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Indian Pharma's incentives to do business in US on steady decline

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ET Health
16th May, 2019 11:02 IST
When Sun Pharma chief Dilip Shanghvi says he sees a big opportunity in China, the world’s second-largest drug market, it may be indicative of the unveiling of a new strategy at India's largest pharma company which could soon be mirrored by others in the sector. It’s an idea that’s been ripe for implementation for some time now.

In recent years, there has been a consistent decline in incentive for Indian pharma companies to do business in the US — the world’s largest pharma market. First it was the quest for getting speedy drug approvals to launch a generic the fastest. Along came the patent law suits, then the regulatory clamp downs, and now judicial enquiries and class action suits.

If found guilty of colluding on price increases of the generic drugs, Indian pharma companies shall face huge damages (in line with the profit earned out of selling the generics). These damages may potentially wipe off years of profits made by the companies. On the other hand, even if they are found not guilty, they will have run up huge bills in legal defence cost.

Although revenue from US businesses have risen steadily for Indian companies, the margins from these have dented, legal costs have spiralled, risks have grown manifold, and valuation of companies have taken a corresponding beating.

Despite being present in the US for decades, Indian pharma companies have not yet cracked the business of drug discovery — the more innovative aspect of the industry. What took pharma companies to move from level A to B is not necessarily helping them reach from B to C in the US. Either their strategies need changing or the market. But both will require some years, fresh thinking and enthusiasm and new investment of resources.

To be sure, Indian pharma companies have pivoted their strategy in the US — moving from plain vanilla generics to speciality generics. However, the new strategy too is fraught with challenges. Innovators are making it difficult for generic companies to launch low-cost variants of their specialty drugs. Complex generics are difficult to manufacture and the process of approval is more arduous than that for standard generics.

Nevertheless, not doing business in the US is not a choice for Indian firms . Revenue from the US constitute 40-50 per cent of the overall revenue of Indian pharma companies. Given this, it will be interesting to see how the top managements of leading companies strategise so as to prevent further destruction of the value created so far and make the effort of doing business in the US worth it.

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