Quotes of the Day
If the top executives of the world's biggest drugmakers ever draw up a list of people they dislike most, Yusuf Hamied's name will probably be near the top. In 2001, Hamied, chairman of the Bombay-based pharmaceutical company Cipla, declared his willingness to sell AIDS drugs in Africa for less than 4% of the price charged by multinational giants—and created a public-relations nightmare for American and European drugmakers, who were immediately accused by health activists of exploiting Africa's impoverished AIDS victims. Two years later, the suave, articulate Hamied hasn't lost any of his flair for dramatic pronouncements. Asked to describe the current state of relations between Western pharmaceutical companies and Indian drugmakers like Cipla, he pauses, then says, "Today, the daggers are drawn."
The notion that India's upstart pharmaceutical firms could be a threat to Goliaths such as Pfizer or Merck might sound as hard to swallow as cod-liver oil. India is the world's fourth largest drug producer by volume, but its fragmented industry of 20,000 companies is still stunted in terms of revenues. Last year, the total value of India's drug sales including exports came to $6.5 billion, less than the $8 billion Pfizer raked in from a single blockbuster product, its anticholesterol drug Lipitor.
Yet India's copycat pharmaceutical firms are increasingly becoming a throbbing headache for Big Pharma. Not only are they expanding aggressively in the U.S. and Europe, they are also making inroads by challenging patents on some of the world's most profitable drugs so that inexpensive Indian alternatives become more widely available. The strategy is proving to be an unexpected boon to governments of developed and developing countries that are pushing to make cutting-edge drugs more affordable for their citizens.
No American blockbuster appears to be invulnerable these days. On Aug. 21, for instance, a stock analyst at Smith Barney warned that the threat posed to Lipitor from a potential generic rival created by Ranbaxy, India's largest drugmaker, was bigger than previously thought. That day, Pfizer's stock dipped 3% as investors grappled with the prospect of this unexpected challenge. Ranbaxy, a vigorous exporter to the U.S., claims that its generic version of Lipitor doesn't infringe on Pfizer's patent and is scheduled to argue its case in a Delaware court late next year. And this wasn't the first jolt that the world's biggest pharmaceutical company has suffered from an Indian rival. Last December, a New Jersey court ruled that another Indian company, Dr. Reddy's Laboratories, could sell a generic version of Pfizer's Norvasc, an antihypertension drug that garnered $3.8 billion in sales last year. Pfizer is appealing the decision.
One reason Indian companies are doing so well in America: they have learned to exploit U.S. patent laws that two decades ago were amended to allow for the sale of generic pharmaceutical products. In the mid-1990s, Indian companies searching for overseas revenue streams began pushing into the U.S., where chronically high prices for prescription drugs created a ready market for generics. Dr. Reddy's, for example, now generates one-third of its sales in the U.S. Though domestic sales for Indian drugmakers as a whole are growing at less than 10% a year, their exports soared by 20% last year. "Even the small and midsize companies are looking to go into the U.S.," says Giridhar Iyengar, a pharmaceutical analyst at ABN AMRO. Thanks to their successes in America, Iyengar thinks profits of Indian drugmakers might grow by up to 30% over the next few years.
Even as they succeed overseas, however, trouble is brewing at home. As part of an agreement with the World Trade Organization (WTO), India will apply international patent standards to its domestic pharmaceuticals market in 2005, ending three decades of protectionism and making it easier for multinationals to compete on Indian soil without being relentlessly copied. Currently, India's top 10 pharmaceutical companies spend only 3.3% of their revenues on research into new products—compared with the 10-15% their Western peers spend. Once the new patent laws are enforced, local drugmakers that don't want to be buried by multinationals will have no choice but to compete globally—and make original medicines themselves. "It's their fear of losing the domestic market post-2005 that's driving (Indian companies) to expand overseas," says Ashit Kothari, an analyst at brokerage firm ASK Raymond James. Dr. Reddy's Prasad admits, "Beyond 2005, growth will suffer in India."
There are looming problems on the international front too, as Western drugmakers fight back. WTO representatives meeting in Geneva last month hammered out an agreement that allows poor countries, when faced with crises such as AIDS or malaria, to waive international patent laws and buy cheap foreign copies of expensive drugs. Though Indian companies have had a huge impact on the prices of AIDS drugs in Africa (see chart above), they're not actually selling much of their products there because many African nations honor international patent laws. Cipla's Hamied estimates that his company provides drugs to no more than 30,000 AIDS patients in Africa, where some 29 million people are HIV positive.
In theory, the WTO agreement should benefit India's generic-drug companies by shielding them from strict patent laws. But many of India's drugmakers are angry about the agreement's fine print. According to D.G. Shah of the Indian Pharmaceutical Alliance, which represents the nation's largest drugmakers, the U.S. pharmaceutical lobby won key restrictions—for instance, a stipulation that generics sold under the agreement be manufactured in a different shape, dosage and packaging from the original—that make it difficult for non-U.S. companies to sell their products in poor countries and still turn a profit.
There are signs, too, that the expansion of Indian companies into America might get harder. For one thing, the constant court battles that are required when challenging patents are exorbitantly expensive by Indian standards. "Profit margins at some companies are declining because of litigation costs," says Kothari from ASK Raymond James. Even when a court case is won, the life of a generic-drug company is never easy: high profit margins last for just the six months that the company has an exclusive right to sell a generic drug. If India's drugmakers are to become truly global, they'll have to start producing the kinds of original medications that they now so freely imitate.
- Aravind Adiga | New Delhi
- Upstart drugmakers from India have invaded overseas markets, using low prices and lawsuits to attack giant rivals