Why are pharma MNCs reducing India footprint?

Source: Times Of India

Late on Feb 16, Swiss pharma major Novartis made a brief announcement that it had started a “strategic review” of its listed entity, Novartis India Limited, which includes an assessment of its shareholding in the subsidiary.

Exactly three months ago, UK biggie AstraZeneca had also announced it was exiting manufacturing in India as part of a “global strategic review’’.

These announcements follow a pattern in which pharma biggies like Pfizer, Sanofi, AstraZeneca and GSK have reduced manpower and trimmed operations in core functions like manufacturing, sales and marketing over the past few years.

Some of them have a rich heritage in India, dating back up to 100 years. So, why are they reducing their exposure in the Indian market, where they vied for a toe-hold not so long ago?

Costs, Competition, Patents

India is a Rs 2 lakh-crore-plus market with some of the most pressing health challenges, but increasing competition, higher operational costs and a less viable business have forced MNCs to rethink their strategies. They have been focusing on core competencies and divesting non-core assets, especially after Covid.

So, from an earlier strategy of manufacturing in India they have transitioned to licensing and marketing agreements. Over the years, Novartis, Roche, Eli Lilly and Pfizer tied up with domestic firms like Torrent, Lupin, Cipla and Glenmark for major therapies. Novartis, for instance, recently divested its high-growth ophthalmology brands to Mumbai-based JB Chemicals for a little over Rs 1,000 crore.

Some MNCs are concerned about India’s intellectual property regime, which discourages evergreening of patents and can impose compulsory licensing – allowing a third party to manufacture a drug without the patent owner’s consent. So, without fully exiting the country, they have been reducing exposure by truncating portfolios, and avoiding fresh investments.

“Faced with regulatory headwinds, IPR challenges and pressure from the parent on generating profits/value from their Indian businesses, most MNCs are reevaluating their strategy for the Indian market,’’ says Ranjit Shahani, former vice-chairman of Novartis India.

Moving Up The Value Chain

Innovation-driven companies are thinning conventional portfolios of generics in a bid to focus on high-value therapeutics like cancer treatments. “Pharmaceutical industry is inherently global, and companies may be redistributing resources to markets with higher growth potential or more favourable business environments,” says Utkarsh Palnitkar, independent consultant, life sciences. “Shifting priorities might prompt MNCs to reduce their exposure in certain markets, including India,” he adds.

Under a global reassessment, some MNCs are shedding their branded generics. This may involve distribution partnerships, sale of manufacturing facilities or legacy high-value brands to domestic biggies, and pruning R&D to enhance efficiency.

For instance, Novartis partnered in 2022 with Hyderabad-based Dr Reddy’s Labs (DRL) for sale and distribution of its heritage brands like pain medication Voveran. It also divested cardiac brands – Cidmus to DRL for roughly Rs 463 crore and Azmarda to JB Chemicals for Rs 246 crore. In 2017, Torrent had bought its gynaecology medicines.

Pharma MNCs in India have diverse growth strategies and business models. Anil Matai, director general of OPPI (Organisation of Pharmaceutical Producers of India), which represents pharma MNCs, says some have comprehensive portfolios of general medicines across therapy areas, and mega brands with a strong equity, others focus on a differentiated portfolio, while some MNCs focus on large innovator brands, deriving quick growth from co-marketing partnerships with Indian players.

Shifting Regulatory Sands

Pricing regulations and a complex approval process are among the regulatory challenges pharma firms have faced in India. GlaxoSmithkline India’s profits plunged by over 70% in the third quarter results of FY 2023-24, in the wake of price caps on two marquee antibiotic brands, T-Bact and Ceftum, presumably due to their inclusion in the latest revision of National List of Essential Medicines. Sanofi might also be hit with its anti-diabetic Lantus included in the List.

Frequent alterations in regulations can impact the profitability and predictability of operations, leading companies to reconsider their involvement in the market, industry experts say.

Over 9,000 Players In Game

Although India’s organised pharma retail market is valued over Rs 2 lakh crore, more than 9,000 companies are jostling in it. So, MNCs may find it challenging to compete on pricing and market penetration, especially for generic drugs.

“Indian pharmaceutical market has become increasingly competitive, with both domestic and international players vying for market share. Companies such as DRL, which hitherto had a sharper focus on exports, seem to have rediscovered the Indian market. But in overall value terms, the Indian domestic market is not that attractive yet,’’ Palnitkar adds.

That’s why some MNCs prefer to leverage local expertise and established networks of domestic companies for marketing and distribution, instead of maintaining a direct presence. This way they don’t need to make substantial investment in infrastructure.

This model has been becoming popular. Recently Glenmark tied up with Pfizer for a chronic skin medication, while Dr Reddy’s acquired the rights to distribute a ‘first-in-class’ breast cancer drug from the US biggie. Similar deals have been brokered for lifestyle ailments like diabetes between MNCs and domestic firms.

Develop-In-India Model

In an evolving pharma landscape backed by digitisation and IT, MNCs like Novartis, Roche and AstraZeneca have set up global capability centres in India. These focus on data analysis, designing clinical trial protocols and employing immersive technologies. For instance, a major part of the development of Entresto (sacubitril/valsartan), Novartis’ blockbuster cardiac drug, was done at its Hyderabad centre.

It’s not that high-end innovator companies have lost interest in India, but they are trying new business models, says Sujay Shetty, partner and pharma leader, PwC India. “Perhaps, over the years, we could see newer marketing models evolve in the Indian market, involving super-specialised importers or even contract marketers,” he says.

Impact On Patient

With domestic biggies being agile with rolling out affordable versions of innovator medicines, the patient may not have to worry much. Besides, for speedier access to pricier next-gen treatments, the government could formulate an innovative model which could serve the interests of all stakeholders, including the patient and MNCs.

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