India poised for pharmaceutical boom

During a lifetime spent treating AIDS patients from Asia to the deepest reaches of Africa, Chinkholal Thangsing has noticed something extraordinary. Whenever patients learn that he is from India, their response is almost universal.

"They say, 'Thank you very much. You saved our lives,' " he remarks.

Dr. Thangsing knows they are speaking not of him, but of his country. For decades, India's drugmakers have been the pharmacy for the world's destitute, finding ways to copy the best medicines at the lowest prices. By some estimates, India's generic medicines treat half the AIDS patients in the developing world.

Yet this picture has begun to change since India decided to comply with global patent standards last year. Now as never before, Indian pharmaceutical companies are looking to expand business in rich countries, which, critics say, will come at the expense of the world's poor. The intent is to follow the footsteps of India's information-technology (IT) sector, which parlayed lower costs and improved innovation into India's greatest modern success story.

The timing could be fortuitous. As the cost of healthcare rises worldwide, Indian pharmaceuticals have positioned themselves to take advantage. For instance, Indian drugmakers now have 75 plants approved to make drugs for the American market – the most of any nation except the United States itself. Also, like Indian IT a decade ago, pharmaceuticals are on the cusp of an outsourcing trend that could become a $3-billion-a-year industry by 2010.

"IT reached that threshold" as a global brand, says Ramesh Adige, a spokesman for Indian drugmaker Ranbaxy. "The pharmaceutical industry is right there."

The concern, however, is that as the industry reaches for newfound levels of prosperity, it will leave behind those poor who have long depended on it.

The industry is trying its best to straddle the old and the new. Last month, Ranbaxy and a second Indian pharmaceutical, Cipla, agreed to provide half-price HIV drugs to the foundation of former President Bill Clinton. The Clinton Foundation will distribute the medicines to 100,000 children in 62 countries.

The pact is further proof that India is still in many ways the premier drug-provider for the developing world. "If you take the country as a whole, there is probably none like it," says Sujay Shetty, an industry analyst at PricewaterhouseCoopers. "No other country has that kind of influence."

Yet maintaining that influence might be difficult. Until last year, Indian pharmaceuticals were free to produce copies of patented drugs, so long as they made the drugs in a different way.

Given India's low production costs and its scientists' skill at "reverse-engineering," companies produced their own versions of patented drugs at a fraction of the price. Famously in 2000, Indian drugmaker Cipla unveiled new drugs for HIV patients that cut the annual price of treatment from $11,000 to $400. Today, 1 in 3 AIDS patients in Africa takes Cipla drugs.

The bounty of the third-world, however, was the bane of first-world pharmaceutical companies. They were outraged by India's patent laws, which protected only the engineering process, not the product itself. In turn, they made India a pariah. At last bowing to this pressure, India fully joined the global patent standards last year.

To some, this risks undermining India's responsibility to health in developing countries. "These drugs will not be available at these prices," says Amar Lulla, a managing director of Cipla, suggesting they could be 30 to 50 times more expensive.

He acknowledges that his company loses some business opportunities under the new patent regime, but he demurs that "it is no issue at all to survive." To him, the question is: "How do you juxtapose the human right to health with intellectual property?"

From a purely economic standpoint, however, the change in the patent law has been clearer, and – in many respects – more positive. For one, foreign firms are no longer afraid to come here. In the past, they knew that their patents would not be respected, so they stayed away. Now, foreign pharmaceutical firms are entering the market to target India's growing middle class, and they are considering outsourcing some research, which could cut costs as much as 60 percent, by some estimates.

At the same time, Indian companies are venturing abroad both to buy and to sell. Earlier this year, Dr. Reddy's Laboratories bought German drugmaker Betapharm for $570 million, gaining better access to the European market. The hunger to compete abroad is also evident in the number of applications filed by Indian companies to sell their medicines abroad. Worldwide, 37 percent of the Drug Master Files submitted last year came from India, the largest share of any country.

"The Indian pharmaceutical industry is fast becoming an integral part of the global pharmaceutical market," writes Hitesh Gajaria, an industry analyst at KPMG consultants, in an e-mail. "India's inherent strengths, such as low development cost, skilled and efficient manpower, and easy availability of raw materials, give it a competitive cost advantage."

At this point, India's great strength is still generic drugs. But India's leading companies are now taking the unprecedented step of investing hundreds of millions of dollars into research and design to invent entirely new drugs. "We need to take that next step up," says Mr. Adige of Ranbaxy.

For his part, AIDS physician Thangsing is not convinced.

Sitting behind his desk at his New Delhi clinic, outfitted in a faded black sweatshirt, he does some quick math. Already, India has more people diagnosed with AIDS than any other country in the world, and the number is increasing. In five years, when forecasts suggest the needs will be dire, India's new patent laws will be preventing its pharmaceuticals from making generics from the most up-to-date treatments.

He worries: "That's when the trouble will come."