Over the last couple of weeks we’ve blogged about the Ranbaxy-Daiichi deal a couple of times. Here’s another news item by Jyothi Datta. Of particular interest to us was the concluding section of the report where she very rightly point outs that the Ranbaxy-Daiichi deal represents a new hybrid model in the pharmaceutical industry where innovator companies such as Novartis are diversifying into generic drug market through subsidiaries companies such as Sanofis. In this respect she quotes Shamnad who ever so eloquently describes this new duality of interest as an ‘Ardhanarishwar’ sort of duality. (Ardhanarishwar is the Hindu God Shiva’s form where he is half-man, half woman!)
This duality of interest can be traced to several factors: 1.) Huge opportunities running into billions of dollars in the generic drug market – a market which innovator companies can ignore only at their own peril. 2.) The absolutely inefficient business model being followed by big pharma as of now i.e. for all the money that is pouring into the pharma industry there have been very few breakthrough innovator drugs entering the market in the last decades 3.) As a direct result of point no:2 investor confidence in the pharmaceutical industry has plummeted over the last few years with several pharma stocks taking a beating over the last couple of years.
All these above factors point to the need of pharmaceutical companies to remodel themselves to stay afloat and what better way to do this than to acquire companies like Ranbaxy which have a strong base in the generic industry, a promising R&D set-up & a robust marketing network over several countries around the world.
In this regards it is apt to refer to the Economist which in an article titled ‘The Next Big Thing’, dated
Emerging firms in countries like India and China are more of an opportunity than a threat for established drugmakers. “The most efficient way of making a computer is in cross-border transactions, making the design in one place, the chip in another, the keyboard somewhere else and then assembling the whole thing. The same will happen in drugs as well,” says Swati Piramal, of Nicholas Piramal. With the right support from western industry, that could be good for drugmakers—and their customers—everywhere.
Hopefully these predictions will bear out and the will have newer, cheaper drugs in the not so distant future.
how wd drugs be cheaper? wont this result in monopolies again? long time back to one of ur posts i had expressed this concern..is collaboration (between pharma and generics..buy outs, price fixing etc.) of any sort really beneficial to the people for cheaper drugs are concerned? there have to be external factors (rather forces) to control drug prices..like drugs price control authority doing something abt it. interestingly ..the 1st July hearing of Roche v. Cipla, the appellants rightly raised the argument that there are other mechanisms available to the govt to bring cheaper drugs.
I don’t think we can classify the Ranbaxy-Daiiachi combination as a monopoly. The Indian pharma industry is highly fragmented with over 20,000 small scale units and several bigger companies. Besides Ranbaxy derives most of its profits from foreign markets – so its those guys who should be worrying.
As for the question of cheap drugs – I based that conclusion on the fact that India enjoy a significant comparative cost advantage when it comes to pharmaceuticals. Till now this was limited to manufacturing – I’m guessing with the right combination and inputs from a new innovator company we can replicate this even in R&D. Cheaper R&D will push down costs of drug for sure.
But as you rightly pointed out drug pricing depends on a lot of factors and the DPCO is a vital factor in this regard.
Personally I think the generics market doesn’t need any price control because there is already intense competition in that segment. For every branded generic drug from Ranbaxy, Cipla – there are several hundred smaller units offering the same drug at a much cheaper price than Ranbaxy or CIpla. Its up to the doctors to prescribe the cheapest generic. Most of them don’t and hence the govtt. is planning to setup its own pharmacies selling generic drugs.
see also the edit piece in EPW (June 21-27, 2008).