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Just what the doctor ordered

Vivek Kelkar | March 24, 2005

It's no secret that multinational pharmaceutical companies in India have grown at a far slower rate than their Indian counterparts for the past decade or more. One reason was the government's Drug Price Control Order, which put the lid on the prices of several drugs.

Yet another reason has been India's patent regime -- India, till now, recognised only process patents. So it's little surprise then that GSK India (formerly Glaxo) has not exactly been a star in the Indian pharmaceutical firmament.

Between 1994 and 2004, GSK India's average sales grew by 7.7 per cent, versus the 21.8 per cent that the top five Indian pharmaceutical companies clocked, though it did better on profit growth (an average of 29.15 per cent, versus 26.96).

Much could change for GSK India now -- it has chalked out a new strategy that involves cashing in on the opportunities offered by clinical research and development in India, licensing and marketing drugs made by other pharmaceutical companies (known in the industry as in-licensing), launching high-tech and patent-protected vaccines that other Indian pharmaceutical companies can't immediately launch and molecules that are still protected by patents.

Indeed, GSK might even hit the acquisitions trail. Says Kal Sundaram, managing director of GSK India, the 49.15 per cent subsidiary of GSK Plc, "Our India specific strategy comes from the fact that India needs a broader focus for leadership, given the competitive environment. Therefore, one has to seek multiple revenue streams and hence country-specific strategies like in-licensing, which maximise our core strengths."

Yet GSK's gambit has one snag: some aspects of it are not exactly novel. "It may not be quite so much different as born out of necessity, since there are few new ideas," says a marketing director of a leading Indian pharmaceutical company.

Adds a senior executive at a large Indian pharmaceutical company: "Vaccines may be a new thing for India but Indian companies will also stress sales and marketing and in-licensing. Some Indian companies like Nicholas Piramal and Sun already have an in-licensing pipeline in place. Credibility may have been a problem for Indian companies in the past but it will not be an issue in the post-2005 era, with patent protection in place. The Glaxo strategy uses a mix of all its strengths, which is good. But more can be expected to follow such a strategy, which will negate its uniqueness."

What precisely is GSK trying to do? It has already embarked upon licensing other companies' products and selling them. "We have in-licensing agreements with companies like Novartis and Organon to sell some of their products in India," Sundaram points out.

The in-licensing strategy will be kept at a somewhat arm's length relationship from its UK parent -- the 100 per cent subsidiary of its UK parent, GSK Asia, will not be involved.

"All in-licensing agreements will be done through GSK India," Sundaram emphasises. He adds: "For any MNCs that want to create brands in the country, GSK is a good potential partner through in-licensing."

GSK India needs stronger revenue streams in the immediate future despite the growth potential of its current stream of 30 "power" brands. Analysts think that few of these mature India brands will sustain high growth rates -- several could grow at the market rate or slightly higher.

So GSK India needs to offset pressures on margins and topline growth over the next two to three years, as analysts point out. Sundaram replies that this is just what the in-licensing strategy will address.

The other advantage in-licensing offers GSK is that this will help fill gaps in its product portfolio, especially in its core focus areas of lifestyle disease segments like cardio-vascular, central nervous system and diabetes segments. Filling these gaps are important because the Indian market has a huge generics component and the competition in these areas is fierce.

The other prong of GSK's strategy is the vaccines it wants to launch. These are to be produced at a plant in Nasik and the first of the products are expected to hit the market in 2006.

The vaccines are also somewhat India specific, with products for malaria, TB, Hepatitis E and even kaala azar, all India-oriented diseases.

Says an analyst: "GSK's strategy seems to be to focus on building a franchise that stresses dominance in segments with high entry barriers either through technology like vaccines or through its product brand or doctor image. It also has a focus on ensuring a wide range. Hence, its in-licensing strategy will keep competition at bay since two or more products in one segment can effectively ensure a larger company-wide marketshare."

Also in the short run, GSK won't be drawing on its parent's $4-billion product portfolio, but on the Indian arm's sales and marketing skills, maximising returns from its sales force and doctor relationships.

GSK India's ability to grow brands and squeeze productivity out of its sales force has been demonstrated in the recent past. Augmentin, the anti-infective brand it acquired from SKB, was ranked 50 in the ORG-IMS survey in terms of sales in 2001 and now ranks at the top of its category.

Yet, given that anti-infectives remain the laggard category for the future in the Indian market, it's not a market where huge further growth may be possible, highlighting GSK India's problem.

In the medium term, GSK India will bring to India blockbluster drugs from the UK parent's portfolio. GSK India may not be the vehicle for technology-intensive, value-intensive or intellectual patent right -intensive products.

GSK Asia will be. But all drugs will be marketed by GSK India for two reasons, say analysts. First, pricing will be an issue in the price-sensitive Indian market and any initial losses made on these drugs will be borne not by GSK India but by GSK Asia.

Second, the Indian company will be insulated from its UK parent's IPR and R&D-based activities in India, keeping its nose and balance sheet relatively clean.

Yet the true mega-drug launches in the Indian market may be two or three years away. Says an analyst: "The critical thing for multinationals is that new products depend upon the parent's pipeline and India strategy. There will not be major sales growth from new products that are covered by patents over the next three to four years. Even then it may depend upon which molecules come in and the potential for competition for already launched generic brand competition from Indian companies."

Acquisitions, too, lie on GSK India's medium term horizon, as Sundaram points out. The company's balance sheet strengths permit this easily, given that last year GSK reported reserves of Rs 593 crore (Rs 5.93 billion).

The Indian market is seen as ripe for consolidation and GSK's strategy clearly is to grab a piece of the pie, given India's low-cost R&D skills and its opportunities for clinical research and development.

How will all this pan out? Most analysts expect that how multinationals fare in gaining market share growth will depend on new products and these may well take the major chunk of the growth in the Indian market by 2010.

D G Shah, secretary general of the Indian Pharmaceutical Alliance and a former director of Pfizer, argues that the key to GSK India's success will be the pricing of new products, both on patent and in-licensed ones, the market segment it is looking at and the competition levels there. He says that the overall Indian market is growing by only 6 to 8 per cent and this is expected to continue.

"Generic brand competition across all the key segments is high and therefore success will come from being able to get good margins or even a big price premium. This has been difficult in the Indian context. It's too early to judge GSK India's strategy," he concludes.



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