India - Opportunity in Pharma

India’s generics-based pharmaceutical industry is globally challenged on two counts. Business faces new tests as export growth is expected to slow down and margins come under pressure in a volume-driven business; and, two manufacturing facilities belonging to well-known firms and approved by the US Federal Drug Administration (FDA), have been checked by the FDA and found wanting. The first problem can be turned around by making use of a new opportunity that has presented itself — Barack Obama emerging victor in the US presidential elections — but there will be no success on that front if the second problem is not addressed.

A thoroughgoing reform of the US health care system is high on Mr Obama’s agenda, and he has promised a plan to bring under the system all those who are currently uninsured and remain outside the umbrella. Spreading coverage has budgetary implications most of the time and, for that very reason, is usually also accompanied by a critical look at costs. This will be particularly so at a time when the US fisc is under severe pressure and the deficit likely to grow as recession arrives in the wake of the financial crisis. US health care policy has traditionally oscillated between two influences — the need to reward innovation and the need to cut costs so as to be able to offer wider cover. In the late 1980s, when the US’ technological lead was threatened by the Japanese challenge, the need to promote innovation and improve productivity gained the upper hand. Today, the imperative is to cut costs.

Generic medicines, which have gone off patent and are therefore sold under their chemical names, cost a fraction of patented medicines sold under company brands. The Indian industry has emerged as a global generics player by achieving a new low-cost paradigm while maintaining quality. It is this quality label that has come under a cloud as a result of the protracted stand-off between the US drug regulator and the leading Indian player, Ranbaxy. The quality issue has been further highlighted by the FDA warning Sun Pharma about a facility that it runs in the US. These and other Indian companies must immediately initiate steps to put an end to such quality concerns, because failure to do so will affect not just them but all Indian manufacturers. Companies must not merely comply with all that the FDA asks for, but also be very open and ready to rectify lapses whenever these are pointed out.

The Indian pharma industry should in fact take a leaf out of the software book. The leading software players cemented their competitive reputation on the basis of high quality standards, and not just on cost. Indeed, they continuously raised the quality bar so that quality became a selling point. In this, the software industry was able to do what the Japanese achieved in manufacturing. Pharma must now do likewise.

Even as the quality issue is a matter to be scientifically and procedurally tested, it is a matter of perception in the wider arena, and stems from the feeling in the US that the FDA has been too lenient in approving both manufacturing facilities and new drugs. The Indian pharma industry should initiate a campaign to improve quality perceptions, among policy-makers as well as consumers, if it wants to use its present base to build much bigger businesses for the future.