Burning Cash to Bust Those Blocks

Page 1 of 1
The Indian pharma gameplan appears more like irrational overreach and less like an achievement

Not so long ago, the Indian pharma industry was a shining example of successful globalisation. There was hope that riding on non-patent generic drugs India will emerge the world’s pharma champion. Now the reality is sinking in. The biggest player on the block, Ranbaxy, ran out of ideas and sold out to Daiichi of Japan. Two others, Wockhardt and Piramal, are reportedly seeking a buyer. Suddenly, the Indian pharma gameplan appears more like irrational overreach and less like an achievement.

So what went wrong? Was the business model flawed? Generics is a volume game. However, once India signed the Trips Agreement, a WTO-mandated patent regime, it became very difficult to take the reverse engineering route. Gaurang Mehta, head of pharma sector, Enam Securities, says, “Generics is a good business but you need deep pockets. A big marketing budget is critical if you need to build your brands abroad. Indian drug firms just did not understand how difficult market penetration in foreign countries is.”

The costliest error was its belief that you can discover original drugs by throwing money at labs. The truth is, no Indian firm has a blockbuster drug. A recent report from Bain & Company says that the blockbuster model was doomed in the Indian context. Developing a new drug takes $1.7 billion, and millions more to market it. The liquidity crunch accentuated the woes. Sujay Shetty, assistant director, PricewaterhouseCoopers, says, “In their quest for size, some of India’s top pharma firms like Wockhardt are overleveraged.” He adds, “We see at least two or three other firms in this sector going for mergers or outright selloffs this year.”

So is it the end of the road for the Indian pharma industry? Not if it tempers its ambitions and focuses on the basics. Growth can come from contract manufacturing. Analysts believe it is a $10 billion opportunity over the next decade. Add to that the potential in drug trials for foreign companies. Clearly, the Indian pharma industry stumbled because it couldn’t strategically push its own core strengths in generics and wasted too much money in trying to develop new drugs.