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India's biotechnology industry seems to be following the same growth strategies of its Big Brother, the pharmaceutical sector. Viveka Roychowdhury assesses the growth plans

If one were to use the lifesciences industry as measure of India's progress in sixty years of independence, the picture would be quite rosy. India's lifesciences industry started out with a few pharmaceutical players like Cipla Limited, Ranbaxy Laboratories and Dr Reddy's Laboratories, whose founders had one aim: to make the nation self sufficient in medicines. Today every medicine discovered is available in India, and the same pharma companies play a major role in meeting the medicine needs of other developing nations as well. In order to analyse the future growth plans of India's biotechnology players, one needs to first assess the growth models followed by Indian pharma.

Generics across geographies

Domestic pharmaceutical players have evolved way beyond their nationalistic goals. Aided by process patents, they adopted the generic route and amassed manufacturing might, based on chemistry skills and a low cost base, competing on price with multinational pharma companies. This is the first global growth model, that of being a generics player in various geographies. According to Hitesh Gajaria, Executive Director, KPMG India, "Indian companies are actively spreading their wings across multiple markets - regulated and semi-regulated ones and has already grabbed a 10 percent share of the global generics industry and in the years to come, this will only increase."

"The fortunes of pioneer biotech companies are completely linked to a single product and if a company has very good data coming out of this product, then automatically it has a very positive impact on the company and they get funding and keep pushing it through the various stages of the clinical development path." - Alok Gupta Executive Vice President & Country Head Life Sciences YES Bank

"Most Indian pharma players first made a name for themselves in domestic markets then adopted the 'plain vanilla' outsourcing model, wherein they maxed out their chemistry skills and profits as an outsourcer and deployed existing spare capacity to reach out first to unregulated global markets and later to regulated markets" - Sujay Shetty associate director PricewaterhouseCoopers

"Indian companies have already grabbed a 10 percent share of the global generics industry and in the years to come, this will only increase" - Hitesh Gajaria Executive Director KPMG India

As Sujay Shetty, associate director, PricewaterhouseCoopers, points out, most Indian pharma players first made a name for themselves in domestic markets then adopted the 'plain vanilla' outsourcing model, wherein they maxed out their chemistry skills and profits as an outsourcer and deployed existing spare capacity to reach out first to unregulated global markets and later to regulated markets. This is the second model, the contract research and manufacturing services (CRAMS) model Post 2005, Indian pharma adapted to the introduction of product patents by upping investments in research and development (R&D) to emulate the R&D research model of multinational pharma players, so that they could patent and launch their own blockbuster molecules. Indian pharma players may be 'late bloomers' as far as R&D is concerned but with the end of the blockbuster era, there was need for a new strategy anyway. As Dr Ajit Dangi, CEO, Danssen Consulting points out, "Clearly the conventional model of pouring billions of dollars in discovery research and hoping for a blockbuster to emerge after eight-ten years of painstaking work is becoming increasingly risky."

As Shetty analyses, Indian players' profits from the generic business found their way into drug discovery and research but with a difference. As MNCs like Merck and Eli Lilly sought to cut down costs by outsourcing portions of the R&D chain, players like Nicholas Piramal India Limited (NPIL), Dr Reddy’s Laboratories (DRL) and Ranbaxy seized the opportunity to enter the R&D services market, by partnering with their previous competitors. Not only did they earn revenues as the molecule progressed down the development path, but it also prepared them to take their own internal R&D processes further, faster. Gajaria points to the New Chemical Entity (NCE) pipelines of Indian pharma companies which have been built up through alliances (out-licensing, in-licensing and joint development) with MNC pharma companies.

Propriety R&D

Thus we have the third global growth model emerging, the R&D services model. The model has two flavours: companies invest their own money in drug research or depending on the amount of risk they wished to take on, either invited strategic collaborators on board or spun off their R&D businesses so that they could list and go public. Sun Pharma's R&D arm, SPARC has a moderately successful listing while NPIL's (now rebranded as Piramal Lifesciences) R&D hive off got listed in the last week of May. A specialist variant of this model is the proprietary research model, followed by Advinus Therapeutics, where Advinus shares the drug discovery risk with its partner, Merck. Alluding to the constant process of evolution, Gajaria mentions that most Indian companies have a presence across multiple segments- thus they have hybrid business models, although they may be focused on one or two key segments. Also, while some players have continued their focus on the existing business segments, some have shifted focus and tilted their portfolios towards new segments.

