Here's the big break Indian pharma majors have been looking for in their global game. Raj Jain, Wal-Mart's chief executive designate for India operations, has opened a world of opportunity for them. The global retail behemoth is in advanced stages of negotiations with top Indian companies for direct sourcing of generic drugs for global supply. The move, a departure from the existing practice of direct marketing by Indian companies in western markets, will mean better margins and—even if the bully of Bentonville squeezes them hard—more importantly, a much-wider reach for the pharma majors. As for the retail behemoth—who can make or break manufacturers—a deal would mean bigger fortunes with the demand for generic drugs soaring in developed countries.
“Wal-Mart continuously studies the market to identify new product categories that are available for sourcing and would benefit our retail operations. There are numerous categories that our global procurement office is evaluating such as pharmaceuticals and consumer electronics,” says Mr Jain. His firm currently sources $600-million of goods directly from India.
According to industry sources, leading domestic firms like Ranbaxy, Dr Reddy's Labs (DRL), Cipla, Lupin, Sun Pharma and some mid-sized firms from Bangalore, Chennai and Hyderabad are in discussions with the retail major. And it's not just Wal-Mart. The UK-based Tesco has also initiated similar talks with Indian pharma firms, they add. Wal-Mart's move assumes significance as drug regulators in the developed world are pushing the case of generic drugs as an alternative strategy to reduce mounting healthcare costs. Indian Pharmaceutical Alliance (IPA) director-general DG Shah says the increasing importance of generic drugs in the developed world may be a reason behind the bulk sourcing.
What's more, Indian drug firms operating in the US and European markets are currently facing heavy marketing and litigation costs. “Companies like Ranbaxy and DRL are involved in expensive litigation to get 180-day exclusive marketing rights in the US for over two dozen drugs that are going off-patent in the next few years. Even if they get the marketing rights, they have to invest huge funds for establishing a marketing network, or to form marketing joint ventures with US firms. Marketing the drugs through retail chains will be an alternate strategy to reduce marketing costs in the US and Europe,” says Firstcall India Equity Advisors country head VVLN Sastry.
High litigation expenses stem from legal battles with US and UK drug giants that have been fighting hard to block the entry of cheaper supply from India as new drug pipelines of pharma companies in these countries are drying up.
Currently, Indian companies are chasing the $60-billion global market for generic (off-patent) medicines, which is expected to grow to $300 billion in five years. Almost half of this market is in the US and UK.
For the past few years, US subsidiaries of Indian drug firms like Ranbaxy and DRL have been supplying to Wal-Mart in the US.
Ranbaxy, for instance, is supplying anti-infective drugs to the retail giant. If Wal-Mart wants to extend the scope of the supply agreement with Ranbaxy, it can be extended to more therapeutic segments like anti-diabetic, anti-cholesterol drugs.
A Ranbaxy spokesperson told ET: “Ranbaxy has a good working relation with Wal-Mart and they are one of our leading customers in the US.” He declined to comment on the negotiations with the retailer. Cipla MD Amer Lulla also declined to comment.
In the US, the Democrats, who control the US House of Representatives, have given strong indications that they want to reform some aspects of healthcare in the US, particularly drug pricing. The US accounts for nearly half of the $600-billion global drugs market and is of crucial importance to pharmaceutical companies around the world.
Leading pharma companies are facing pressure from global generic companies, including those from India. The move by retail giants to source off-patented drugs from Indian companies directly may lead to lower sourcing from foreign drug majors.
|
