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Pharma Industry: Coming of age - Views on News from Equitymaster
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  • Jun 7, 2002

    Pharma Industry: Coming of age

    One can safely say that the Indian pharma industry is now making its presence felt in the global market place. While the industry torchbearers are making rapid strides in both research and international business, smaller players are also fast catching up. The industry is displaying its expertise in producing difficult to manufacture super generics at the most cost effective price. On the other hand the R&D efforts though minuscule on the global benchmark, is not something that one can ignore.

    Once bound by the rigorous of DPCO, the industry seems to be coming of age. Recognizing the need to invest in R&D, the cumulative R&D has more than doubled in last five years. The industry seems to proving that the concerns over its survival post 2005 are unfounded to a large extent. Its not only the front runners that are looking for investing time and resources in research but other companies like Cadila, Glenmark, Lupin are also fast catching up. The country can now boost of 10-12 most modern and integrated R&D facilities. Dr. Reddy's insulin sensitiser from the company's research stable is something, which the global pharma industry is eagerly waiting for.

    Indian pharma companies have traditionally been good in medicinal and synthetic chemistry. This mainly involved copying drugs from international pharma majors with a different process. Recognizing the limited potential of this exercise post 2005 Indian pharma majors are now focusing their attention to drug discovery research.

    Due to prohibitive costs involved in conducting fundamental research Indian companies have focused attention to research in Novel Drug Delivery System (NDDS), which involves finding new and better ways of consuming a drug i.e. dosage and Chiral chemistry (involves discovering side effect free solutions for existing drugs). New drug research is a high-risk high return undertaking as the investments required in this research are immense. On an average it takes nearly $ 500m to develop a new molecule. Due to its high return proposition fundamental research is emerging as a primary focus area for pharma companies.

    Due to limited availability of funds most Indian pharma companies have been restricted to working on known and validated targets. Historically Indian contribution in the area of fundamental research has been restricted to screening and testing of compounds. The larger Indian companies have however started working on the target discovery and target validation processes in addition to basic analogue research (to find compounds with better efficacy and toxicity profiles).

    The trend, which seems to be emerging, is out-licensing of molecules after initial success is proved to counter the entry barriers in terms of funding. Typically, a large chunk of the research expense is spending on later stages of clinical trials. Thus, it makes sense for these companies to carry out preliminary research work, prove success and then license it out for potential royalty payments in the future. Dr. Reddy’s anti-diabetic molecule and Ranbaxy’s once a day Cipro-D holds great promise and once they are enter the commercial stage, Indian industry will have something substantial to boost of.

    Indian pharma R&D has come a long way in the last 3-4 years, from reverse engineering to drug discovery research. It seems to be a race against time where the long term profitability and to a large extent even survival of the company would depend on the level of fundamental innovation the company is able to accomplish. While the domestic companies are not yet ready to undertake the full new drug development process, they are making key strides in the drug development stage of the whole process.

    While on hand, companies are making considerable strides in pharma R&D, another area, which is putting the industry in the limelight is exports. Ranbaxy, the industry leader is rushing to enter the league of few pharma companies in the world with US$ 1 bn revenues. Ranbaxy is now one of the 10 largest generic companies in the US, with a unique distinction of being the fastest growing generic companies. Ranbaxy, which was the first one to identify the generic opportunity, is planning to take the company truly global. The company already has its marketing infrastructure across 25 countries and it exports to more than 90 countries across the globe. The company is rushing to enter the league of few pharma companies in the world with US$ 1 bn plus revenues. Ranbaxy is now one of the 10 largest generic companies in the US, with a unique distinction of being the fastest growing generic companies.

    Pharma exports have registered a sharp growth in the last decade. From a miniscule level of Rs 8 bn revenues in 1990's, the export value in the current year is expected to cross Rs 100 bn. And considering the rapid pace, at which Indian companies are penetrating export markets, these figures is only going to shoot.

    There is no doubt that the industry is in for most exciting times ahead. It is matter of time before Indian brands would capture a larger shelf space in the super stores of developed markets.



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