Strategic Shifts…Opportunities and Challenges for India 1

Strategic Shifts in the Global Pharmaceutical Industry: Opportunities

and Challenges for India.

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,

unmet medical needs and premium pricing.

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

opportunities beckon developing nations with proven pharmaceutical proficiencies.

Amid this landscape, can India fast track its famed reverse engineering skills, adroit

intellectual capital, treatment naïve patients, quality capabilities and cost efficiencies to

achieve pole position.

Key global pharmaceutical industry issues

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.
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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

and wider acceptance by governments and medical insurance companies.

The higher number of generic approvals, mean more generic competition from cost

efficient players of developing countries, who are undeterred by the prospect of

imminent exorbitant litigation costs from the innovators.

Huge drug discovery investments are facing uncertain returns, or not paying off

profitably. Competitive intensity is severe and value pricing is an emerging reality.

Established successful strategies need an overhaul, to increase productivity as well as

operational and cost effectiveness.

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

due to the deal premiums, overestimation of synergies and integration failures.

Companies have maintained or increased market share, principally due to convergence

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

to speedily integrate and internalize opportunities.

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

world market share over the past two decades.

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

blockbusters, predominantly spread across chronic or long term therapy areas.

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

concerns, can have traumatic implications, even threatening a company’s existence.

Companies dominant in the blockbuster arena have to be extremely proactive to protect

their franchise.
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Increased competition from same-in-class molecules has led to diminishing market

share, and hence shorter brand reigns. Mature drugs in me-too segments do not

command a price premium, unless radically different.

Generic companies are getting better at attacking franchises and taking a significant

percentage of the market in an increasingly shorter time frame, leading to swifter

blockbuster sales erosion.

To protect their franchise, major players are targeting high value, technologically

innovative and lucrative, nichebusters. Potential areas for nichebusters include cancer,

virology (hepatitis, HIV), mental health (depression, psychosis, schizophrenia,

Alzheimers, anticonvulsants), metabolism (diabetes, osteoporosis, anemia, obesity) and

genitourinary (sexual dysfunction, bladder control) drugs.

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

ten percent was outsourced five years back.

Contract manufacturing, through site variations to developing nations, where quality

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

failure prone, early clinical trials.

Big Pharma extensively co-markets approved molecules of smaller players lacking

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

herbals market, unlike the pharmaceutical market, where the US dominates.

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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,

sedentary lifestyles and changing food habits, is getting increasingly vulnerable to

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.

Ubiquitous technology has ushered in revolutionary changes, but drastically reduced

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

looking at an accumulation of around 24 kg of extra weight.”

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

insignificant, player on the world stage. A combination of regulatory measures, home

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

pharma echelons. Emerging opportunities beckon in contract research and

manufacturing (CRAMs), biotech and generics – areas of Indian proficiency.

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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 to expand globally, and invest in quality capacities locally.

The Indian pharmaceutical export foot-print encompasses 150 countries. 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 pharmaceutical industry into a significant pharmaceutical hub.

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Indian demographics are also driving the demand for chronic therapies and areas of

unmet medical needs. Indian players could help find affordable solutions through

alliances, generics, contract research and novel drug delivery systems.

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

India’s presence in the lucrative drug discovery value chain.

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

traditional prowess in herbals.

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
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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.

A domestic shakeout may be imminent through the enforcement of regulatory changes

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,

principal growth drivers in the Indian market for decades.

Quality infrastructural investments in roads, ports and power, a harmonization of the

various Indian pharmaceutical regulatory authorities, and rationalization of duty

structures to encourage competition is essential. These measures can create an

environment, conducive to global business, as India Inc. revs up to take on global

competition, by global rules.

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Conclusion

Full Text Word Count - 1925 words

Key Words- Strategic shifts, Global pharma industry, Indian pharma industry

Document Type- Research paper

Geographic Terms- World Pharmaceutical market, Indian Pharmaceutical market

Strategic Shifts…Opportunities and Challenges for India 12

About the Author

Amit Rangnekar is pursuing a PhD in Business Strategy from Narsee Monjee Institute of

Management Studies (NMIMS), Mumbai, where he is also a visiting faculty in Marketing.

Equipped with a Masters in Marketing Management from Mumbai University and 15 years of

progressively responsible pharmaceutical industry experience, his research interests revolve

around the key dynamics and demographics, affecting global pharmaceutical strategy and

performance. Email- amitrangnekar@gmail.com

Bibliography

• IMS

• Scrip

• Express Pharma Pulse

• Pharmabiz www.pharmabiz.com

• USFDA www.usfda.gov

• Forbes

• Economist

• Company Annual Reports

References

i
Mergerstat, February 2003 and Cap Gemini Ernst & Young analyst report, Perspectives on lifescience
ii
The Pharma Review- Alternate Medicine October 2003