India: An Emerging Knowledge Superpower

Sep 01, 2007

"India, as a manufacturing hub, offers safe, effective, quality medicines, at the very best prices. Now, we are on our way to become a R&D hub." For Dilip Shah, General Secretary of the Indian Pharmaceutical Alliance (IPA), India is currently on its way to undertake one of the greatest transformations ever experienced within the pharmaceutical industry, although the excitement has been over 30 years in the making. In 1970, India introduced "process" patents, which, unlike patents in America, allowed innovators to protect the way they made drugs, rather than the molecules themselves. This encouraged thousands of small drug copying companies to invent new processes.

The advantage of cost competitiveness

At present, the pharmaceutical industry has become one of the fastest growing industries in the country, with a value of $10 billion and a growth rate of 8 percent. When the country joined the WTO ten years ago, Indian pharmaceutical exports were less than 4,000 Crore Rupees. A decade later, its pharmaceutical exports are 14,000 Crore Rupees, and account for more than a third of the industry's turnover. This is mostly the result of the confidence built up in this strategic industry due to India's progressive adherence to its IP commitments. Now, the country is poised to achieve an annual compounded growth rate of 30 percent in order to double its pharmaceutical exports in three years. Some $60 billion worth of drugs are going off patent in the next few years.

(Courtesy of Ranbaxy)
This industry at present consists of around 300 firms in the large and medium sector, and nearly 1,000 units in the small-scale sector. The market share of Indian pharmaceutical companies has increased from around 20 percent in 1970 to over 70 percent today. The Indian pharmaceutical sector has witnessed a remarkable growth, from around $1 billion in 1990 to $11.2 billion in 2004/2005. The industry accounts today for 8 percent of the world's production by volume and over 2 percent in terms of value in 2004/2005. Furthermore, the country has demonstrated its potential in high technological capabilities and manufacturing standards by presenting the highest number of FDA-approved plants outside the United States.

Indian companies' biggest competitive advantage is their cost-competitiveness. A generic medicine can indeed be locally developed, tested, manufactured, and marketed for 20 to 40 percent of what it costs in the West. This mixture of low costs and ingenuity has helped Indian firms to expand their sales and acquire companies far beyond their borders. For example, both Ranbaxy and Dr Reddy's, India's two largest drug firms, have daring patent strategies, challenging big drug makers on some of their core patents in key western markets.

Dilip Shah, general secretary, Indian Pharmaceutical Alliance
Another great asset is that India has the second largest English speaking technical and scientific brainpower. This is why a lot of companies have started doing global clinical trials R&D, custom synthesis, bioinformatics, and statistics work in India, saving tremendous amounts in expenditures, because most of these things cost 50 percent less than in Europe or America. India offers, for example, a great opportunity to conduct clinical trials because a large number of patients are available and they are drug naïve—the system is pure from a research point of view. These trials can thus be completed for less than 30 or 40 percent of the cost in the United States.

"India is moving to a knowledge-based economy that includes the contribution of IT and technical manpower, which makes the cost of production cheaper", says Dr. Ajay Dua, Secretary to the Government of India for the Department of Industrial Policy & Promotion.

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