PHARMA

From GSK to Novartis, pharma

MNCs are struggling to grow in
India. What’s the diagnosis?

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 Synopsis

At present, only nine MNCs figure among the top 50 pharma companies in India and even their growth
has been either stagnating or declining. In the last five years, the Indian pharmaceutical market has
grown at a CAGR of 5.1%.But barring two, all the other MNCs have displayed lower-than-industry growth.
Why have the MNCs faltered even in a growing market and what will be the impact?

Rajesh Goyal (name changed) is distraught as he stares at an uncertain future. On

February 12, Goyal, 49, broke into a cold sweat as he opened his inbox. There was a
termination notice from the Indian unit of Swiss drug maker Novartis, where
Goyal had worked as a medical representative for nearly 13 years. The company
informed Goyal that its established medicine division (EMD) had not seen
competitive growth for many years, forcing it into economic challenges on account
of escalating costs, thus making it commercially unviable.

Later that day, Goyal saw news reports that said Novartis had transferred the
distribution rights of a few of its brands to Dr. Reddy’s Laboratories. The decision
was made. Overnight, Goyal found himself among 400 ill-fated medical
representatives who had been axed. There was no scope to understand what went
wrong, no townhalls either. As his family now comes to terms with a devastating
blow, Goyal is seeking alternative roles even as he struggles to keep his teenage son
motivated to enrol for a planned B.Tech course.

Speaking on phone with ET Prime, Goyal cracks up reminiscing how years ago, he
and his family had celebrated when he bagged the job with a multinational drug
maker and how he had dedicated his career to the organisation.

But Goyal’s ordeal is not an exception. Just a few months ago, US-based Eli Lilly let
go of around a hundred staffers as it transferred its rights of a few of its insulin
brands to Cipla. Last October, Danish drug maker Lundbeck folded up its Indian
operations as part of a global strategy.

These are just a few examples of how multinational drug makers are losing
interest in selling their legacy brands in India. Data from two decades ago reflects
the contrast.

In those days, GlaxoSmithKline Pharma used to be at the top of the pecking order
in the country, ahead of Cipla and Ranbaxy (now part of Sun Pharma). Pfizer and
Sanofi were among the others keen on expanding their presence, and investing in
brands and growth. GSK and Novartis spoke about adding to its talent base at that
time. Freshers from science or pharmacy streams in India vied for a break in
multinational drug companies like GSK, Novartis, or Pfizer to build their careers as
medical representatives.

However, with global drug makers now downsizing their frontline teams, those
prospects have turned bleak. At present, only nine MNCs figure among the top 50
pharma companies in India and even their growth has been either stagnating or
d li i I th l t fi th I di h ti l k th t
declining. In the last five years, the Indian pharmaceutical market has grown at a
CAGR of 5.1%, and barring two MNCs – Abbott and Boehringer Ingelheim – others
have displayed lower-than-industry growth.

Why have the MNCs faltered even in a growing market and what will be the
impact?

Stark reversal

Guess how many medicines were sold in India just over a decade ago? In 2008, the
figure was INR34,000 crore. That has jumped more than four times to INR154,000
crore in 2021, according to global data-science firm IQVIA.

This growth has been largely driven by domestic pharma companies such as Sun
Pharma, Cipla, Mankind, Alkem Laboratories, Lupin, and Dr. Reddy’s, while MNCs
have been laggards. A look at the context of these contrasting trends can help
understand them better.

Back in 2005, despite stiff opposition from domestic drug makers, India accepted a
product patent regime that effectively blocked the generic companies from
launching copies of innovative drugs before their patents expired.

At that time, Cipla patriarch and industry doyen Yusuf Hamied had warned that
India’s pharma industry was about to witness massive change that would lead to a
collapse of the generic-drugs industry. He also predicted that this would leave
Indian patients deprived of affordable medical treatment.

It turns out Hamied was partially right about the affordability of drugs, but his
point that MNCs may pose a threat to generic drug makers seems way off the
mark.

Except Chicago-headquartered Abbott, which zoomed to prominence from a

negligible presence following the acquisition of Ajay Piramal’s India formulations
business in 2010 for USD3.7 billion, most global drug makers have been relegated
to low importance in India. Abbott sells branded generic medicines unlike most of
its peers that sell innovative medicines, so their businesses are not exactly
comparable.

