Just when global multinational companies are inking deals to get more and more drugs manufactured in India, because of various financial and other considerations, giving a fillip to the domestic manufacturing capacity, recent media reports are carrying news items expressing apprehensions on possible declining trend of pharmaceutical manufacturing activities in the country due to ‘brownfield’ acquisitions of the domestic pharmaceutical companies by large multinationals.

Almost around this time, the Bureau of Labor Statistics data (USA) of May 2010 reported that the number of employees engaged in “pharmaceutical and medicine manufacturing” in the US went down by 5% from what it was about two years ago with around 35000 layoffs in the first half of 2010.

According to ‘New York Times’, there has been around 15,000 manufacturing job loss in Europe around this period.

Where the global manufacturing capacity has started shifting then?

As compared to above, the Department of Pharmaceuticals of the Government of India, as reported by Fierce Pharma, have indicated that pharmaceutical manufacturing industry of the country employed 340,000 people during April 2008 to March 2009 period with a sizable increase in number compared to the previous period. Overall, the industry provides employment to over 4.2 million persons directly or indirectly in India (Source: IDMA). This is happening despite a series of large to medium brownfield acquisitions in the country.

Moreover, a study by the Organization of Pharmaceutical Producers of India and Ernst & Young, based on 50 survey respondents from 30 pharmaceutical companies in the US, Europe and Asia, projects growth of formulations manufacturing and intermediate drugs in India at a rate of 43%, which is three times more than the projected global rate.

Growth in manufacturing through global collaborations:

With a large number of the world class manufacturing facilities conforming to cGMP requirements of various regulatory authorities across the globe, India is fast emerging as a global hub for pharmaceutical manufacturing services.

Emerging pharmaceutical manufacturing environment in the country, no doubt, is attracting a large number of global pharma majors to ink contract manufacturing deals, as mentioned above, with their Indian counterparts. Such collaborative arrangements with global partners are giving a further thrust to the pharmaceutical manufacturing activities of the country. To cater to the growing demand in manufacturing, some domestic companies are setting up ‘greenfield’ projects, while others are getting engaged in major expansion of their existing manufacturing facilities.

As per Frost & Sullivan, contract manufacturing market in India registered a turnover of around US$ 2.3 billion with a CAGR of 33% on 2010. RNCOS, an Industry Research solution company estimates that this sector will grow at a CAGR of over 45% during 2011-2013, in India.

Large global pharma companies like, Eli Lilly, AstraZeneca, Abbott, Merck, GSK and Pfizer have already inked collaborative arrangements with Indian Pharmaceutical companies related to manufacturing.

Eisai Co. Ltd of Japan inaugurated its second largest active pharmaceutical ingredient (API) production facility (after their Kashima plant in Japan) at Visakhapatnam on December 2009. The company is also to start a Research & Development (R&D) center for formulation development around the same place starting with four to five projects.

In the recent past the following predominantly manufacturing collaborative agreements have been signed by the MNCs in India:

Collaborative Deals
Year	Multinational Companies	Indian Companies
2009	GSK	Dr. Reddy’s Lab
	Pfizer	Aurobindo Pharma
2010	AstraZeneca	Torrent
	Abbott	Cadila Healthcare
	Pfizer	Strides Arcolab
	AstraZeneca	Aurobindo Pharma
	Pfizer	Biocon
2011	Bayer	Cadila Healthcare
	MSD	Sun Pharma

 

This is happening mainly because of inherent cost arbitrage, other factors being the same:

Comparison of Cost Advantage in India (%)
Costs in the Western Countries	100.0
Production Costs	50.0
R&D Costs	12.5
Clinical Trials Costs	10.0
Source: Pharmexcil Research

ANDAs and DMFs are manufacturing growth boosters:

Large portfolios of ANDAs and DMFs of domestic pharmaceutical players will also spur manufacturing in India:

ANDA approval by country:

 

DMF approval by country:

Comparison of Drug Master Filings (Type II) by India, China & World (1998-2007) (Figs. in Nos.)
Year	India	China	World Total
1998	32	27	316
1999	26	6	199
2000	33	9	201
2001	47	6	238
2002	55	20	264
2003	115	19	360
2004	160	25	435
2005	233	70	615
2006	267	78	627
2007	274	90	656
Source: Thomson Scientific,

Patent challenge to boost manufacturing for exports:

To further boost manufacturing, especially for exports, Indian pharmaceutical players have also started challenging global patents. In fact in patent challenge, India ranks just next to USA with a share of 21% of the total:

Country-wise Number of Patent Challenges (As on March 2008)
Country	Numbers
USA	200
India	113
Israel	89
Canada	43
Switzerland	34
Iceland	17
Germany	10
Other	32
Source: Thomson Scientific,

Boosting up domestic manufacturing with overseas acquisitions and collaborations:

At the same time, domestic Indian companies are also on a spree of overseas acquisition and collaborative deals. The following details from the Ministry of Commerce are a testimony to this fact:

