Is IT a Catalyst for India’s Drug Industry Growth?

Information technology (IT) was conceived and commercialized as a “specialty” in the developed countries in the 1990s. However, Indian entrepreneurs in both the U.S. and India commoditized it under India’s economic liberalization. This feat, along with membership in the World Trade Organization (WTO), has acted as a catalyst for Indian entrepreneurs.

The confidence gained from the success of IT has been spreading like wildfire in industries such as steel and generic API manufacturing. These successes have also led to tremendous growth in Indian innovation and wealth. Fortune and Forbes now include several people of Indian origin in their lists of the world’s wealthiest people. Could or would anyone have bet on this scenario 10 to 15 years ago? Most likely not, and bookies would have lost big.

Getting back to pharmaceuticals, companies in the developed countries have cried “foul” and suggested that lower labor costs, intellectual property infractions and lack of pollution controls in manufacturing are giving Indian companies an unfair advantage. Let’s examine these issues:

• Labor costs — They are higher according to the Indian standards. One cannot and should not compare U.S. salaries with Indian salaries in the same currency as the exchange rate gives a distorted picture. It does not account differences in buying power. Since economic liberalization, salaries in India are rising fast and it has the fastest growing middle class.
• Intellectual property — Prior to 2005, companies in India acted under the prevailing laws. Indian entrepreneurs simplified the chemistries of drugs and developed better manufacturing processes than their western counterparts, and that combination allowed Indian companies to produce lower cost medicines. They invested their profits and became even stronger. Since joining the WTO in 2005, however, Indian pharma companies have had to follow international regulations covering intellectual property.
• Pollution controls — Environmental control in India is about 30 years behind the current laws in developed countries. Companies are following the laws that do exist, but they might not be adequate, and certainly are not as strict as those in western nations. This can be construed as an advantage. However, organizations in developed countries have been the major purchasers of Indian pharmaceuticals and the laws of economics have prevailed. Various non-governmental organizations and concerned citizens have been after the Indian companies to implement pollution abatement equipment and processes. Progress is being made, but it is manifesting slowly.

Because of — or in some cases, in spite of — the various points outlined above, Indian companies are beginning forays into the manufacture of ethical drugs and biosimilars. There is significant development activity in ethical drugs, and another door is opening as a result of many biotechnology products approaching the ends of their patents. The product development successes of the last few years have given Indian companies a “can do” attitude.

In his inaugural address at Indian Interphex in Mumbai, Satish Reddy, managing director and chief operating officer of Dr. Reddy’s, shared some skepticism about the prospects for continued growth due lack of talent and resources. However, I believe they are available and can be tapped from the global village. Thoughtful use of talent can make the successes easier and will quickly change the playing field. Only time will tell the degree of change.

Sustained devaluing of the dollar presents a two-pronged benefit for Indian drug companies. In the last 12 months, the Indian rupee has appreciated by about 10%. Thus, in order to retain their profit margins, Indian companies have to improve their manufacturing technologies. This is possible, but requires focus and non-traditional thinking, which Indian intellect has in abundance.

Improved process technologies will increase conversion yields, lower production costs, curb rising labor costs and reduce water and land pollution (ecotoxicity). This is necessary for pharmaceuticals, as any specialty chemical that has a disease-curing value is “toxic to bacteria” and is therefore a pharmaceutical. Preserving ecology from toxins is necessary. If we have the best manufacturing technologies, remediation becomes significantly easier. Through innovation, Indian companies have an opportunity to move manufacturing technologies from the current, undesirable state to the “desired state.”

I foresee that in the next five to eight years, Indian pharmaceutical companies, like generics manufacturers, could become a force for innovator pharma companies in the West to reckon with.