Consider these examples. GSK Pharma, Pfizer, and Sanofi, which were among the
top 10 pharma companies in India 10-15 years ago, slipped to rank 14, 16, and 17,
respectively in FY21. Their legacy brands like Augmentin, Calpol, Becosules, and
Combiflam remain the key contributors to revenue.

The ratio of Indian companies’ and MNCs’ contribution to the domestic pharma
market has been around 80:20 for the past five years. Though Indian companies
have been relatively high in growth rates due to multiple products and new
launches, several patented molecules launched by MNCs in the recent years have
given some boost to the MNC value growth trend as well, says Sheetal Sapale,
president - marketing at pharma market-research company AWACS.

While GSK Pharma, Sanofi, and Pfizer are relatively older companies in India, even
those like US drug maker Merck, which made a second entry in India in 2008,
appear to have temperedtheir expectations.Back then, Merck had launched its new
anti-diabetes pills Januvia (sitagliptin). MSD – as Merck is called outside the US
and Canada – was quite upbeat about India at that time and wanted to make a big
impact. Indeed, many believed it had the muscle, and wouldn’t settle for a
marginal presence.

Januvia did give MSD a head start. Despite an extremely high price of INR42 per
tablet at the time of its launch, doctors prescribed it to their urban and affluent
patients Over the last 13 years the brand and its combinations have seen a
patients. Over the last 13 years, the brand and its combinations have seen a
meteoric rise. The franchise is believed to be worth at least INR700 crore. But the
party will be ending soon.

Come July, Januvia will hit a patent cliff, leading to a wave of new copies that will
bite into its pie. How does MSD intend to cover the big hole created by Januvia’s
patent expiry?

Queries from ET Prime to MSD India went unanswered, but there have been a few
ominous signs of late. Sources say that over the last few months, the company has
seen exits in top and middle management. It is said to have shuttered its office in
Mumbai’s upmarket business district at Bandra Kurla Complex. There is talk that
its medical representatives may be impacted.

These developments have also brought back memories from 2019, when there was
a scramble by branded generics after the patent expiry of Novartis’s anti-diabetes
brand Galvus.

Although the Indian market holds strong potential due to its huge population and
rising disease burden, why has the enthusiasm of MNCs waned? For one, the
conditions to operate in this market are tough. These include government-
imposed price controls, poor health insurance penetration, uncertainties around
regulations, stiff competition from generic drug makers, and loosely-monitored
marketing practices.

As MNCs have standard global protocols on marketing practices, manufacturing,

and quality and regulatory compliance, it gets difficult for them to compete with
the tactics of rival Indian companies, an industry official says.

Despite the large market, the Indian subsidiaries of MNCs often account for a
fraction of the business, which limits the parent entity’s focus on India. While the
patented drugs portfolio of these companies performs quite well in India, they
patented drugs portfolio of these companies performs quite well in India, they
struggle to grow the products in which patents have expired.

The publicly-listed entities of several MNCs mostly house their legacy products
and are much smaller in size than the separate 100%-owned subsidiaries of the
parent company in India, under which the new innovative patented drugs of the
MNCs are usually launched.

Rajiv Gulati, an industry veteran who helmed Eli Lilly’s Indian operations in the
1990s and later led Ranbaxy’s global operations, says global drug makers are
experts at creating markets (or demand) around patented innovative products,
while generic drug makers create products suitable for low-income markets.“If an
MNC sees a market for a certain product that can be sold at a particular price
point, it will go all out to tap its potential. But when the product’s patent expires, it
is tough for it to sell a tablet at INR40 when a generic drug maker is selling the
equivalent at INR7. When an INR700 crore market crashes to INR150 crore with a
volley of players, there is little value left for MNCs.”

In the Indian context, a brand that has sales of INR600 crore to INR700 crore
stands almost equal to a mid-sized drug maker, adds Gulati. When that
opportunity evaporates overnight, no quick fix can help fill the gap.

Gulati says MNCs have been making significant gains selling top-tier oncology
drugs in developed markets like the US and Europe. But that’s not the case with
developing markets like India. They need to look at India with a tailored approach
on pricing and access. For this, the government also has a role to play as a provider
of health benefits to the masses.

