities to develop generic products when required. So we have a technology-transfer division where we develop technologies for our customers, license them for a small fee, but offer to our clients the possibility to enter a supply agreement for the intermediates. This is both an innovative and contract manufacturing agreement model." 

Dishman expanded to the global market by acquiring in 2006 Carbogen-Amcis, a Swiss research company with three production facilities in Switzerland. The acquisition boosted Dishman's contract manufacturing business, allowing it to become the only contract manufacturing organization in India with high-potency manufacturing capability. "The model we are now offering is interesting as there would be one project manager, and absolute seamless development," says Vyas. "If it is a large tonnage product, we also offer our USFDA facilities in India, and can provide the customers with tailor-made development solutions. When an innovator works with someone like Carbogen, up to preclinical Phase I, they will want someone willing to do a very fast job for a few grams. After Phase I, when the biovalidity and the dosage is known, and the customer is deciding the target price for the API, that's when they start looking for the company who can improve upon the process. This is where we come into the picture. In Phase II, cost optimization becomes essential. India is the best location for that, as cost structure is optimal. You can therefore commit many chemists to be able to work this optimization at best. You need hundreds of experiments to find the best routes for your production, and the cost structure here makes it possible under the best conditions."  

While looking for additional opportunities in the United States and Europe, Dishman is also venturing into API production in Saudi Arabia and considering options in Africa. Dishman has established a sales presence in Japan as well. "Today, 90% of our business is generated around the world with 10% in the US, but with our acquisition of Carbogen-Amcis, we expect deeper changes," said Vyas. 

How Indian companies can become cornerstones in global growth plans

Many companies' stories illustrate how the Indian pharmaceutical sector is becoming a key ingredient for global success. Take Matrix Laboratories Limited (Hyderabad), a business venture started in 2001 by a young Hyderabad entrepreneur. In 2006, Matrix was acquired by US generics company Mylan Laboratories Inc. (Canonsburg, PA). The acquisition was a landmark deal for the Indian pharma sector in terms of size ($736 million) and the profiles of both purchased and purchaser. Mylan, one of the five largest generic finished-dosage forms players in the world, was established in 1961, strongly US-focused and had hardly ventured abroad with the exception of manufacturing facilities in Puerto Rico. Matrix, a much younger company, was established with global markets in mind, and quickly managed to sell its high-quality active pharmaceutical ingredients (APIs) around the world.  

In a nation of more than 1 billion people, the importance of vaccines goes beyond healthcare-it is a matter of national security. Armed with this belief and a philanthropic vision that most Indians could be protected against hepatitis, DT–Polio, and other afflictions, Dr. Varaprasad Reddy entered the nascent Indian biotechnology sector in 1992 and has since managed to threaten the monopoly of large laboratories. That year, the Hepatitis B vaccine cost $33 per shot, and yet some families were subsisting on less than $1 a day. Meanwhile, India was importing only 180,000 doses per year.