Let battle commence

The rapidly expanding pharmaceutical markets in China and India are attracting significant investments from large global drug manufacturers. Spending is spread across manufacturing and research activities, together with the acquisition of smaller national players. Collaborations between international industry and Chinese and Indian academic institutions are also becoming more common.

The Glenmark nce r&d centre in Navi Mumbai, India

Faced with slow growth in US and European markets, pharma companies are looking to invest in the buoyant Asian economies, reports Asia correspondent A Nair.

With its pharmaceutical market forecast to soar to more than US$100bn by 2015, China is turning into the new battleground for Big Pharma’s huge investment plans, and major drug makers such as GlaxoSmithKline, AstraZeneca, Novartis, Novo Nordisk, Bayer Schering and Bristol-Myers Squibb are drawing up their battle plans.

Pharma sales are ramping up in China and India at $23.535bn and $9.385bn respectively, according to Thomson Reuters, making them a major draw for drug developers determined to tap into a new market.

China is poised to become the world’s second largest pharma market over the next decade, arguably worth $109.5bn by 2020, and is therefore a focus of increasingly intense interest for multinational drugmakers. India is not dragging its heels either; it is set to become a promising market for patented drugs, otc and generic drugs. India’s current $12bn pharmaceutical industry is expected to double by 2015, and multinationals are racing against each other intent on forming alliances or complete buyouts to boost the development of new medicines.

China is poised to become the world’s second largest pharma market over the next decade, and is therefore a focus of increasingly intense interest for multinational drugmakers

In 2011 Pfizer’s piggy bank was overflowing with $25bn, while Merck stashed away an additional $1bn, swelling the company’s coffers to around $11bn. Johnson & Johnson too was flush with cash, with $28bn in its war chest. Analysts maintain most of this money made its way to India and China.

‘With manufacturing in APIs and generics rocketing up the charts consistently both in India and China since 2009, multinationals can’t help but track these swells,’ said Sudeep Kumar Singh, pharmaceutical analyst with Mumbai broking firm IIFL.

About 12 years ago, China and India accounted for less than 5% of total sales for global drug firms, but over the next five years, there would be a dramatic increase in representation to almost 20%, he added.

During a visit to China in November 2009, Novartis chairman Daniel Vasella made a startling announcement: Novartis would commit $1bn to expand and upgrade its Shanghai laboratory facilities to create the China Novartis Institute for BioMedical Research in Shanghai. Back in 2006, AstraZeneca had laid out similar plans to spend $100m on r&d in the country over the following three years. The following year, GSK announced the establishment of a $40m Shanghai r&d centre, primarily focusing on neurodegenerative disorders. Not to be left out, Novo Nordisk rushed in with a $100m investment in its Beijing r&d facility.

Artist rendering of the new Novartis Institute for BioMedical Research (NIBR) facility in Shanghai, China
© Novartis AG

Cut to 2012, and researchers at GSK’s r&d centre are now studying how the principles of traditional Chinese medicine can be applied to making new synthetic molecules. With the help of modern technology, to be brought in by the UK company, the push in China will be on new molecular entities with significant efficacy.

For most of the drug multinationals operating in China, new opportunities are unfolding for the development of drugs with particular relevance for the Chinese market. Big Pharma is eager to tweak its newly acquired local knowledge and facilities to broaden business horizons and build up sales both in China and in Asia as a whole.

A similar situation has been playing out in India, where top players have been vying for a slice of the growing pharmaceutical pie. While Sanofi plans to set up one of its largest vaccine plants in Hyderabad this year, GSK is scouting for acquisitions under $2bn. The world’s largest generic company Teva is also doing the rounds for potential collaborations, while Mylan is set to make a commercial entry into India. All these deals are set to take place early in 2012.

India’s expanding domestic drug market, combined with Big Pharma’s search for low cost production and US FDA-approved r&d facilities has led some multinationals to snap up numerous smaller drug firms. Many more are on the prowl, looking to expand their generic drug production capacities.

Even as Pfizer signed three product licensing agreements with Bangalore-based Biocon to develop a range of insulin for its international markets, GSK made similar arangements with Hyderabad-based Dr Reddy’s Laboratories. Similarly, Ranbaxy signed a pact in 2008 with US-based Merck for discovery and clinical development of anti-infective drugs.

India’s expanding domestic drug market, combined with Big Pharma’s search for low cost production and US FDA-approved r&d facilities has led some multinationals to snap up numerous smaller drug firms

Mumbai-based Glenmark Pharmaceuticals licensed a new biotech drug to France’s Sanofi that has the potential to generate revenues of $613m. While Glenmark received upfront payments to the tune of $50m, the Indian company also stands to earn double-digit royalties on sales. The original molecule was bought for less than $1m in 2007 from Canada’s Chromos, said Glenn Saldanha, chairman of Glenmark Generics. All these deals reflect the increasing faith of global pharmaceutical giants in Indian innovation capabilities.

According to business intelligence consultancy IMS Health, the US pharma market is set to grow by only 3% this year, whereas demand in emerging markets is expected to be robust, rising to 15–17%.

China is already the world’s third largest pharma market, with sales growing at an average 18% a year. Novo Nordisk plans to double its China r&d presence by increasing the workforce at its Beijing centre from 100 to 200 employees by 2015. Moreover, while Novartis scooped up a piece of vaccine maker Tianyuan Bio-Pharmaceutical of Zhejiang in 2010, Sanofi gobbled up Hebei-based BMP Sunstone in a $521m deal.

Sanofi is one of the companies that has invested heavily in India and China; shown here is pharma manufacturing in Beijing

‘China’s drug market is young and growing. The country represents opportunity for most of the multinational drug veterans, an opportunity that is made more attractive by difficulties elsewhere,’ said Sarabjit Kaur, a pharma analyst with broking firm Angel Broking.

The high-profile investment by multinationals is also set to boost the growth in young talent choosing to study pharmaceutical r&d-related fields. Kaur pointed out that Pfizer is making inroads with Chinese academics, forging a partnership with Fudan University in Shanghai to nurture clinical research talent.

Faced with record low approval rates by the US FDA and the looming patent cliff, collaborations with Indian universities too are becoming increasingly important for multinationals. Big drug firms have started to realise that a change in strategy is necessary to maintain profit margins and ensure that they remain competitive.

In response to the fall in new drug approvals, collaborations between drug majors and academic institutions has soared, say analysts. Companies are now aiming to develop therapeutics for rare diseases that have low patient bases but the potential to be highly priced drugs in under-served and overlooked markets, which are therefore lacking in competition.

In response to the fall in new drug approvals, collaboration between drug majors and academic institutions has soared

‘Their investment in the people marks a watershed moment for the pharmaceutical r&d space in China,’ said Bodheshwar Sanyal, pharmaceutical team leader at an investment banking firm in Mumbai. ‘Multinational companies have been shutting down their sites in Europe and the US and expanding their r&d operations in China, particularly in Shanghai and Beijing.’

The Chinese government has also decided to get in on the act and emphasise innovation; it has created several r&d hubs around the country focusing on the development of new medicines in life sciences and biotechnology. It also aims to strengthen intellectual property protection.

And with a number of leading drugs set to go off patent every year and generic penetration expected to increase across the globe, the Indian government has taken cognisance of the increasing export opportunity. In 2012 alone this opportunity is valued at $18.4bn.

For India and China, it will be a ‘painful procedure to change from replicating products of others to establishing proprietary innovations’, but widespread industry liberalisation has made both Asian countries part of the global economy. Not content with just taking advantage of the opportunity, Big Pharma is intent on maximising it this year.