Indian Pharmaceutical Industry

Slow poisoning is on. It will take time, but end is inevitable. Believe it or not, the world class Indian pharmaceutical sector is subjected to slow poisoning and is under attack by vested interests. The poison is being released into the system aimed at total destruction. It’s a novel way to attack. This sector is relatively small compared to FMCG sector. HUL profits for last year were higher than turnover of Lupin Laboratories. This is just to give an idea of the size of these two sectors. The question is if this sector is so small then why would it come under attack? There are many reasons. Across the world human beings are very sensitive to anything that is related to food and healthcare. India was dominated by MNCs in these sectors. This is now a history. In this sector the top companies in India are of Indian origin and these companies are a threat to the supremacy of MNCs across the world. As far as FMCGs are concerned, their Indian competitors are no threat these giants operating world over. They rule the Indian market. In addition the majority share holdings in these companies are with foreigners. Same is story for auto sector. The market leader Maruti Suzuki has over 56% foreign share holdings and most of the other players are unlisted companies in India making huge profit compared to their Indian counterparts. Electronics is totally dominated by foreign players, be it LG, Samsung, or Sony. Indian manufactures are struggling to survive. Why should these MNCs bother about their Indian competitors? Similar is the story for engineering sector, be it ABB or Siemens. Nestle and Cadbury’s are market leaders in different segments, not Amul. Indian children are growing on noodles, pizza and burgers. Foreign Banking and Insurance operations are growing and have sizable business in India compared to Indian operator’s share in the foreign countries. Indian banks or LIC have neglible presence in the world market, thus no complaints about Indian banks or insurance companies by foreign players. Oil and Gas, IT and Metal sectors also have some foreign players but dynamics of that business is different, and there is no attack on Indian companies. Therefore large foreign holdings in their Indian arm, strong market presence and big profits that are repatriated to country of origin makes India a wonderful destination to operate where their supremacy is not challenged. Why then anyone would bother about Indian manufacturers? The chart below gives a fair idea of foreign holdings of leading listed companies. There are thousands of privately held, unlisted companies who make fortune for the stakeholders that go unnoticed by a common man. Thus there is no cause of worry for MNCs. India is safe heaven for them. But it is not so for pharmaceutical sector, thus it is under attack.

Company	Foreign              Holding                31st March 2013	Last Declared Dividend
Pharma Sector
Sanofi	60.40%	290%
GSK Consumer Healthcare	72.46%	450%
GSK Pharma	50.67%	500%
Pfizer	70.75%	325%
Novartis	75.00%	200%
AstraZeneca	75.00%	175%
FMCG Sector
P & G	68.73%	225%
HUL	52.48%*	600%
Colgate	51.00%	900%
ITC	50.29%+	525%
Nestle	62.76%	125%
Engineering Sector
ABB	75.00%	150%
Siemens	74.71%	300%
SKF	53.58%	75%
Auto Sector
Maruti Suzuki	56.21%	160%
Bosch	71.18%	600%
Cummins	51.00%	400%
IT Sector/Metal Sector
Oracle	80.27%	100%
Sesa Goa	55.13%	10%
Oil & Gas Sector
Cairn	53.66%#	65%
Castrol	71.03%	75%
Source: Published information of/for listed companies *Buyback offer to shareholder to raise holdings to 75% is on (May 2013) +Includes Foreign companies, Foreign nationals and FII #Includes Foreign Promoters and FII There are many unlisted companies operating in India with foreign holdings

