In November 2005, DRL roped in Roche's API business in Mexico hoping to "emerge as a leading player in Custom Pharmaceutical Services (CPS) business and position itself as a partner of choice for Innovator Companies across the globe with service offerings spanning the entire value chain of pharmaceutical services." This strategic acquisition provides an opportunity for our CPS business to grow from the current base of US$ 10 million to US$ 100 million over the next 18 months, according to GV Prasad, CEO, Dr Reddy's Laboratories. Dr Reddy's was the first Indian pharmaceuticals company to receive a 180-day exclusivity for a generic drug in the U.S, to file an NDA under Sec. 505(b)(2) and to license an NCE to a multinational company. The company has an R&D workforce of about 800 scientists and has several NCEs in the pipeline at various stages.

In its agreement with ICICI Venture estimated at $56 million, DRL is developing and selling products through the ANDA (abbreviated new drug application) route. DRL will receive up-front payments for the development, registration and legal costs related to ANDAs filed in the U.S. in 2004-05 and 2005-06.

Growth through overseas acquisitions has become the norm rather than exception, to increase presence in regulated markets: Ranbaxy's acquisition of RPG Aventis' French arm; Wockhardt's acquisition of CP Pharmaceuticals, UK (£10.85m); and the Zydus Cadila-Alpharma, France deal (Euro 5.5m). Wockhardt has acquired the business of German drug maker Esparma GmbH for a consideration of US$ 11 million. Glenmark Pharmaceuticals has also acquired Laboratorios Klinger in Brazil for a consideration of US$ 5.2 million.

However, as Anji Reddy, chairman of DRL, puts it in the company's annual report, "Excelling in the basic business operations will be necessary, but not sufficient. To maintain a long-term presence in the global pharmaceuticals markets and to grow profitably will require companies to be even more focused on R&D and creation of successful IPR's [intellectual property rights]."

According to the latest statistics available, Indian pharmaceutical industry grew at a rate of 7.2% in 2004 amounting to 1.3% of India's GDP. The total production for the financial year is valued at Rs 357.5 billion, of which the formulations segment's share was 78% while bulk drugs accounted for 22%. With around 400 bulk drugs and almost the entire range of formulations, the Indian pharma industry is ranked 4 th in the world in volume terms, and 13th in terms of value. In terms of global pharma sales, it constituted 8% of the by volume, but 1% in value. Production increased at an annual rate of 15.8% between 1993-94 and 2003-04. In 2005, the domestic pharma industry employed half a million people directly while it provided employment to another two and a half million people indirectly, taking the total employment generation of the industry to three million people.

The Ernst and Young study has already identified the country as an emerging hub for collaborative and outsourced R&D in drug development, biotechnology and chemicals, with an estimated size of $25 billion by 2010. Of the overall production value of an estimated $7 billion in 2003, the formulations segment accounted for 80 per cent, with bulk drugs accounting for the balance. Pharmaceutical production in India has registered an impressive CAGR of approximately 17 per cent over the last decade.

In the year 2003, the industry recorded a growth of 16.6 per cent over 2002. Indian companies dominated with a market share of over 75 per cent, according to the Ernst & Young Report, with anti-infectives forming the largest therapeutic segment in domestic sales. In terms of growth, new lifestyle categories like cardiovascular (12-14 per cent), CNS (15-16 per cent), anti-diabetes (23-25 per cent) are growing at double-digit rates, while old and mature categories like anti-infectives, vitamins and analgesics are growing at declining rates or stagnating.

In recent years, exports increased as Indian companies made deep forays into the regulated generic markets of the US and Europe, in addition to unregulated markets. Approximately 76 per cent of Ranbaxy's sales, 63 per cent of Dr Reddy's sales and 57 per cent of Wockhardt's sales in the financial year 2003 came from overseas. In 2002-03, the Indian pharmaceutical industry exported almost US$ 2.8 billion worth of drugs. Indeed, generics in the regulated markets are by far the largest segment, with an estimated US$ 55-65 billion worth of drugs going off patent by 2007 in the US alone, with Indian companies strategically poised to corner almost a third of the global generics market by then.

