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Pharma: Going hand-in-hand... - Views on News from Equitymaster
 
 
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  • Jan 9, 2007

    Pharma: Going hand-in-hand...

    The 'partnership' model for introducing patented and generic drugs has emerged as the new mantra for pharmaceutical companies in recent times. And we are not talking about only Indian pharma companies, but global pharma players as well. Increased competition, ballooning R&D budgets, regulatory policy changes and pressures to prune costs and improve profitability has meant that pharma companies worldwide have had to dig deeper and come out with strategies to sustain growth in this highly competitive environment.

    Global pharma: Jumping the 'partnership' bandwagon...

    Increased pressures on the R&D front have plagued global innovators such as Pfizer, GlaxoSmithKline Plc, Merck, Sanofi-Aventis and BMS amongst others. On one hand, their existing blockbuster drugs (having annual sales of US$ 1 bn and more) are losing patent protection ushering in generic competition, while on the other hand their research pipeline has been drying up. Pfizer's recent discontinuance of the much-hyped drug 'torcetripib' has brought to the fore the increased dependence of Big Pharma on blockbuster drugs. Consequently, to boost the product pipeline, many of these companies are either looking to ally with innovator firms in new drug development or in-license the potential drug candidates from smaller firms. This trend has particularly been evident in the case of biotech drugs.

    Increased competition and price erosion in the generics space have also prompted global generic players to partner with companies in India, which enjoy a low cost advantage to effectively compete and launch generic drugs in the global generics market.

    Indian pharma: 'Partnership' fever also catching on

    Most of the Indian companies are focusing on the global generics market to propel revenues and have yet to make a significant headway in new drug discovery research. Because of the high level of competition and resource constraints, the partnership model has been gaining considerable ground. These have mostly been in the following areas:

    Discovery research: Considering that discovery research is a high-risk, high-return business, Indian pharma companies have been either collaborating with global pharma companies or out-licensing their molecules in light of the huge investment involved and uncertainty in the outcome.

    Authorised generics: Indian companies like Dr.Reddy's have entered into authorised generics deals with global innovators to capitalise on the lucrative 180-day exclusivity to drive revenues and profits.

    In-licensing: In the product patent era, in-licensing agreements with global pharma companies are beneficial in stepping up new product launches in the country. Indian players are leveraging on their strong marketing and distribution network to launch the products of global innovators in the domestic market and also keep the product portfolio fresh.

    The way forward...
    There are pros and cons for both global and Indian players. For instance, global pharma majors are looking to in-license potential NCEs in the medium term to complement their product pipeline. However, due to increased demand for these potential drugs, the amount of milestone payments to be paid is expected to increase. Besides this, the royalties on sales will also increase proving to be a negative for Big Pharma. However, as far as Indian pharma is concerned, given the resource crunch, willingness of Indian pharma companies to bring outside expertise to the table for drug development should be construed as a positive step to stabilise revenues and profitability. For both, however, because the revenues will be shared, the potential upside gets capped. Nevertheless, considering the fact that conditions in the global pharma market are getting increasingly tough, partnerships will go a long way in sustaining growth and ensuring stability in the long term.

     

     

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