On 5 April, 2001, the headlines may read like this: "Cheminor hits omeprazole jackpot". It could even be "Cheminor bites the dust in omeprazole race". No, omeprazole has nothing to do with horses; it is an anti-ulcer wonder drug.

It's also the largest-selling drug in the US with annual sales of $4 billion (that's bigger than the entire Indian drug industry) and is going off patent on 5 April, 2001. 

The Hyderabad-based Cheminor has challenged the Swedish pharma-giant AstraZeneca which holds the right to omeprazole (brand name Losec). If Cheminor's young and aggressive managing director G.V. Prasad succeeds, his firm will make more money in one year than it earned in the last few years. But if he doesn't? Well, he'll rake in a few crores, but five years of hard labour and an investment of roughly a million and a half dollars would have gone down the drain.

Research. Risk. Rewards. Excitement. High drama. For the Indian pharmaceutical industry, it's all coming together as a unique (some say once-in-a-lifetime) opportunity unfolds. Between now and 2005, close to 40 blockbuster drugs will go off patent in the US. They include E. Merck's $2.1 billion Zocor (off patent 2005; for hyperlipidaemia), Takeda-Abbot's $2.4 billion Prevacid (off patent 2005; for peptic ulcers), Bayer's $1.3 billion Cipro (off patent 2003; for infections) and, of course, AstraZeneca's mammoth $4.1 billion Losec. At today's prices, these drugs collectively sell for around $41 billion (Rs 1.8 lakh crore or roughly one-tenth of India's gross domestic product).

Even if you assume that once these drugs go generic, their prices will drop to less than 20% of their patented prices, you're still staring at a market worth $7 billion, about two and a half times the Indian pharma industry. And, on top of the first set of assumptions, if you assume that other countries like Israel, Italy and Spain will scramble for the same prize and eat into what we could nab, for Indian drug companies, it's still one helluva chase. Remember the classic Mackenna's Gold. Well, this is the New Economy version of that. India's pharma hot shots are already thundering in, figuring out ways in which the West can be won. Says Cipla CEO, Y.K. Hamied: "We have worked our way to the top in India. Now our focus for the next few years is clear, just go after the US generics market." For the seven Indian pharma majors that comprise the vanguard , it could mean additional sales of around Rs 4,000 crore in the next three years; their combined turnover today -- Rs 4,429 crore. But industry watchers say that if the Indian companies get it right, the numbers could be far bigger.

By year 2003, the US generics market is expected to be worth a mammoth $18 billion and will account for more than 40% of the world generics market. More important, 60% of generics sold in the US is imported. So, the most cost-effective supplier has the highest chances of breaking into the market. Now, a study by consulting firm McKinsey & Company suggests that the Indian drug industry's manufacturing costs are 45% lower than those of generic manufacturers in the West. This is thanks to lower labour costs (80% lower) and lower infrastructure costs (40% less). Read that as advantage India.

Today, the street prices (what you pay your chemist) of generic drugs in the US are six times their price in India, while for Europe, the figure is around four times. Now, even if you throw in things like higher costs of marketing or personnel abroad, the implications for successful Indian generic exporters could be huge. Says Cheminor's Prasad: "Even at rock-bottom street prices, Indian companies will still be profitable." Adds Ranbaxy Laboratories managing director D.S. Brar: "This is the opportunity we have been investing in so heavily in the last few years." Call it the pharma Y2K.

The heat is on. Prasad, for example, is constantly in touch with the best drug attorneys in the US, paying them as much as $300 an hour for their opinion on patent challenges. (Any new process patent is open to challenge from existing patent holders who could claim that the new process is not unique). Wockhardt is vetting a dozen job applications a week from scientists in the US to strengthen its R&D base. In the next three years, it is hoping to export Rs 450 crore worth of generics to the US -- a figure that's four and a half times its total exports today. Since Indian companies will be competing against each other, most strategies are hush-hush. But observers expect the biggest battles to take place in three areas -- infections, ulcers and hypertension.