Over to biologics

If the US biotechnology market started out with small companies, who had one or two products in various stages of development, the Indian biotech market has chosen the services route to make its mark. Alok Gupta, Executive Vice President & Country Head Life Sciences, YES Bank points that the fortunes of these pioneer biotech companies are completely linked to a single product and if a company has very good data coming out of this product, then automatically it has a very positive impact on the company and they get funding and keep pushing it through the various stages of the clinical development path. Using the same parameter, Gupta points out that there are a but handful of Indian biotech companies, like V Life Sciences and Actis Biologics, who meet this 'classical' definition.

Utkarsh Palnitkar, Partner and National Leader, Healthsciences Practice, Ernst & Young classifies the different growth models followed by Indian Biopharma companies into the following broad categories:

• Services focus
• Biosimilar oriented for lesser regulated markets (including India)
• Pure-play integrated vaccine players
• Integrated companies with a presence in services to biosimilar development, manufacturing and sales and marketing.

The other niche areas pertain to pure-play bioinformatics, bioagri or bioindustrial sub-segments. Palnitkar points out that Indian companies started off from a one-product to multiple-product approach in biosimilars and are looking at new opportunities along with lifecycle management strategies. This has resulted in a commoditisation of the first generation product portfolio, mostly in the vaccine segment.

Hypothesising about the future, Gupta says that the biogenerics market could follow the same route as the small molecule generic market did: Indian players start manufacturing, become good at it, start exporting to non-regulated markets first and later find their way to regulated markets as regulation is put in place.

More players to join in

"The main factor tipped to hasten a change in existing business models is impending regulatory reform in US" - Utkarsh Palnitkar Partner and National Leader, Healthsciences Practice Ernst & Young

"The strategy of putting all your eggs in one basket and focusing only on one segment of business is becoming debatable" - Dr Ajit Dangi CEO Danssen Consulting

Industry observers reveal an interesting trend just taking shape. A new group of pharma players, with no biotech in their current portfolios, who have not yet entered the CRAMS space, are contemplating setting up dedicated biological manufacturing units for contract manufacture. This group is targeting the 'classical' small US biotech companies, who typically need just a few micrograms of a product at initial stages. They find it tough to find suppliers for their requirements and this is an opportunity waiting to be tapped. Analysts say that this kind of outsourcing is already happening in the small molecule market and logically the same will happen with biologics, where one vendor enters the picture early in the development stage, at pilot plant stage and as the molecule progresses down the development path, the same vendor scales up his supplies accordingly. As Palnitkar puts it, the Indian biotech sector is reliant on a strong partnering model. "Indian and Western Biotech companies can derive enormous synergies in combining their research and commercialisation skills. Certain Indian companies are already partnering with US companies to expedite the process of drug development and expand the scope of platform technologies to a large number of new drugs using the lower cost of innovation in India. India also ensures that the cost of failure is extremely affordable. This allows platform for the technologies to be evaluated for a number of molecules in addition to clinically evaluating new molecules. The partnership model is all about using cost arbitrage to deliver value arbitrage," he reasons. Thus as he points out, companies have shifted their business models to one of alliances from an erstwhile model of competition. This is as true of both the pharma and biotech sectors.

Futurespeak

All good business plans are dynamic in nature, evolving to meet emerging needs. Palnitkar avers that there are a range of challenges facing developers of biosimilars that developers of small molecule generics do not have to face. Listing these, he says, compared to small molecule generics, biosimilars are more expensive and complex to develop, and require a greater time and financial investment. These differences therefore make it trickier for biosimilar developers to access the market, lowering the number of overall competitors and reducing the potential cost savings between biosimilars and innovator biologics. Gupta feels that access to technology is a challenge, besides opaque regulation, human resources and funding. "Funding is difficult but not impossible," he reasons. Palnitkar stresses that the main factor tipped to hasten a change in existing business models is impending regulatory reform in US taking into account the stand taken by the US Food And Drug Administration (FDA) on biosimilars. Due in large part to payer pressure, the US FDA is re-looking the whole issue of affordable biosimilars or allowing parallel importation to allay the high expenses caused by innovative molecules, concludes Palnitkar. Gajaria mentions that evolving global regulations not just in the developed markets such as US, Europe and Japan, but also in developing markets will affect Indian players' plans. So also India's own evolving regulations will play an integral role in determining the attitude of MNCs towards Indian companies and the scope of strategic alliances between the two parties, warns Hajaria. The trend of regulators becoming keen to bring down prices of generic products, both pharma as well as biologics, as they believe this keeps rising healthcare costs in check, especially for weaker sections of society, is key to changing regulations and will no doubt call for new models of global growth.

viveka.r@expressindia.com