[Ip-health] (Economist) Battling borderless bugs: Western and emerging-market drug firms are invading each other’s turf
thiru at keionline.org
Mon Jan 9 04:10:19 PST 2012
The drugs industry
Battling borderless bugs
Western and emerging-market drug firms are invading each other’s turf
Jan 7th 2012 | MUMBAI | from the print edition
TO GET an idea of where the world’s pharmaceutical industry is heading, a leafy complex tucked off a hectic road in Mumbai provides a clue. In one part of the building, Abbott, an American firm, is developing generic drugs—a privilege it won when it bought the copycat business of Piramal, an Indian firm, for $3.7 billion in 2010. In the other part of the building Piramal is developing new drugs. The American firm wants to sell cheap generics in India; the Indian firm plans to sell original drugs in America. One might think that they were having an identity crisis, if each were not so excited by the switch.
The world’s drug industry is in flux. In the past, Western drugmakers thrived on innovation while firms in emerging markets made cheap copies of their products. Now they are invading each other’s turf. Blockbuster drugs are losing their patents and, despite some bright spots, research has become more costly and less fruitful. Big Western firms are now looking to emerging markets for growth, hoping to sell not just their patented drugs but generic ones, too. Firms in emerging markets are expanding their footprint, ramping up sales in the West and investing in research. It is an energetic exchange, but a risky one.
It is no surprise that Western drugmakers are looking further afield. America’s spending on prescription drugs increased by just 2.3% in 2010. As incomes rise elsewhere, the demand for health care grows. IMS Health, a research group, expects emerging markets’ share of drug spending to jump from 12% in 2005 to 28% in 2015.
Western companies are keen to tap this growth. Sanofi-Aventis, a French giant, has become the biggest producer of generic drugs in Latin America after its purchase in 2010 of Medley, a Brazilian firm. Not to be left out, America’s Pfizer, the world’s biggest drugmaker, bought 40% of Teuto, a Brazilian generics company. Some firms also hope that developing countries—many chock full of talented scientists—will help to fill their bare pipelines with new drugs. Merck, for example, recently announced that it would create a new research and development centre in Beijing, investing $1.5 billion over five years.
Many generics firms are keen to become more innovative. The model is Israel’s Teva. It is the world’s biggest generic drugmaker, but nearly a fifth of its sales in 2010 came from a patented blockbuster, Copaxone, a drug used to treat multiple sclerosis. To boost its research muscle, Teva last year paid nearly $7 billion for Cephalon, an American firm that sells cancer and pain medicines. And on January 1st it poached a new boss, Jeremy Levin, from Bristol-Myers Squibb, another American firm.
No company from the developing world has yet come up with a portfolio as diverse as Teva’s, but that may change. Brazil hopes that public investment will nudge its biotech industry forward. In India, PricewaterhouseCoopers (PWC), a consultancy, estimates that drug sales will grow 15-20% a year, creating oodles of opportunities. The Indian market is dominated by local firms selling “branded generics”—copies made by trusted generic firms. Recently, however, firms from rich countries have plunged in. Daiichi Sankyo, a Japanese drugmaker, bought India’s Ranbaxy in 2008 for $4.6 billion. Smaller deals followed, such as Reckitt Benckiser’s purchase of Paras Pharma. Abbott bought Piramal’s generic business for a whopping nine times its annual sales.
India’s drugmakers have many home-turf advantages, including long relationships with Indian doctors and hospitals. But they are also keen to reach consumers elsewhere. They are using several tactics.
One is to produce as many generic drugs as cheaply as possible. For many Indian firms America is their biggest market. They are eager to lower prices to grab a greater share. At a Dr Reddy’s plant in Hyderabad, huge blenders mix chemicals; powder is compressed into tiny tablets; green and white capsules jumble out of machines like popcorn; workers pack boxes methodically. An unskilled worker at the factory is paid a few thousand dollars a year. Dr Reddy’s may automate more processes to hedge against rising labour costs.
Another tactic is to buy foreign drugmakers, though this does not always work. In 2006 Dr Reddy’s bought Betapharm, a German generics firm, but supply problems and new price rules in Germany turned that into a disaster. Sun Pharmaceuticals, India’s biggest drugmaker, is trying to buy full ownership of Taro, an Israeli drug firm, but some of Taro’s shareholders are stubbornly against the idea.
The riskiest tactic for generics makers is to try to invent their own drugs. Changes in Indian patent law help—it now protects intellectual property better than before. But research is still hard in India: academics are reluctant to collaborate with filthy capitalists, and local investors are wary of the slow slog of drug discovery. “These are generic companies trying to be innovative companies, and it is not clear that those skills match,” says Sujay Shetty of PWC. However, he points to some exceptions.
Research requires cash. Piramal, thanks to the sale of its generics business, has plenty. Ajay Piramal, the firm’s boss, wants to create a new blockbuster. “It is the patented drugs that will be the real game changer,” he says confidently. Glenmark, a smaller firm, has had success by conducting early research, then licensing its technologies to Western firms with the money to conduct clinical trials.
Even as firms mimic each other, some judge that it is wise to collaborate as well as compete. India’s Lupin has a deal to market Eli Lilly’s anti-diabetic drugs in India and Nepal. Other collaborators have a broader reach. Sun Pharmaceuticals has a joint venture with Merck to develop and market generics throughout the developing world. Pfizer will license insulin products from India’s Biocon. The deal will bolster revenue as Kiran Mazumdar-Shaw, Biocon’s ambitious boss, continues to invest in new biotech drugs.
A lot could still go wrong with these new approaches to drugmaking. Research is risky: miracle molecules often turn out to be useless or dangerous. Acquisitions often go wrong, too: Daiichi Sankyo must surely regret paying so much for Ranbaxy. The rules governing medicine are strict and unpredictable. American regulators are trying to enforce stringent standards for foreign factories. India might broaden price controls.
Yet the battle to invent new cures and conquer new markets will grow fiercer, and the distinction between innovative rich-world drug firms and emerging-market copycats will continue to blur. Disease pays no heed to borders. Increasingly, drug firms won’t, either
Knowledge Ecology International (KEI)
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