Indian pharmaceutical companies need to diversify beyond their generics business in order to sustain growth, Cipla Ltd CEO Umang Vohra said at the News Corp VCCircle Healthcare Investment Summit 2018 on Tuesday.
“The Indian pharmaceuticals industry today is having its own IT moment,” Vohra said during a fireside chat on the future of the generics business with private equity firm ChrysCapital’s director Raghav Ramdev. He was referring to Indian information technology companies' quest to reduce their reliance on the traditional outsourcing business and expand into new areas.
“If they (pharmaceutical companies) do not diversify and move into specialty products, the generics business will get overheated and overcooked,” Vohra said.
Even after diversifying, the generics business may continue to be the largest growth driver for companies, Vohra said. “But it is going to be incremental tweaking to speciality (businesses) which will make the difference,” he said.
Vohra felt that although most Indian generics companies had touch a valuation of $2 billion to $4 billion, yet they would need to do more to sustain this growth. Companies would have to tweak their business models, he said.
“Can the companies reach a valuation of $8 billion based only on generics? I don’t think so. Most would have to tweak their business models a bit,” Vohra said.
Cipla is trying to develop revenue streams by creating templates where it can directly go to customers with solutions. For this, the company has been making small investments in other healthcare companies that can offer improved diagnosis for patients or are working on other innovative healthcare solutions.
“The path of supplying medicines is done,” Vohra said. The big opportunity lies in creating the ecosystem on how to make people's lives better and whether those models can be integrated in the existing supply chain systems, he added.
Regulatory scrutiny
Vohra felt that increased scrutiny from the US Food and Drug Administration over the past few years has turned out to be beneficial for the Indian pharmaceuticals industry.
The burden of compliance may have increased for Indian pharmaceutical companies but it prompted them to invest in developing new facilities, which is now giving them a competitive advantage over facilities in other countries.
“People have automated a huge amount of manufacturing ... and the people capability set has increased. I think we have reached a level normal facilities in the US cannot compete with the facilities in India,” Vohra said.
New chemical entities
Vohra said it may still be a while before new chemical entities (NCEs) emerge out of India, although Glenmark Pharmaceuticals seems close to developing one.
He said that, while there may be some incremental additions from India in the generics segment, the overall culture in the industry still needed to change. “You cannot be an innovator overnight.”
“The generics DNA is about cost. The specialty DNA is one that starts from understanding the patient need—it is not about satisfying the market that has already been created. NCEs are right at the top—this leap is not easy,” Vohra said.
The biggest challenge is that India has yet to develop formidable talent in biology.
“In India, we have plentiful chemistry talent. We don’t have the biology talent. In an ecosystem when you don't have a talent base, the ability to become an NCE player overnight is limited. There is a middle level—speciality, or value-added generics where you begin to tweak products with some innovation. That is where most people will go,” Vohra said.
Finally, Vohra touched upon corporate taxes; companies have to pay a tax of 34% in India but taxes in the US are much lower.
High tax rates have prompted some global companies to move their headquarters to low tax countries such as Ireland. Vohra said Indian companies may also eventually have to decide the best way to go forward on taxation.