Selected International Acquisitions and Foreign tie-ins by the Indian Pharmaceutical Industry
Company	International Acquisition (s)	Foreign Alliances, JVS, and other tie-ins
Nicholas Piramal	Pfizer-Morpeth (UK), Avecia Pharmaceutical (UK), Dobutrex brand acquisition (US), Rhodia’s inhalation business (UK), Biosyntech (NPIL Pharmaceutical) (Canada), Torcan Chemical (Canada), 51 percent of Boots (S. Africa), Biosyntech	Ethypharm (France), Genzyme (US), Eli Lilly (US), Biogen Idec (US), Chiese Farmaceutici (Italy), Minrad (US), Pierre Fabre (France), Gilead Sciences (US), Allergan (US), Hoffmann-La Roche (Switzerland)
Ranbaxy	Terapia (Romania), Allen-GSK (Spain & Italy), Ethimed (Belgium), Betapharm (Germany), RPG Aventis (France), 40 percent stake in Nihom Pharmaceuticals (Japan), Brand-Veratide (Germany), Efarmes (Spain), Be-Tabs (S. Africa), Akrikhin (Russia), Basic (Germany), Ohm Labs (US)	GlaxoSmithKline (UK), Janssen-Ortho (Canada), IPCA Labs (US), Zenotech (India), Sonkel (S. Africa), Cephalon (US), Gilead Sciences (US), Schwartz (Germany)
Dr. Reddy’s	Betapharm Group (Germany), Trigenesis (US), BMS Laboratories and Meridian Healthcare (UK), Roche’s active ingredients business (Mexico), BMS Labs (UK)	Novo Nordisk, Bayer AG (Germany), Par (US), Novartis (Switzerland), Merck (Germany), Clin Tech, Pharmascience (Canada), ICICI (India), Merck (Germany), Schwartz
Marksans	Nova Pharmaceuticals (Australia)	NA
Aurobindo	Milpharm (UK), Pharmacin (Netherlands)	Gilead Science (US), Citadel (India)
Sun Pharmaceutical	Able Lab (US), Caraco (US), Valeant Pharmaceuticals (US & Hungary), ICN (Hungary), Caraco (US), MJ Pharmaceutical	Dyax
Dishman	Amcis (Switzerland), Solutia’s Pharma (Switzerland)	Azzurro (Japan)
Orchid	Bexel Pharma (US)	Stada, Alpharma, Par, Apotex
Biocon	Nobex (US)	Centre of Molecular Immunology (Cuba)
Wockhardt	Wallis Labs (UK), CP Pharmaceutical (UK), Esparma (Germany), Pinewood Laboratories (Ireland), Dumex (India)	Pharmaceutical dynamics (S. Africa)
Cadila	Alpharma (France-formulations), Dabur Pharma Redrock (UK)	Schering (Germany), Boehringer Ingelheim (Germany), Vitaris (Germany), Novopharm (Canada), MCPC (Saudi Arabia), Cilpharm (Ivory Coast), Geneva (US), GSK (UK), Ranbaxy (India), Mallinckrodt (US), Mayne (Australia), Shinjuki (Japan), Zydus Atlanta
Jubliant Organosys	Target Research Association (US), PSI (Belgium), Trinity Laboratories (US)	NA
Matrix Labs	22 percent controlling stake in Docpharma (Belgium), Explora Lab (Switzerland), MCHEM (China), Fine Chemicals (S. Africa), API (Belgium)	Aspen, Emchem, Docpharma, Explora Labs
Glenmark	Kinger Lab (Brazil), Uno-Ciclo (Brazil), Srvycal (Argentina), Medicamenta (Czech), Bouwer Bartlett	Forest Labs (US), Lehigh Valley Technologies (US), Shasun (India), KV, Apotex (US)
Source: Source: Ministry of commerce, Government of India .(IBEF, Ernst & Young, The Economic Times, Individual company web pages)

Conclusion:

M&A is a natural business processes in any country with appropriate safeguards for any possible adverse effect on competition.  India has already put similar safeguards in place with the scrutiny of the Competition Commission before acquisition and continuous price monitoring by the National Pharmaceutical Pricing Authority (NPPA) after the acquisition is over.

It is worth mentioning, just on September 16, 2011, the Competition Commission of India, after stringent scrutiny on the impact of competition, cleared the proposal of Danone Asia Pacific to acquire the nutrition business of Wockhardt Ltd.

In the wake of all these, the apprehension that the ‘brownfield’ pharmaceutical acquisitions will retard the growth of ’greenfield’ pharmaceutical projects or have adverse impact on competition in the country, does not seem to hold much water. To a great extent FDI in ‘brownfield’ pharmaceutical acquisitions and the growth of ‘greenfield’ pharmaceutical projects in India, are unrelated.

Be that as it may, India should perhaps not expect that the country will continue to remain one of the pharmaceutical manufacturing hotspots for any indefinite period mainly because of cost arbitrage, which, in any case is not sustainable over a long period of time by any country.

As we have seen above, with the emergence of Asia, USA and EU are gradually but surely losing their pharmaceuticals manufacturing hubs’ status to China (API) and India (formulations). Who knows, some time in future, with the awakening of sleeping Africa, Asia will also not have the same fate?

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.