Pharmaceutical MNCs are attacking the Indian companies, its guerrilla warfare. Best form of defence is attack. MNCs for their stakes in India cannot go in for direct confrontation, so they have to take help of local gullible persons and institutions, other foreign agencies and even traitors to attack. The corruption in India makes it easy for those who can bribe in hard currency and offer foreign trips, to get what they desire. Attacking Indian pharmaceutical companies is a well thought of, systematic, long-term plan. Attack from foreign entities can be understood. What surprises is the attack by fellow Indians. Some of hospitals from Mumbai and from Delhi have reported to have banned medicines of Ranbaxy. One hospital has asked the company to prove their quality. This reminds me of wolf and lamb story of Panchatantra that mentions a ridiculous justification by wolf to eat the lamb. This is ridiculous; I call someone a cheat and ask that person to prove that he/she is not a cheat, rather than I furnishing the proof of cheating. So any one can charge anybody and the onus will be on the person charged to prove the innocence. The Ranbaxy problems with USFDA are of mid last decade for certain formulations. These hospitals have not used those formulations. If other medicines from Ranbaxy have been used then these hospitals should provide the data of casualties caused by Ranbaxy medicines for last eight years. How come these hospitals woke up so late and are now worried? Is their assessment of patient’s relief/recovery guided by media reports about Ranbaxy? Is it a part of evil design to malign the company image? Unfortunately Indian pharmaceutical manufacturers are turning a blind eye. If one manufacturer is attacked then the others look at it as an opportunity to grow at the cost of the sufferer. Such manufacturers lack foresight. A stage has come when they have to unite and expose the evil designs of multinationals. Showing a top Indian company in a bad taste is no trump card for growth of others. At opportune moment the MNCs will take the joker out of the pack and tell the world that if the top Indian manufacturer is so bad then imagine the condition of rest of the manufacturers. This is dangerous. Not only the top manufacturer would lose the business but it will have a snowballing effect where the entire Indian pharmaceutical industry would lose its credibility and that will take us back to 1960’s. We will be forced to be dependent on MNCs. That will be catastrophic.

What is the genesis of this situation? Lets us take a look at the past. Things changed for Indians in 1970’s when government announced DPCO (Drug Price Control Order). During the same period government brought in some restrictions for pharmaceutical MNCs operating in India. Process patent was in force but not the product patent. All this made the pharmaceutical MNCs uncomfortable and many of such companies either withdrew from Indian market or reduced their exposure. The government support helped the Indian manufacturers to gain strength and they got a chance to prove themselves. The country that was net importer turned in to a net exporter in few decades. World started depending on India for pharmaceutical raw material (API) and finished formulations. Indian manufacturers also went in for manufacturing pharmaceutical equipment and all this has been an eyesore for MNCs.  The MNCs that milked India till 70’s of last century were helpless. Different formulations, innovative fixed dose combinations and penetrating marketing strategies developed by Indian manufacturers left the MNCs high and dry. The hope for MNCs was India’s acceptance to IPR in 2005. There were lots of discussions across the industry to access the future of Indian pharmaceutical industry post 2005. There were different schools of thought. Some felt that India’s dependence on MNCs would increase while others thought the opposite. Post 2005 and even in the era of liberalization the MNCs could hardly do anything. Indian pharmaceutical manufacturers started eroding the bastions of MNCs. Many of them went in for M&A, started their own projects in different countries across the world, gained sizable market share and offered quality products at much lower cost. Many of the MNCs closed their API plants and sourced the raw material from India. And then there was a limit to the patience of MNCs. The overpricing of MNCs was getting exposed. There was advent of generic era that further exposed exploitation by MNCs. Many governments around the world modified their budgets on healthcare because of availability of generics. The profitability of MNCs from yesteryears money spinners plunged. It hurts when you lose the money, it hurts when you see someone overtaking you, it hurts more when you see an Indian company doing this. The MNC profits, their future in the generic jungle is under threat, their ego is hurt. These MNCs are averse to strategic alliances with Indian manufacturers. Their ego prevents them from understanding the reality and taking rational decisions. Such alliances can be a win-win situation, but the MNCs have to keep their aura of supremacy of yesteryears in a closet and then take a step forward. They can’t do it, so attack the Indian players.

Indians have pardoned the cola giants when their products were found to contain pesticides above the desirable limits. Indian parents whose children’s life was endangered due to insects in the chocolates or higher radiation levels in milk powder turned a blind eye towards the MNCs manufacturing such products of questionable quality in India. MNCs manage such situations well. Their PR activities pull them out of the mess that they create. Indian companies are unable to handle adverse propaganda. The pharmaceutical companies may or may not have faulted but there is a malicious attack to spread the venom. When there is a price war MNCs cannot show their superiority unless they play foul. Time has come to understand such evil designs of all those who hate to see India prosper, who dread to see Indian drugs curing the billions around the world at low cost and those who want prosper at the alleged failures of fellow manufacturers. It’s time to tell the world the progress of Indian pharmaceutical industry. Stand together for Indian pharmaceutical industry before it is too late. Solidarity is the only way out.