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126 T H E M c K I N S E Y Q U A R T E R LY 2 0 0 1 N U M B E R 1

India’s pharma
challenge
Ashwin Adarkar, Sankar Krishnan, and Sanoke Viswanathan

India’s drug companies will soon have to compete against global ones—
by global rules.

T he problems and opportunities facing midsize pharmaceutical

companies in the developed world are similar to those that will soon
face India’s leading drug makers. Historically, these Indian companies have
concentrated on reverse engineering patented drugs and selling them locally
for 8 to 15 percent of what they cost elsewhere. This strategy is unsustain-
able, for impending regulatory and demographic changes are making the
Indian market more similar to global markets, thus forcing Indian companies
to compete against global ones according to global rules. Indian companies
must either identify arenas in which they can compete successfully with the
large multinationals or develop new models of collaboration.

Significant changes are expected in the Indian market over the next five
years. First, in signing the General Agreement on Tariffs and Trade (GATT),
the Indian government agreed to adopt worldwide patent standards by 2005.
Despite industry expectations, the impact on prices is likely to be limited,
since only drugs patented in the West after January 1995 will receive protec-
tion, and they are likely to constitute less than 10 percent of the Indian
pharmaceutical market by 2010. The real impact of India’s decision to sign
the GATT will be the stagnant sales facing Indian drug makers, which
cannot reverse engineer and launch molecules patented by multinationals.

Second, rising incomes and a growing number of elderly people—sustained

by advances in hygiene and medicine—are driving a shift in the market away
from sales of vitamins and anti-infective and gastrointestinal treatments and
toward sales of treatments for cardiovascular problems, central-nervous-
system disorders, and other complex ailments. By 2010, cardiovascular and
central-nervous-system treatments, which accounted for only 15 percent of
the market in May 1999, are expected to account for 33 percent (exhibit).

Ashwin Adarkar is a principal in McKinsey’s Los Angeles office, and Sankar Krishnan is a principal
and Sanoke Viswanathan is a consultant in the Mumbai office. Copyright © 2001 McKinsey &
Company. All rights reserved.
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I N D I A’ S P H A R M A C H A L L E N G E 127

This increased convergence of multinational product pipelines and the

Indian market will inspire multinational pharmaceutical majors, most
of which have sat on the sidelines, to renew their interest in India.

These market shifts will require Indian players to develop new skills and to
form new kinds of partnerships. Since reverse engineering promises little or
no growth, Indian drug makers need their own source of patentable products.
Although taking on the majors may be difficult, Indian companies could
develop their own drugs by focusing on products that would be uneconomi-
cal for the multinationals to develop and commercialize: any drug with a
sales potential of less than $300 million a year. Examples include treatments
for diseases (such as tuberculosis) prevalent in low-price markets. In develop-
ing these treatments, local companies have the advantages of lower costs and
easier access to patients. Moreover, a savvy Indian company that lacked the
resources to conduct basic research could buy such compounds languishing
in Western pipelines. Capturing the full value of these products, however,
will pose a challenge, for Indian pharmaceutical companies typically lack a
significant global sales force; alliances may be required.

EXHIBIT
Developing drugs independently
isn’t the only option. Indian compa- What’s ailing India?
nies, with their world-class skills in Composition of therapeutic treatments, percent
chemical synthesis and process engi- Increase in sales Decrease in sales
neering, could be valuable partners
$3.7 $6.5 $10.5
for multinationals. Indian companies 100% = billion billion billion
could, for example, help reduce the Central nervous system 6 9 10
Cardiovascular 9
time it takes Western pharma com- Vitamins 10
15
23
panies to produce commercial lot Gastrointestinal 11 7
11 6
sizes. With today’s time-to-market 10
pressures, six months saved in scal- Anti-infective 32
29
23
ing up production could be the Antirheumatic 6 6 9
difference between a blockbuster Respiratory 8 8
8
and a “me-too” drug. At one end of Other 18 15 11
the scale, an Indian company could May 1999 20051 20101
in effect become part of the R&D 1
Forecast.
Source: ORG-MARG; interviews; McKinsey analysis
organization of a large multinational
by specializing in a step in the devel-
opment process or in a set of molecules. At the other end, world-class,
world-scale Indian “processing hubs” could serve global players in areas
(such as clinical trials) that leverage India’s cost position.

Finally, Indian companies could position themselves as marketing partners of

choice for multinationals trying to enter the Indian market. A local company
with a dominant franchise and access to India’s 400,000 doctors would be
indispensable for multinationals that lack minimum local scale.