A New Prescription: Indian Pharma Turns to the Middle EastPublished June 29, 2010 in Arabic Knowledge@Wharton
When India's largest biotechnology company, Biocon, set up its first marketing joint venture in 2007, it looked past the dominant markets in the U.S., Europe and Japan. Instead, it turned to the United Arab Emirates, where it partnered with Abu Dhabi-based pharmaceutical manufacturer Neopharma.
The joint venture, named Neobiocon and based in the Dubai Biotechnology and Research Park, represented a departure. Biocon, like most Indian pharmaceutical companies, had long considered the Middle East and North Africa (MENA) a market of little value, a small part of the global segment of their export business.
But those years are over. Fueled by governments choosing to purchase more generic drugs, a booming population with purchasing power, and an increase in lifestyle diseases, the MENA region has become a target for Indian firms. There is a "huge opportunity here for Indian firms if they can get their act right," says Jeffry Jacob, who heads the pharmaceuticals team at the independent consultancy Tata Strategic Management Consultancy (TSMG).
The more than US$12 billion pharmaceutical market in the region represents just 2% of the world's market. But Business Monitor International, which tracks the industry, expects the market to hit US$23.7 billion by 2014. Demand for generics will be a big driver of the growth. While the rest of the US$825 billion global market for generic drugs chugs along at 4% to 6% annual growth -- the lowest growth levels in a decade -- analysts expect the MENA market to see 13% to 15% growth.
Currently, Biocon receives 10% of its revenue from MENA markets. Neobiocon will substantially increase the company's presence. The joint venture is focused on developing and marketing affordable drugs in several areas, including oncology and cardiology. In January, Neobiocon started marketing the breast cancer drug Abraxane. It plans to introduce five new drugs during the next five years, including two under licenses from GlaxoSmithKline, as well as an immunosuppressant and anti-diabetes medication. If those are successful, Biocon will look to forge other joint ventures in the region, according to the company.
"We can do a lot more in this region. The potential is enormous and we expect Neobiocon to play an important role in our growth here," says Rakesh Bamzai, Biocon's president of marketing.
Follow the Demand
Governments are the principal provider of health care in the region and they are largely driving the demand for pharmaceuticals. With Middle Eastern populations spiking -- from 104 million people in 1950, to a projected 692 million in 2050, according to the United Nations -- governments are finding it more expensive to fund health care. As the bills pile up, they are increasingly turning to generics.
Although the region still has substantial regulatory barriers, some governments have made their markets more attractive to new ventures. For example, Egypt, the second largest pharmaceutical market in the region behind Saudi Arabia, passed legislation in 2009 that set the price of generics at 40% to 60% of the brand name drugs price. Previously, the price was based on the manufacturing costs. Business Monitor International predicted the market for generics there will grow to US$866 million in 2014 from US$413 million in 2008.
Analysts expect Indian firms to follow that money. "The presence of Indian pharma firms in this region will strengthen in the coming years as Indian companies look to leverage their low cost manufacturing and strong regulatory understanding to file new product registrations and launch more generic products," says Sanjay K. Singh, associate director at KPMG India. "The over-the-counter and nutraceutical [food products that provide health benefits] segments may also be attractive for many Indian players."
Some are already in place. Ahmedabad, India-based Dishman Pharmaceuticals and Chemicals Ltd. recently formed a joint venture company to manufacture active pharmaceutical ingredients in Saudi Arabia with three partners: the Arab Company for Drug Industries and Medical Appliances (ACDIMA), Spimaco, one of the largest formulation manufacturers in the Arab world, and the Capital Advisory Group. In a recent report in business daily Business Standard, J.R. Vyas, managing director of Dishman Pharma, says: "Saudi Industrial Development Fund (SIDF) has offered a US$55 million soft loan to the joint venture company for 15 years."
The pharma and nutraceutical player Mission Vivacare, which has been working in the MENA market since 2004, expects to finalize a joint venture comprising both manufacturing and marketing in coming months. For the fiscal year ending June 2009, the Mumbai-based Mission Vivacare reported revenues of US$45 million, of which 50% comes from the MENA region. Managing director Akshay Mehta says the company is in discussions on further partnerships.
Intas Biopharma (IBPL), which focuses on research & development and manufacturing of biopharma products with a special focus on oncology, is also looking to partner with MENA-based firms. Milan Doshi, head of business development, says the Ahmedabad-based company is discussing manufacturing collaborations and plans to run a satellite arm of its clinical studies in the region.
All those initiatives point to the importance of working with established firms. S. Raghunath, professor of corporate strategy and policy at the Indian Institute of Management, Bangalore, points out that business in the MENA region is conducted differently than in other parts of the world. Having the right partnerships with local players, he notes, is critical.
"Business here actually runs on relationships and who knows whom," he says. "Though this region has a lot of professionals from multiple nationalities, the prime funding as well as the access and the credibility that the royal families and the extended families have on various parts of the value chain is something you have to reckon with."
The advantage that Neopharma brings to Biocon is its lineage. Established in 2003, Neopharma is part of the US$1.5 billion NMC group of companies founded by B.R. Shetty, one of the leading industrialists in the United Arab Emirates. Shetty's businesses span pharma manufacturing and distribution, financial services, real estate, information technology, hospitality, education and so on.
For Shetty, the relationship with Biocon is a new foray into biopharma. "Neobiocon brings together the research abilities of Biocon and the manufacturing capabilities and the regulatory expertise of Neopharma. This will enable us to bring in world class biopharmaceuticals to patients here at affordable prices," he says.
Prasanth Manghat, chief financial officer of Neopharma, adds that partnering with Indian firms also has advantages. "We find that Indian companies typically do not have a 'corporate ego' and are quite flexible by way of mindsets and corporate strategies," he says. "This can give them an edge in forming joint ventures with local players in the MENA regions."
Not everyone though is so enthusiastic. In fact major Indian drug companies such as Ranbaxy Laboratories Ltd and Dr Reddy's Laboratories Ltd (DRL) are among those who have no immediate plans for major investments in the region. Biju Jacob, who heads up Ranbaxy's Middle East operations, says a joint venture in manufacturing in the Middle East wouldn't be economically feasible. "Because of its double-digit market growth, this is one of the focus markets for us in terms of exports. But we have no plans of any major partnerships," he says.
According to Satish Reddy, chief operating officer of DRL, currently less than 1% of the company's turnover comes from the MENA region. "Our business interests in the Middle East are very limited at this point of time and we have no plans to invest here," he says. "We have enough headroom for growth in other regions like the U.S., Russia, Germany, the U.K. and India and we would rather focus on these markets for now."
Despite the region's growth, it still doesn't compare to the multi-billion dollar markets existing in the United States, Asia and Europe.
And the region already has established companies looking to expand. London-based Hikma Pharmaceuticals, the MENA market leader, inked deals in recent months that will allow it to expand in Algeria and Tunisia. It expects revenues to hit US$721 million in FY2010 from US$637 million the previous year.
Even those among the Indian brigade admit that though brimming with potential, it is not an easy market to penetrate. High regulatory barriers, a highly fragmented market, government preference and support to local players, a historical bias towards western firms, and the presence of multinationals could all be obstacles for optimistic growth plans.
"This market moves at its own pace. It is a long-gestation market both from the marketing as well as the regulatory viewpoint," says Mehta of Mission Vivacare. "In some of the countries we have been pursuing opportunities for the past three-four years and it is only now that things have started moving."