Pharma: Is the 'Dragon' far behind? - Views on News from Equitymaster

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Pharma: Is the 'Dragon' far behind?

Oct 10, 2006

In the global economy, both India and China have staked claims as nations to watch out for in the future. Both these countries along with their counterparts Russia and Brazil (labeled as the BRIC nations) have been touted to emerge as the fastest growing economies by 2050. While much has been said about the impact of India and China on the dynamics of the global economy, here, we shall attempt to find out as to which country has the edge in the global pharmaceutical space. The Chinese edge...
As mentioned earlier, China has proven its capabilities in the manufacturing space and the same advantage extends to the pharmaceutical segment as well. Being a cost-efficient country, it has emerged as the preferred destination for outsourcing intermediates (used in the manufacture of APIs) and APIs. Chinese companies have forged growing relationships with top global pharma companies (referred to as Big Pharma) in custom manufacturing and also for outsourcing older APIs. Besides this, China also has the edge over India in the biotech field due to the presence of high quality research institutions and the Chinese government's commitment.

The number of DMF (Drug Master File) filings made by Chinese companies have also been witnessing a rise in recent times, highlighting the growing interest of multinationals in the country. In fact, India too, has been sourcing intermediated from China for the purpose of manufacturing low cost APIs.

Where India scores...
That said, while China is set to provide stiff competition to India in the API space, it still lags behind in the formulations segment. This can be gauged by the fact that in the global generics market, while India accounts for 25% of the ANDAs filed in the US market, China has yet to file a single ANDA. India's advantage vis--vis China lies in R&D, availability of scientific manpower, laws that have begun to recognise intellectual property and Indian companies having alliances with global pharma companies in research, generics and manufacturing. Even in the API space, while China has been growing at a fast pace, it still falls behind India in terms of overall filings made until now.

India is making increasing strides in the global generics space, as can be evinced by the progress made by Tier-I companies such as Ranbaxy and Dr.Reddy's. Ranbaxy is already ranked amongst the top ten generic companies in the world. Both of them have emerged as major contenders in the consolidation activity gaining momentum in the generics market and have also been aggressive in challenging innovator patents (Para IV). In contrast, the Chinese Tier -I company, Zhejiang Hisun, has yet to make a significant mark in the global generics market.

India VS China: Top company comparison
  Ranbaxy Hisun
Formulations presence in US Yes No
Formulations presence in EU Yes No
API presence in the US Yes Yes
API presence in the EU Yes Yes
Local formulations presence Yes Yes
Drug discovery research Yes No
DMF filings Yes Yes
ANDA filings including Para IV Yes No
Source: Newport Strategies

The equation: Present and future
Given the fact that the 'low cost distinction' is no longer a trait unique to the Indian pharmaceutical sector with the resurgence of Chinese companies in this area, Indian companies will have to focus more than ever on moving up the value chain. This has to be by capitalising on the generics opportunity (in both plain vanilla and value added products), strengthening efforts on the NDDS and NCE research front and continuing relationships with global pharma in research and manufacturing. At present, on an overall basis, India does have the edge over China in terms of relevance to the global pharmaceutical industry. That said, Indian companies need to capitalise on the window of opportunity currently available before the competition from China begins to pose a significant threat.

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