Sanjiv Navangul, chief executive officer, Bharat Serums and Vaccines, agrees with
that point. Having worked in leadership roles at several multinational companies
like MSD and J&J, Navangul says the first thing India needs is to have clear policy
on issues like access and affordability of medicines. He cites the price-control
mechanism as an example. “There are medicines that producers have
discontinued due to the price caps. It [the situation] is either sell and make losses,
or leave,” he says.

However, two senior executives counter Navangul’s views saying that only a small
portion of the market is under price caps, and even for those, increments are
permitted annually.

Another veteran industry official who did not wish to be named, says the
government’s emphasis on atmanirbharta (self-reliance) is being seen through a
different lens by global drug makers. For an MNC CEO in India, he says, managing
three elements are important – local operations, headquarters’ expectations, and
the government. “Atmanirbharta is a fashionable word, but it is also about pitting
Indian companies against MNCs. There are regulatory issues that become tough
for MNCs to comply with.”

For example, he adds, Pfizer India has not received strong support from its New
York headquarters. “Part of it was due to the strident views of the headquarters and
the inability of the local managements to pushback.” Neither Pfizer India nor the
Organisation of Pharmaceutical Producers of India, a body that represents most
global drug makers, responded to questions from ET Prime.

Where do they go from here?

There has been a significant change over the last few years on another plane. Most
global pharma majors are increasingly focusing on developing products in the
areas of oncology and immunology, moving towards gene therapy and
personalised medicines. Upon successful commercialisation, these drugs are
highly priced in developed markets. The local subsidiaries of the MNCs launch and
market such innovative medicines. Their Indian product portfolio is linked to the
global pipeline of the parent company.

But then, demand for such

innovative products in a
"We (MNCs) have realised that developing and price-
we should do what we are good sensitive market like India
is limited. Even though
at, which is drug discovery and
these companies have
innovation." differential pricing for low-
— Sanjay Murdeshwar, country head and and middle-income
managing director, Novartis India countries, most people in
India can’t afford them.
Inadequate insurance
penetration adds to the problem.

From mass products like anti-infectives, and certain diabetes and hypertension
drugs the pipeline of MNCs is shifting to specialised products in areas of oncology
drugs, the pipeline of MNCs is shifting to specialised products in areas of oncology
and immunology. These don’t require a large field force for marketing, which is
why several MNCs in India are rationalising their frontline operations.

ET Prime spoke to some MNCs a few months back to understand their strategies
for the Indian market. They are focusing on specific therapies and their operations
and capital allocation will revolve around those areas.

For Novartis, the areas are oncology, immunology, ophthalmology cardiovascular

and renal functions. Sanofi is focusing on diabetes, cardiovascular, vaccines,
allergy, rare diseases, and immunology. While Merck is zooming in on immunology
and vaccines, Boehringer Ingelheim will concentrate on diabetes, cardiovascular,
respiratory, oncology, immunology, and retinal health.

Notwithstanding the commercial challenges, companies like Novartis and Sanofi

have set up hubs in India for clinical development, regulatory, medical affairs, IT
support, and manufacturing for their global portfolios.

Sanjay Murdeshwar, country head and managing director of Novartis India, says
the company has a rich pipeline. Since 2019, it has been launching two to three
new products in India each year, a run rate that is likely to continue. The parent
company has set a goal to increase access to medicines by 2025, which includes
almost a 200% rise in patient reach. If it wants to achieve this goal, India has to
feature as a focus market.

“We (MNCs) have realised that we should do what we are good at which is drug
 We (MNCs) have realised that we should do what we are good at, which is drug
discovery and innovation. There are many good Indian companies that have
succeeded in branded generics,” Murdeshwar says. “We all have an important role
to play in the Indian healthcare ecosystem and the role of MNCs is about
innovation.”

While Murdeshwar holds forth on the potential and access to new drugs in India,
Rajesh Goyal is out in the street, sweating it out for a job. He is also pushing the
medical representatives’ union for justice against the abrupt sacking by Novartis.

Ironically, the company’s growth meant he had to lose his job. “Why did this
happen to me?” he asks despondently.

There are no good answers.

(Graphics by Mohammad Arshad)

(Note: The article and headline have been updated for clarity on the publicly-listed
entities and subsidiaries of MNCs.)

(Originally published on Feb 22, 2022, 01:50 AM IST)

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