Sector News

India’s drugmakers step up U.S. investment

February 26, 2016
Life sciences

India’s pharmaceutical companies went on a buying spree last year to win a bigger share of the U.S. market for generic drugs.

The trend is driven by heightened U.S. scrutiny of drugmakers’ Indian facilities, many which have gotten failing marks on safety, and a desire to develop and sell more sophisticated products such as high-powered painkillers, which U.S. regulators say must be manufactured domestically.

In 2015, Indian pharmaceutical companies reached deals valued at $1.5 billion to buy U.S. firms, according to Dealogic. Since 2010, Indian drugmakers have acquired or agreed to acquire 31 U.S. pharmaceutical companies, according to Dealogic. Other Indian firms are breaking ground to construct new facilities.

“These are very ambitious moves to go to where the market is,” said Dilip Shah, head of the Indian Pharmaceutical Alliance, a trade group.

Mumbai-based Lupin Pharmaceuticals Ltd. agreed to acquire two New Jersey generics companies in July for a combined price tag of nearly $900 million. Those deals would open the door for Lupin to make tightly regulated drugs including sedatives and narcotics as well as dermatology treatments for the American market.

Among the drugs now manufactured by the two New Jersey firms, Gavis Pharmaceuticals LLC and Novel Laboratories Inc., are generic versions of pain drug OxyContin and Ritalin, a stimulant used to treat attention deficit hyperactivity disorder.

“We started looking because we’ve been very India-centric in our manufacturing footprint,” said Nilesh Gupta, Lupin’s managing director. “We wanted to do controlled substances, local manufacturing—these are some broad areas we wanted to get into.”

The U.S. generics market is forecast to grow at an average of roughly 10% annually, and reach $71.9 billion in 2018, according to consulting firm RNCOS, as broader participation in health-insurance plans encourage use of generic medicines. Indian companies had a 19% share of that market in 2014, up from 13% in 2010, according to the Organization of Pharmaceutical Producers of India, a trade group.

The U.S., where profit margins on drug sales are wider, is increasingly attractive, Indian drugmakers say, as their domestic market becomes more competitive.

Lupin and other Indian drug companies also say that manufacturing in the U.S. will give them better access to the engineers, equipment and manufacturing facilities needed to produce drugs that are more complicated to make.

Labor costs are lower in India, and for years that has given the country’s generic makers an edge in world markets for basic drugs. But, Indian drug executives say, the workers and plants they have aren’t up to making inhaled and injectable drugs and sophisticated cancer medicines.

Earlier this month, India’s Cipla Ltd. acquired two U.S. pharmaceutical companies for $550 million. In November, India’s largest drugmaker by sales, Sun Pharmaceutical Industries Ltd., completed a $57 million acquisition of California-based Insite Vision Inc., which makes drugs for postsurgery eye care, according to Dealogic.

Last year, the U.S. Food and Drug Administration banned imports from eight Indian drug companies and issued stern warnings to others about problems in their facilities and testing procedures.

U.S. FDA actions have cost Indian pharmaceutical companies as much as $800 million in lost annual sales over the past three years, analysts say.

In December, Sun Pharmaceutical Industries received a warning letter saying the regulator wasn’t satisfied with its plans to fix quality issues.

If they aren’t resolved drugs from some of Sun Pharma’s factories could be barred from sale in the U.S., analysts say.

Sun Pharma’s Managing Director Dilip Shangvi at that time said the company “will continue to cooperate” with U.S. regulators and “undertake any additional steps necessary” to address the FDA’s concerns.

Lupin, in 2010, hired consultants and upgraded its facilities after the FDA raised concerns about one of its plants in central India, the company said.

Glenmark Pharmaceuticals decided that one of the best ways to upgrade its capabilities and ensure that its products won’t be blocked was to set up shop in North Carolina.

It is now spending close to $200 million to build factories there, according to Glenmark executive familiar with its plans.

One of the plants will produce syringes pre-filled with medications used to treat cancer, autoimmune disorders and other illnesses.

“Manufacturing in the U.S. will be more expensive than India,” said Glenn Saldahna, managing director of Glenmark.

But he said he expects making in America will mean more sophisticated and more consistent products. “That is the trade-off,” he said.

By Suryatapa Bhattacharya

Source: Wall Street Journal

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