PHARMA Generics playing to India’s strengths
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The
expiry of a patent on a drug brings about a precipitous fall in
its price soon after, as producers rush to cash in on the
opportunity posed by expanded markets. A window of exclusivity for
six months provides the first entrant a short-lived period to
recoup rich rewards. But the competitive environment that follows
180 days after patent expiry also presents producers in low-cost
markets as India significant scope, that has been successfully
leveraged by several producers. Many from the lot were present at
the recent annual congregation of the industry, CPhI India, in
Mumbai last week, and in an optimistic mood.
Cost
is key
The
advantage API producers in India have are well known. Typically,
APIs are produced in batch processes, in multi-purpose plants and
the technology development effort is highly chemistry intensive.
All of these play to India strengths. In addition, the investments
needed are not daunting, especially if the engineering and
fabrication of plants are done locally, even if designed to meet
international specifications. All of these translate to
significantly lower process development costs – with some
estimates pegging it at about a quarter of that incurred by an API
producer in Italy, a large producer of APIs in Western Europe.
None
of this is crucial when a drug is under patent, but soon after
when price pressures mount and margins are eroded, manufacturing
costs need to be pared to the bone. And there is no better place
to do this than India. No surprise then that for generics, India
accounts for about a 20% share now (in volume terms), and could in
the next three to four years grow this share to as much as
one-third.
Confronting
issues
This
will be an impressive achievement that the industry should
justifiably be proud of. But there are issues the industry now
must boldly address. The first is the unhealthy competitive
environment, which is largely the industry’s own doing. The
simple fact is that there are too many players here trying to do
the same thing – a state of affairs customers are only too happy
to exploit. Industry players will do well to take a hard look at
their portfolio, be more selective in the chemistries they handle
and turn their attention to the synthesis and manufacture of more
complex drugs – specialities of sorts. This will definitely
shore up margins, as is amply evident from the performance of many
of the companies who have dared to be different.
The
second – not unrelated aspect – relates to sustainable
operations. Too many of the industry players still resort to
shortcuts when it comes to environmental compliance and this is a
burden the environment can no longer bear. Pockets of Gujarat and
Andhra Pradesh have borne the brunt of this reckless development
and excuses that technologies to set things right are either not
available or are too expensive are simply not acceptable any more.
There is no getting away that manufacture of fine chemicals, in
general, and APIs & intermediates, in particular, has a high
e-factor – even going up to a hundred. In other words, processes
deployed in the industry could generate as much as 100-kg of waste
per kg of the desired product. This will need to be tackled by
astute chemistry and engineering, and this orchestrated approach
is widely known and practiced as ‘Green Chemistry.’ India’s
API producers must wholeheartedly embrace this approach to
manufacturing, which is as much a philosophical change as about
making the right technology choices. A slew of process
intensification technologies are now available that must be
exploited by many more of the API producers than now.
The
good news is that the ‘Green Chemistry’ movement has found
significant traction at least amongst some of the progressive
companies. Many have taken significant steps to recycle solvents,
as a first step – with significant and immediate economic
benefits, besides environmental ones, and attractive payback
periods. There are also many examples of successful valorisation
of wastes into useful products with significant value. Here too
investments can be recouped fairly quickly. But not all technology
shifts are compelling from a financial standpoint, and
over-emphasising the economic aspect is actually missing the
point. Many changes will require significant upfront investments
in making process changes, and cumbersome reporting back to
regulatory authorities, especially the ones abroad. This will
require strong commitment from senior management to the cause of
sustainable growth, not growth at all costs.
Moving
up the value chain
Some
API producers in India also see moving up the value chain into
finished formulations as a growth opportunity. Regulated markets –
notably the US – are most attractive, but serving them means
overcoming significant regulatory hurdles and is not for the meek.
The scrutiny is getting tighter – as evident from several high
profile failures in the recent past – and will require not only
significant investments in upgrading manufacturing assets, but a
sustained & uncompromising commitment to compliance. No
shortcuts will be tolerated and customers will be unforgiving. For
those who can stomach this, rewards will be substantial, as there
is immense scope to expand markets for generics not just in the
US, but also in several countries in Europe and even Japan. The
latter has been a particularly challenging market – one that
perceived generics as synonymous with poor quality. But that is
changing due reasons of soaring healthcare costs and sustained
efforts by the government to push curb this through the use of
generic options.
For
many other drug producers in India less-demanding markets such as
in Latin America and Africa, also afford growth opportunities.
Healthcare needs in those countries are not very different from
here, and there is growing acceptance of Indian products. But
risks abound – political, financial and even personal – and
partnerships with local entities may be the way to grow. The
Middle East is yet another area that India has hitherto nod had
much success, and companies are now making a beeline for markets
such as Iran.
Faltering
drug discovery efforts
While
generics have been a success story, attempts at drug discovery are
less so. While a dozen companies had programmes to bring a new
drug to the market, only a few are carrying on. Their failure is
as much about the lack of resources, as the absence of an
ecosystem that supports and recognises innovation, where failure
is the norm and success the exception. The emphasis has rightly
shifted to identifying lead molecules and then look to license out
to Big Pharma. While there are still expectations that a new drug
will one day originate from India, nobody is holding their breathe
in anticipation.
A
pragmatic option may be to focus on development of new formulation
and drug delivery techniques, generate intellectual property and
so stand out in the crowd.
The
transition to large molecules
As
the global pharmaceutical industry transitions to large molecules
– biologics – India’s pharmaceutical industry will have to
relook its long-term growth strategy. Due to the technical
complexities of biologics manufacture and the greater regulatory
hurdles, this space will be far more challenging than the business
of small molecules that the Indian industry is used to. Many
proteins that account for much of today’s market are under
patent protection, but that will change in due course. Indian
companies will do well to prepare themselves for this opportunity.
The biologics space, by its very nature, will never be crowded,
and could potentially be more rewarding, but first mover advantage
will be key.
India’s
generics industry has so far played to its strengths and seen
success. It can continue down this for some more time, especially
if it transforms and becomes a far more responsive and responsible
industry. This will require it to embrace both incremental
innovation and dramatic technological & business shifts.
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Chkly 09 dec14
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