* Sector dogged by patent rows, price cuts, quality issues
* Market leader Abbott, others still investing in India
* GlaxoSmithKline spends $1 bln to raise India unit stake
* Huge long-term demand seen underpinning double-digit
By Ben Hirschler and Zeba Siddiqui
MUMBAI, March 12 Global drugmakers have had a
nauseous time in India's $14 billion market. Prices have dropped
and valuable patents have been overruled as the authorities
strive to make medicines affordable for the 70 percent of people
living on less than $2 a day.
From a regulatory perspective, the government has "messed
up", as one top industry consultant put it. But with 1.2 billion
people increasingly seeking both on- and off-prescription drugs,
the market is too big for firms to simply throw in the towel.
The two top foreign players, Abbott Laboratories and
GlaxoSmithKline Plc, are actually stepping up
investment, and others such as AstraZeneca Plc are
considering doing so.
GSK has just spent $1 billion on raising its stake in
locally listed GlaxoSmithKline Pharmaceuticals Ltd and
plans to double Indian drug production by building a second
factory for about $140 million.
"There is a real excitement about India in GSK, in both
consumer products and pharmaceuticals," said Roger Connor, GSK's
global head of manufacturing on a visit to Mumbai.
India harbours an army of companies driving prices down with
copies of off-patent drugs. It also has a government imposing
wide-ranging price reductions and a legal system with a history
of disallowing patent protection. Perturbed, global drugmakers
are soldiering on.
Abbott, local No. 1 since buying Piramal Healthcare for $3.7
billion in 2010, has launched 40 drugs in India in the last two
years and will open a new factory for nutritional products later
this year, said head of Indian operations Bhasker Iyer.
Other drugmakers may raise stakes in local units made
cheaper by a rupee that has fallen 12 percent in value over the
past year compared with the U.S. dollar, said Aditya Khemka of
brokerage Ambit Capital.
AstraZeneca has said it hopes to take full control of
AstraZeneca Pharma India Ltd, at a cost of more than
$100 million, to give it greater flexibility in India.
Khemka believes Sanofi SA, which has said emerging
markets are important for growth, could well be the next to
raise its stake in Sanofi India Ltd. A Sanofi
spokesman declined to comment.
Even Novartis AG, whose cancer drug Glivec was
refused a patent by the Supreme Court last April, is launching
India stunned the pharmaceutical industry in 2012 by
overriding a valid patent on cancer drug Nexavar from Bayer AG
and issuing a so-called compulsory licence to Natco
Pharma Ltd, allowing the local firm to sell a copy for
a fraction of the price.
The threat of more such licences has since been hanging over
the sector like a Sword of Damocles, said Ranjit Shahani, head
of Novartis' India unit.
Yet the long-term prospects of the Indian market have not
deterred Shahani from launching new patented drugs.
"Based on activities on the ground, multinational companies
are actually taking larger bets on India," said Sujay Shetty,
pharmaceuticals leader for PricewaterhouseCoopers in India.
"Of course, there is dissatisfaction - but if you really
analyse the problems, many of them are working their way out of
the system. From a regulatory shock point of view, pretty much
everything the government could do to mess up, it has messed up.
So this is the worst you're going to see."
The probable handover of government following an upcoming
election to the pro-business Bharatiya Janata Party means the
threat of compulsory licences may be receding, Shetty said.
Market growth fell below 10 percent last year, largely due
to government-imposed price cuts on many basic drugs, while even
high-end biotech specialist Roche Holding AG agreed to
voluntary price cuts for some cancer drugs to improve market
Pricing pressure was a factor in researcher IMS Health
projecting India will be the world's 11th biggest pharmaceutical
market by 2017, from 13th in 2012, rather than eighth by 2016 as
forecast less than two years ago.
Nevertheless, growth should return to double digits in 2014
and stay there for years to come, said Hasit Joshipura, the head
of GSK's local subsidiary.
GSK is working within the low-price environment by chasing
volume. In some cases, the company charges just 10 percent of
"On a volume basis, 20 percent of what I make globally is
sold in India, so it is a massive business," said GSK's Connor.
Yet that makes up only around 3 percent of revenue.
The strategy's success depends on an efficient supply chain,
in a country where local companies such as Ranbaxy Laboratories
Ltd have been banned from exporting drugs or drug
ingredients to the United States because of quality concerns.
"You can be absolutely successful in India from a quality
and safety perspective," said Connor.
GSK not only makes medicines in the country but also buys
ingredients from local suppliers which are audited by GSK staff.
The U.S. regulator last month called on its Indian
counterpart for more collaboration on drug safety. In the
meantime, Indian officials have tightened rules surrounding
clinical trials to the extent that local firms Biocon Ltd
and Lupin Ltd have moved studies offshore.
Uncertainty over patent security and obstacles to clinical
trials are discouraging Western companies from conducting drug
research in India, though that was not enough to deter Novartis
from recently launching patented drugs such as Tasigna and
Jakavi for cancer and Galvus for diabetes.
"While we certainly would be cautious in our investments in
innovation, we do consider India to be an important market,"
said Novartis' Shahani. "You have to bet on demographics."