Leading Indian companies, especially Ranbaxy, DRL and Sun have already established a strong presence - with their own sales and distribution teams - in the US market and are expected to further consolidate their position over the next few years. Ranbaxy and DRL are already filing between 15-20 ANDAs (Abbreviated New Drug Applications) with the USDFA every year. Ranbaxy has become one of the 10 largest generic companies in the US. Indian companies also filed the largest number of Drug Master Files (DMFs) for Active Pharmaceutical Intermediates (APIs) with the USDFA during 2003.

Ranbaxy, the country's largest player - with current annual revenue of about US$ 1 billion - employed a non-infringing process to make a generic version of cefuroxime axetil enabling it to be the sole seller of this generic for almost 17 months in the US, fetching it revenues of US$ 185 million from the product. Besides, the industry has a rich pipeline with a number of patent challenges (both noninfringing processes and patent invalidation claims) . Ranbaxy, also licensed its technology for an innovative drug delivery system for ciprofloxacin, named Cipro-OD, to Germany's Bayer, which owned the patent to the drug. Ranbaxy ranks amongst the Top 100 Global Pharmaceutical Companies (Ranked 70th by global sales, Ranked 8th by growth rate of 49 per cent and amongst the Top 10 Generics Companies worldwide), Ranbaxy's products are available in over 70 countries (28 global brands) with a ground presence in over 34 countries, manufacturing operations in 7 and a multicultural workforce of about 9000 people. The contribution of overseas revenue in 2003 was 76 per cent, with US contributing 42.4 per cent of global sales. Ranbaxy spent about 7% of its $1 billion sales during 2004 (calendar year) on R&D, while Dr. Reddy's Laboratories spent 14% of its sales of $446 million in the fiscal year that ended last March.

In addition, the Indian Government's decision to allow 100 per cent Foreign Direct Investment into the drugs and pharmaceutical industry is expected to aid increased investment in R&D infrastructure by MNCs in India. Indeed, technology transfer to 100 per cent Indian subsidiaries of MNCs is expected to accelerate after 2005.

International players have already cashed in on the new regulatory environment:

• AstraZeneca plc has a US$ 40 million research facility at Bangalore, focusing principally on tuberculosis drug discovery.
• Bristol Myers Squibb (BMS), the US$ 21 billion pharmaceutical major has re-entered India after two decades through its new wholly owned subsidiary kicking off with a slew of oncology products, nutritional products and medical devices, as well as exports of raw material, intermediaries and final products.
• Shreya Life Sciences, has a US$ 21.6 million investment - for manufacturing units in formulations, biotech and R&D facility in the areas of chemistry and biotechnology
• Israel-based leading international generics player, Teva, entered the country in late 2003 by acquiring the bulk drugs business of the JK Group, JK Drugs & Pharmaceuticals.
• Germany-based Ratiopharm, one of the leading generics players in Europe, has also set up base in India. Some of the other companies with similar plans for India include Ivax (the second largest generics player in the US) and Pliva (a leading eastern European generics company).
• Aventis, GlaxoSmithKline, Wockhardt and Ranbaxy have cut down their product portfolios in order to be more focused. Companies such as Sun Pharma, Nicholas Piramal and Dr Reddy's Laboratories have opted for brand/company acquisitions to increase their therapeutic reach and market penetration.

With business in over 90 countries and international business accounts for 57 per cent of its total turnover, Wockhardt is amongst the top 10 generics players in the UK and the largest Indian pharma company in the UK. Wockhardt's R&D program with expertise in recombinant biopharmaceuticals has been rated among the top 3 in the country. It has 350 scientists engaged in R&D and a spend of 7 per cent of sales. Wockhardt has in recent years made a string of acquisitions in Europe and is also establishing a sales and marketing subsidiary in the USA.

Cipla is one of the lowest cost manufacturers of anti-HIV drugs in the world. Cipla could provide the generic version of the AIDS triple cocktail to South African people at US$ 350 per patient per year, a price which is one-thirtieth its cost in the United States. Nearly 85 per cent of the company's sales come from formulations. Exports contribute nearly 40 per cent of the total turnover. Presently, Cipla exports to 140 countries and has over 3,500 product registrations of both drug formulations and APIs.

India is home to the largest number of pharmaceuticals plants approved by the US FDA outside the US - around 70 and the number is rapidly rising. Sustained by state-of-the-art manufacturing facilities, the companies are pursuing contract manufacturing/global sourcing for supply of bulk drugs/intermediates for multinational corporations.