Indian Pharma's Second Life
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Image: Brian synder/ Reuters
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Jeff Kindler, CEO, Pfizer
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t was late evening in August 2008, Arjun Handa, then 28, vaguely recollects. He got a call from a senior executive from pharmaceutical major Pfizer’s Global Established Business Unit in New York, asking if he would like to meet up with their head. Handa’s first reaction was one of disbelief. Early into the conversation, he told the caller he was not interested in selling his family firm Claris Lifesciences. Shortly afterwards, Handa found that Pfizer’s business head David Simmons wanted to talk strategy — something Handa was fond of talking about.
A few weeks later, Handa met with Simmons in Ahmedabad and began visiting their offices in the US. Six months after Handa agreed to the terms in Singapore, he signed up with Pfizer to supply them drugs in May 2009. Handa says, “It was an opportunity [that] we were only talking [about] and no one seemed to be listening. And then it happened one fine day.”
Three years ago, this would have been unthinkable. Global pharmaceutical giants like New York-based Pfizer and Paris-headquartered Sanofi-Aventis, considered Indian drug firms parasites. Companies like Hyderabad-based Aurobindo Pharma and Ahmedabad-based Torrent, made copies of the costly-to-research patented medicines of the innovator firms and sold them cheap locally. These firms also fought court battles against the giant firms to disprove their patents.
The tide is now changing and how! In the last two years, the very firms who abhorred the Indian drug companies have inked around a dozen deals with them. Japanese firm Dai-ichi Sankyo set off the trend buying off India’s biggest pharmaceutical company, Delhi-based Ranbaxy Laboratories, in 2008. And now, big pharma companies will help Indian firms in distributing copies of international blockbusters medicines worldwide.
The trend is significant for two reasons. Until now, a clear line demarcated the local firms and their overseas counterparts — the Indian firms sold cheap copies, while the MNCs hawked high quality originals. In the new scenario where aggressive firms like Pfizer and UK-based Astrazeneca are looking for deeper associations with local firms, the line has begun to blur. So the fortunes of the Indian firms will now entwine with the MNCs, which was not the case so far.
Second, the long term survival of medium- and small-sized drug firms seemed unsure as they did not have the financial might to set up an international marketing set-up like the big drug firms Ranbaxy, Dr. Reddy’s and Sun Pharmaceuticals. It looked as if Torrent and Aurobindo had missed the plot, as their balance sheet sizes did not give them room to invest big amounts in research and marketing.
Before the recent run on its stock, Torrent’s market capitalisation was $500 million, a tenth of Sun Pharma’s, though both the companies were of similar size in the late eighties. The opportunity to licence their drugs to multinational firms, to sell in regulated markets like the US and Europe and in emerging markets excluding India gives them a new revenue source.
Torrent’s market capitalisation has more than doubled as this opportunity became apparent. The sale of injectable drugs by Ahmedabad-based Claris Lifesciences to Pfizer will constitute a sixth of the Indian company’s sales within two years of the deal.
On their part, the MNC drug firms are committing big resources for their new business strategy. According to a local Pfizer executive, who did not wish to be named, the company has hired several top notch sales professionals to enlarge the team that sells injectable medicines that it buys from companies like Claris. In March, David Brennan, CEO of Astrazeneca told investors: “.. inclusion of branded generics in our portfolio.. can create a material business of some 10 to 15 percent of our emerging markets business by 2014.” Around the same time, Astrazeneca tied up with Torrent to source generic drugs (drugs that are no longer governed by patents and can be freely marketed by companies) and sell them in emerging markets.
Change of Heart
At first glance, big pharma’s move to sell cheaper generic medicines in the US couldn’t be better timed. President Barack Obama has pushed through reforms to make healthcare cheaper but has still not passed any strictures against the giant drug firms. This may well seem a pre-emptive action by the drug companies to do their bit by offering to sell cheaper medicines.
There are deeper reasons than that. Astrazeneca’s Brennan and his team formulated their all new generic strategy as early as 2004, well before Obama took charge. Recently in Nasik, Maharashtra to inaugurate a plant, GlaxoSmithKline’s (GSK) CEO Andrew Witty said, “We will sell specialised generics in global markets but don’t intend selling unbranded mass market generics.”
In 2006, Pfizer’s CEO Jeff Kindler surprised the healthcare world when he said that his firm will market off-patent drugs of his competitors through their sales network. In the last twelve months, Pfizer has inked deals in India and bid over $4 billion to buy out German generics player Ratiopharm in March 2010. Pfizer’s aggressive bid only emphasises the seriousness of big pharma to pursue their generic strategy.
The underlying reasons, of course, are purely commercial. Over the last decade, blockbuster drugs have been few and far in between and big drug firms have struggled hard to keep their growth momentum. Pfizer’s biggest growth came from its acquisitions rather than from the success of its research-based drugs. Today, one drug, the anti-diabetic Lipitor, contributes $12 billion to Pfizer’s annual sales but will go off-patent in 2012. It quickly needs other large new lines of business to supplement the loss of business from Lipitor.
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