Transition times in the pharma universe 

The February 16 announcement of Novartis’ strategic review of its India subsidiary, including an assessment of the shareholding of Novartis AG in Novartis India, is the latest sign of MNC pharma’s recalibration of strategic plans for one of the largest pharma markets. 

Novartis India currently employs nearly 8100 people and is wholly separate from Novartis Healthcare, which includes the Novartis Corporate Center in Hyderabad, the commercial arm of Novartis in India, and R&D teams, which currently conduct clinical trials at more than 300 trial sites in the country. As per the release, the strategic review will not impact Novartis Healthcare.

Novartis is following in the footsteps of peers like AstraZeneca, which announced last November that it is looking to sell off its manufacturing facility and go the contract manufacturing route.

Over the last few years, we have seen more MNC pharma go the licensing route and more recently, sell off brands to their contract manufacturers. For instance, in November 2021, Encube Ethicals, which was Sanofi’s contract manufacturer for Soframycin Skin Cream for more than 20 years, acquired some of these brands — Soframycin and other legacy associated brands Sofradex, Sofracort, Soframycin-Tulle for India and Sri Lanka markets. Similarly, J B Pharma recently bought Novartis’ ophthalmology brands. Glenmark Pharma, Dr Reddy’s Laboratories, Cipla and Torrent Pharma also have similar manufacturing and marketing deals with MNC pharma for key brands.

These moves seem designed to reduce MNC pharma’s exposure to manufacturing, especially of older branded generic molecules where the margins are thinning by the day. As of now, MNC pharma is not pulling the plug on their R&D centres, which serve as the backend to global clinical trial sites. In fact, BMS has just announced a $100 million investment in Hyderabad for a new facility which will expand the company’s global drug development, IT and digital capabilities.

As India transitions to become the drug development BPO of the world, adding a digital edge to global drug development programmes, it’s a win-win for both sides. MNC pharma can sharpen focus on next-generation cures and higher margin therapeutic areas like oncology, while contract manufacturers like Encube Ethicals get to buy legacy brands and transition from B2B to B2C players.

There are many reasons for MNC pharma’s strategic pullback from the India market. The cutthroat competition in India’s pharma market has seen MNC pharma’s market share eroding over time, with many Indian subsidiaries contributing minuscule revenue to the global turnover. It is obvious that MNC pharma will invest in markets with more promise.

India is also continuing to take a tough stand on intellectual property rights. For instance, the Indian Commerce Ministry recently confirmed its rejection of Switzerland’s demand for data exclusivity for medicines in the India-EFTA trade deal and also emphasised the importance of protecting the country’s generic drug production and supply.

It’s also true that a crackdown on manufacturing quality, which is now being addressed, made Indian pharma players refocus on the domestic market. Duplication of distribution networks and sales teams would be counterproductive and for now, it is serving both sides to play to their strengths.

But MNC pharma’s re-set mode has triggers beyond the India market. Most MNC pharma firms are set to lose more patents on key brands in the coming decade, opening these brands to price erosions. Governments are also cracking down on pricing, adding more medicines to the national list of essential medicines.

Takeda’s manufacturing collaboration with Biological E for its dengue vaccine QDENGA is an example of how such deals make business sense as well as serve public health interests. As per the release, the manufacturing collaboration is for multi-dose vials which are the preferred packaging for national immunisation programmes as they offer economic and logistical advantages by minimising packaging and storage expenses, while also reducing medical and environmental waste.

Indian pharma will have to re-set its goalposts in response to such transitions. While it shelves its Discover in India dream, for the time being, Develop in India seems a good way to remain in the game.