These three disease types have some of the biggest drugs going off patent (Augmentin, Pepcid, Zestril) and are together valued at $19 billion at today's prices. Industry watchers moreover point out that Indian firms also have maximum research expertise in these areas. But to win this high-stakes game, the pharma companies will have to operate within the rules of the generics business. The sooner a company hits the market with its generic version, the more money it will make.

The winners in such instances are always the ones who are out in the market immediately after a drug goes off patent, because thereafter prices go into a free fall. In 1997, when the patent on Glaxo's anti-ulcer Ranitidine expired, prices tumbled between 50%-70% in the first six months . To be there when the drug goes off patent or soon thereafter calls for certain skills in research, manufacturing and expertise in legal issues relating to patents.
      
Broadly, there are two kinds of generics -- bulk generics and formulation generics. Bulk are chemicals sold wholesale and are the raw material for formulation generics, which are sold as tablets, injections. Predictably, the two distinct strategies evolving to tackle the US market are centred either around the bulk model or the formulation model.

Adopting the bulk route means you need to have your plant approved by the US Food & Drug Administration (FDA) and you sell the bulk to someone who will formulate tablets from it. The formulations option (considered more evolved) is a bit more ambitious. You file for an Abbreviated New Drug Application (ANDA) clearance, formulate the drug into separate delivery mechanisms and then sell it in the US. Incidentally, it's an 'abbreviated application' because unlike the innovator of the drug, the generic player needs to seek permission for a fewer number of processes. Of the seven largest Indian firms in the race for the US market, save Morepen, all are adopting the second strategy. Wockhardt received four undisclosed ANDA approvals just over a year ago. Within the next three years, Cipla will file eight ANDAs for marketing drugs that will go off patent between 2003 and 2006. It has already invested Rs 60 crore in a spanking new facility in Maharashtra to make generic formulations. Again, Sun Pharma is awaiting approvals for six ANDAs that it has filed. 

Bagging ANDAs isn't easy and it takes over five years to get the necessary clearances. It's also expensive. For companies like Ranbaxy, Wockhardt and Cipla, which have already received some 30 approvals among themselves, it costs anything between $300,000 and $500,000 per ANDA. That includes everything from, say, the research exercise to the final FDA certification. And, since each dosage or delivery mechanism (a 75 milligram tablet or an injection) requires a separate ANDA, the seven big firms in the race could collectively end up paying upwards of Rs 400 crore on ANDAs alone over the next five years, roughly 10% of their combined turnover.

Historically, Indian companies have by and large shied away from selling generic formulations in the US for lack of strategic intent, expertise or maybe even sheer guts. And those who did, returned bruised. Ranbaxy took the risk and invested over $100 million starting 1992 in setting up manufacturing plants, marketing and distribution infrastructure in the US. Then it proceeded to lose money on the investment. Wockhardt, like some others, was content supplying its antihypertensive captopril to Pittsburg-based Mylan Laboratories, the third-largest generics company in the US (sales: $721 million).

Little wonder, Indian outfits were left playing second fiddle to the likes of Mylan or New York-based Barr Labs (ranked ninth in the generic sweepstakes with sales of $444 million and a portfolio of 40 generic products) and even today account for less than 1% of the US generics market. Despite that, the pharma industry feels that the time is ripe to invade the US.

Blame it on serendipity. There are literally scores of drugs going off patent in the next half decade . That's thanks to the fact that in the early 1980s the number of new drug registrations spurted and after the mandatory 20-year period, all of them are going off patent. Thus, while in 1998, drugs worth only $1.1 billion went the generic way, this year more than $7.5 billion worth (at patent prices) will go off patent. In 2001, drugs worth $11.5 billion will go off patent. Says Ranbaxy president Brian Tempest: "The timing is apt. The chances of getting a foothold in the market is more surer now than before because there are more molecules floating around now." ...Continued