Revolution in Progress

How the Indian pharmaceutical sector is reinventing itself
Sep 02, 2007

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.