In the early nineties, the major Indian pharma companies, particularly the top two, Ranbaxy and Dr Reddy's, took a major far-sighted decision. Led by Parvinder Singh and Anji Reddy, respectively, they shifted from lobbying to retain India's lax patents regime to arming their companies with a new vision.
Ranbaxy adopted a mission statement in 1992 to become an international research-based pharmaceutical company and Reddy went around the country saying that it was possible to do original drug discovery work in India.
Made in India: A Study of Emerging Competitiveness (2005)
I had written those words with as much enthusiasm as the pathfinders of the Indian pharmaceutical industry had transmitted to the rest of the country. But earlier this month, Parvinder Singh's sons sold Ranbaxy to a Japanese pharmaceutical company.
D S Brar, onetime managing director of Ranbaxy and Parvinder Singh's chief lieutenant, told the media after the sale that companies operating in the generics space were facing strong growth challenges.
Obviously, in over 15 years, Ranbaxy had failed to graduate into a primarily research-based pharmaceutical company and found the pricing pressures sweeping the generics world too strong for comfort.
Anji Reddy, personifying the spirit of the times, had told the Indian Pharmaceutical Congress in 1993, "The issue before us is not 'whether to accept the patent regime' but a question of when it will be accepted. . .The Indian industry. . .must make a beginning at new molecule invention. Drug discovery and development in these (developed) countries is estimated to cost between $100-200 million.
It is my considered opinion that in the Indian context such an endeavour may be accomplished within a cost of Rs 100 million."
Despite the cost advantage, Dr Reddy's hadn't made much progress either. But Anji Reddy is not giving up. He told The Economic Times after the Ranbaxy sale, "I must make it clear that a deal of this kind is unthinkable for my company. . . My family is fully aware that my excitement is only in drug discovery. We will build our company based on generic opportunities in the short run. But the focus in the long run would be on drug discovery Drug discovery can change the way diseases are treated. Our aim is to be a Merck or a Pfizer from India."
Not everyone has such a never-say-die spirit. Yusuf Hamied, the head of Cipla, the largest pure-play Indian generics company that has made waves globally by ignoring patents and supplying cheap AIDS drugs to poor countries, is foretelling his own doom.
He told the Financial Times that with current price cuts in generics, "we won't exist in 20 years". Fruits of Indian R&D will not be able to compensate for the sunset on reverse engineering wrought by the IP protection initiative since 2005.
Hamied is known for his flamboyance and ability to dramatise in order to lobby for a particular policy regime. The Indian pharmaceutical story, which predates the software story, is not about to end, felled by the cutthroat competition in generics and the inability, till now, of any player to make a mark in the drug discovery space.
What it needs is a new nuanced business model that does not adopt an either/or (generics or proprietary drugs) approach. Many have already adopted it in different variations and the model will evolve further with time. What the Ranbaxy denouement tells us is that it can take a generation or more to grow a viable IP-based drug company and the spirit of the early 90s was laudable but a bit naïve.
With hindsight, it is possible to say that a key mistake was to target small molecules via conventional chemistry when that area of knowledge was already maturing, with fewer and fewer successful products coming out of the stables of global leaders even and their proprietary pipelines getting thinner by the day. If Indian firms had targetted biotechnology products from 15 years ago then today's story would have been somewhat different.
The proportion of new biotechnology products to conventional chemistry products is rising, though the former is still far from the halfway mark. But success in biotechnology is even more difficult than success in conventional chemistry. India has over a hundred US FDA approved facilities but not a single one in biotechnology.
Both routes are a long haul but the future lies in biotechnology. Another mistake was to have missed out on buying discovery companies. Most of the buying till now has been on revenue streams, or for capabilities like formulations.
Goutam Das, COO of Syngene, the custom research arm of Biocon, is quite categorical that "Hamied bhai is not correct, the industry will not be going down in the next 20 years, though there will be mergers and acquisitions.
"The issue with pharma and bio is that we like to talk of things without having anything in hand, unlike the Tatas who have a prototype ready when they announce the Nano".
Indian generics firms will survive because Brazil will want the generics and Africa will need the AIDS drugs. In conventional chemistry, playing the generics game in a poor country like India has a long mileage. All new drugs entering the regulated markets today will become generics one day.
They will be covered by more than one patent. So research has to continue somewhere for patents to be challenged (non-infringing routes discovered) and international supplies undertaken when they become generic. India and China will play this game.
The nuanced model that Das sees emerging is different kinds of out-and-in licensing. You develop a molecule to the proof-of-concept stage, then the big companies come in, give you a milestone and payment, do the further clinical developments and market it in the US, Europe and maybe Japan.
Second, they come up with a target, ask you to develop a small molecule or monoclonal, then work with you on milestones and have marketing rights.
Third is pure cost and labour arbitrage, with big pharma taking most of the gains. "We will see many more collaborative ventures coming up, we will see a drop in the profitability of our companies overall, due to higher spending on R&D," but that will not lead to demise.