Re-Evaluating Pharma The travails of the Indian pharmaceutical major Wockhardt, which is having to consider the sale of its non-core businesses and to perhaps bring in a strategic partner so as to meet its debt obligations, highlight the none too happy turn that the global ambitions of Indian pharma companies have taken. During the boom years of the middle part of this decade, a number of Indian pharma companies (Ranbaxy, Dr Reddy’s, Zydus Cadila, Piramal and others), having become substantial exporters, saw themselves as potentially global players and consequently went on an international buying spree.

Debt was easy to come by in a world awash with liquidity and there were any number of relatively small pharma companies in the mature economies that were on the auction blocks. For the Indian players, it made sense to get a front office, customers and manufacturing facilities in geographies where they were already selling their formulations. But the ends of the boom phase of the economic cycle and the collapse of liquidity have changed the scenario dramatically; hubris has resulted in threatened nemesis.

Not everyone who acquired overseas assets is in trouble; those with a high level of debt like Aurobindo Pharma, Orchid Chemicals and of course Wockhardt have cause to worry. One way out for some of them has been to close down the operations they had acquired, as Piramal Healthcare has done with its plant in the UK, and Shasun Chemicals with its facilities in Switzerland.

The basic problem seems to have been the decision by Indian generics players to buy up other generics companies. If the global generics scene is marked by intense price competition in which only the giants with strong balance sheets can survive, it probably did not make sense for small fish (that is what most Indian players are by global standards) to buy up other small fry if that did not add to up to economic size in a global context. It is worth noting that no Indian player has made a serious bid for an independent drug research firm with a promising pipeline as a step to fulfilling the ambition to become a successful drug discovery firm one day.

Meanwhile, even as the more ambitious Indian players have been stopped in their tracks, the global pharma majors have gone about securing a foothold in the generics space by forging alliances with strong generics players in India. The partnership announced recently between Pfizer and Aurobindo Pharma falls into this category, and may point to the likely trend of the future. The truth is that the hope that the best Indian pharma companies would become successful drug discovery firms with patented products has not yet been fulfilled. It is still the generics space that Indian pharma firms continue to occupy. The choice that these companies face, therefore, continues to be the same: they can either go on doing more of the same — produce low-cost, high-quality generic bulk drugs and formulations — or go strongly into custom research and garner some additional revenue through in-licensing of products under patent.

The last avenue has been opened up with patent protection taking root in India. As for custom or contract research, Indians are particularly good at doing other people’s R&D as a service offering, at competitive cost, and perhaps that is what the better pharma companies should focus on. Meanwhile, as the ageing population in the developed economies forces their governments to cut health care costs, it goes without saying that there is a very bright future ahead for firms that can produce cheap medicines.