The latest quarterly results of Ranbaxy Laboratories Ltd., India’s largest drug-maker in terms of sale, have again re-established the strength of Indian pharmaceutical industry in the world market of generic drugs — the cheap versions of drugs out of patent. Its net income for the quarter ended June 2006 has beaten the market estimates of about $21.7 million (Rs. 1 billion) by a wide gap, registering net income of $26.3 million (Rs. 1.21 billion), thanks to the revival of generic drug sales in the U.S., the largest drug market in the world. Company’s U.S. sales gained 8% to $89 million in this quarter.

Same was the story for Cipla Ltd., India’s largest pharmaceutical company in terms of market value, which also succeeded in beating the market expectation due to higher sales of generic drugs. Cipla’s generic drug exports jumped 38.3% to $85.6 million (Rs. 3.94 billion) in the quarter ended June 2006. Ranbaxy sells Allegra (hay fever drug), generic cholesterol-lowering Zocor and Proscar (used to treat enlarged prostrates), while Cipla exports Proscar, anti-depressant Zoloft, CFC-free inhalers, anti-AIDS drugs etc.

The generic drug market is set to expand its domain as drugs worth $33 billion are going off patent in the current fiscal ending March 2007. By the next fiscal, drugs worth $65 billion will go off patent. Indian drug-makers are expected to acquire a 33% share of the global generic drug market by 2007 against the current 4% market share, projects a research report by London-based researcher Global Insight. Indian companies are strongly positioned to grab the new opportunities in the generic drug market as they have the benefit of low-cost manufacturing, world-class production skills and availability of quality manpower. Domestic production costs in India are almost 50% less compared to developed countries.

The Indian pharmaceutical exports are likely to grow at around 18% by 2007-08 to take its total export volume to about $6.5 billion (Rs.300 billion) against $4 billion (Rs.182.90 billion) in 2004-05, reveals a recent study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the industry body having a membership of over 100,000 companies and professionals. The ASSOCHAM study further says that the industry is expected to register a growth rate of 11% to $13 billion (Rs. 600 billion) by 2007-08 against $9.4 billion (Rs.432.90 billion) in 2004-05 and substantially increase its exports to regulated markets of U.S. and Europe in generic drug markets. The Indian pharmaceutical industry is likely to grow to $25 billion by 2010, according to other industry estimates.

Indian firms can take advantage of their low-cost manufacturing to score over others to win a huge market size in the generic drug space of African countries also. Africa in future will provide huge opportunities to Indian drug-manufacturers following the withdrawal of the patent suit filed by 39 global pharmaceutical companies against the South African government, which allowed the sale of cheaper generic versions of branded drugs. The first and foremost aim of the Indian pharmaceutical industry should be to take its business to those regions where Indian presence is not well represented, suggests the ASSOCHAM study.

The Indian pharmaceutical industry is not concentrated around a few large companies. Rather, it is a highly fragmented industry with the market leader Ranbaxy holding just 7% market share. About 70% of the market is well distributed among 250 large companies. Apart from these 250 large companies, there are about 8000 small units and 20,000 registered units. Although India’s domestic market is strictly regulated on pricing, the export opportunities are coming in a big way.

It’s not only the generic space where the Indian companies are focusing on. India’s clinical research industry has touched the $100-million mark, says a recent pharmaceutical report by consultancy firm KPMG. The report estimates that the clinical research business in India will touch the $1-billion mark by 2008 with an annual growth rate of 40%-50%. The report also says that the global pharmaceutical market will offer a $48-billion opportunity for India by 2007 through contract manufacturing of active pharmaceutical ingredients (APIs) and intermediates; development outsourcing by way of conducting pre-clinical and clinical trials; and customised chemistry services such as contract research services for compounds pre-launch.

The recent changes in the Indian patent laws are also changing the dynamics of the industry. With the introduction of the product patent last year, multinational pharmaceutical companies are now looking at India as a preferred investment destination as they want to cash in on the huge human resource here as well as the massive domestic market. India accounts for 22% of the world market of generic drugs. The new patent regime is also encouraging the Indian drug-makers to step up their own research and development activities.