Davinder Singh Brar, who helped build Ranbaxy from scratch, today has a 50 per cent interest in GVK Biosciences and is advising Temasek of Singapore and Teva of Israel on their India strategies.
The US generics market has taken a turn for the worse. What is your estimate of the situation?
We are passing through a phase in the generics industry where the number of patent expiries in 2005 and, maybe, in 2006 are less. This is creating price pressures. If we go back in the history of the generic industry, we will find there have been troughs and valleys depending on patent expiry schedules. We are passing through one such phase.
A new dimension is the emergence of the "authorised generics". Companies initially went looking for huge windfall gains through (Para IV) litigations or patent challenges. But now research-based pharmaceutical companies are protecting their turf where they give a considered advantage to a preferred ally sufficiently ahead of time.
This has blunted the challenge from the generic companies, who knowing this danger, went into litigations. The ruling was in favour of the research companies and there is a realisation that the "authorised generics" are here to stay. That is one of the reasons that some of the windfall gains are going to be elusive.
There are also a lot more entrants from India and even China in the generics market and the availability of USFDA-approved raw material is easier. These abundant and accessible sources of raw material supply are leading to price erosion.
If you were to start a pharmaceutical venture now, what road would you take?
Times have changed since Ranbaxy chartered its course in the international market. While I would not say that building a generics company from scratch is impossible, I don't think it would be relevant now.
The way in which global generics markets are structured, if one wants to build a company of some magnitude, size and importance, then growing organically is not going to be the best route. Paradigms and equations have changed.
If you had been at Ranbaxy, what mid-course correction would you have undertaken?
I would focus on R&D, correct or fine tune the US strategy and look at inorganic growth routes, in that order. I would see what these changes spell for R&D.
Would you put your money today on patent challenges?
There has been a paradigm shift. Now, patent challenges have to be backed by an adequate flow from the generics pipelines. Only then does it make sense. But if a company is strategising only on patent challenges, it will run into a major handicap in the form of authorised generics.
Patent challenges will stay but they will be in the domain of big established generics companies that have the wherewithal to fight legally, develop that complex technology and wait for the court's judgement.
Where does the opportunity lie for Indian pharma?
There are plenty of opportunities. There exists a place for differentiated strategy even within the generics market. There is definitely a market for niche products. Take the example of Momenta Pharmaceuticals (of the US) that has only one product which it developed as a speciality product from a generic raw material and from that alone, its valuations exceed $500 million. It is now following it up with a similar second product.
If there is novel application of technology, product selection, delivery systems or a select definitive niche, one can create a large valuation without going through the standard ANDA route. Indian companies can emerge as preferred partners, alliance members, manufacturers, suppliers to foreign companies.
Nicholas Piramal is doing that through custom manufacturing. The total outsourcing through custom manufacturing alone will be $35 billion in 2005. Total Indian drug exports, on the other hand, will be about $3.7 billion during the year. So, even if Indian companies were to look at 10 per cent of the global custom manufacturing cake, it would double our exports.
If you look at contract research opportunities that will be serviced by companies in research space or offshoots of pharma companies, the potential is expected to be worth $14 billion.
There is also the emerging field of bioinformatics, chem-informatics and the value-added services involved there, which integrates domain knowledge with IT capability. This could account for as much as $10 billion annually. Overall, one could be looking at a pie of $60 million -- which is a huge possibility.
But if you look at the NCE programmes of Indian firms, there's nothing to talk about.
There is a funds constraint for carrying out huge R&D programmes when your income stream is coming from the generics market, both domestic and international. Clearly, there is a mismatch here. Some companies like Teva have handled this deftly.
Teva has harnessed the resources of research and academic institutes extremely judiciously and found collaborative partners to share the risks and the rewards to get into the innovation segment. The company was also a little lucky that its very first product turned out to be worth $1 billion. So, both luck and serendipity has to be on one's side.
Development of several Indian molecules has been discontinued...
These things happen in international research. If a research company has researched a product and its collaborator finds a better product in its own pipeline with better safety profile, then they would not pursue it's own molecule.
Given the scenario you outline, what is the focus for GVK Biosciences?
We are developing to be a front runner in the research services space.