Pharma-not-IT-is-Indias-next-big-thingMany of the factors that held back this pharma industry in India are slowly being tackled.

The lynchpin of the future EU-India economic relationship, he prophesises, between bites, will not be IT, but the health industry inclusive of pharmaceuticals, medical devices and hospitals says Baron Ajit Shetty.

A Loyola College graduate, Bangalore-born Shetty, runs one of the world’s most successful pharmaceutical companies, Janssen Pharmaceutica. A subsidiary of Johnson and Johnson, Janssen has around 80 drugs to its credit, including widely-recognised names like Imodium and Motilium. From its headquarters in Beerse, where it tests up to 130,000 substances per day, the company’s reach extends worldwide to 52 countries.

Shetty is Chairman and Managing Director of Janssen’s Board. He is also one of two Indian-origin ‘barons’ in Belgium (the other being diamantaire Dilip Mehta) who was awarded the title for his “exceptional merits” by King Albert II in 2007.

What occupies a substantial amount of this baron’s time these days is figuring out how to increase his company’s visibility in India where it has a surprisingly modest presence. Currently a few Janssen products like Eprex and Risperdal are marketed in India and the company also operates a small research and development centre in Mumbai.

But Shetty says he realises that this is inadequate. For Janssen, India is not just a big market. Nor is it merely a low-cost base for manufacturing. “What we need to figure out is how to leverage India’s capabilities for the global market. Can it become our global hub for developing product formulations or IT processes, for example? Can we start conducting clinical trials in India for the global market rather than just for India itself?”

But even as he mulls over these questions, Shetty points to a series of obstacles that loom as speed-bumps on Janssen’s road to India. The first of these is the continuing laxity of intellectual property rights (IPR) enforcement. Although the IPR reforms in 2005 reinstated patent protection, Shetty says that their implementation is patchy. “The proof (of the efficacy of the new law) is in the pudding, or rather the practice.” The unpleasant experiences of several pharmaceutical MNCs are the reason behind the continuing scepticism with which Indian IPR laws are viewed abroad, he says, mentioning Novartis and the Gleevec controversy in particular.

However, the baron remains optimistic. “Indian companies know they can’t survive on the generic model alone forever. So once they have a serious self-interest in protecting patents that will be the tipping-point.”

Other outstanding issues include the pricing of medicines in India, which he claims is too low for an adequate return on investment. Moreover, given the importance of energy and transportation for the pharmaceutical sector, India’s “abysmal” infrastructure is another bottleneck.

While comparing China and India as pharmaceutical players, Shetty points out that the two are more or less at par when it comes to IPR-enforcement. But in terms of infrastructure, China trumps India resoundingly making it a more attractive destination for MNCs. Janessen itself has a production facility in the Chinese city of Xian which employs over 2,000 people.

A clinical trial, or the testing of new drugs on human beings, is another area where the Janssen MD believes India will emerge as a key player. “The fact that India has such a broad spectrum of patients coupled with low costs makes it an obvious candidate for clinical tests.” But evolving appropriate quality and ethical standards remains a challenge. The first step in this direction was taken recently when the registration of such trials was made mandatory.

Obstacles aside, Shetty predicts that next five years will see large-scale investments in India by global pharmaceutical companies. “We will see significant tie-ups with Indian research companies and collaboration in the field of generics also.”

India’s transformation into a big pharmaceutical player has begun, says the baron, referring to the recent spate of acquisitions in Europe and the United States by firms like Wockhardt and Dr Reddy’s. Indian firms are following a two-pronged approach — buying up companies abroad for better market access for their generics while simultaneously entering into partnerships with established MNCs for original research.

Once serious capital begins to be invested into original discoveries, there will no holding back the large and talented human resource pool in India. Shetty reveals that Janssen ploughs back 18 per cent of its revenues into research and development, a figure that amounted to € 1.137 billion (Rs 7,700 crore) in 2007.

Big research-focused pharmaceutical companies like Janssen have, however, found it tough going during the recession. With governments and insurance companies suffering a financial crunch there has been a moving away from expensive medicines to cheaper generics that is in the interest of the Indian players.

With a quick-sell for Belgium, a country that has the largest number of medicines in development in the world in per capita terms. “Its central location, tax regime and financing system make it a perfect destination for Indian investors,” he says. Facts Ranbaxy must have taken into account when it recently acquired the Belgian generics company, Ethimed NV.