126 THE McKINSEY QUARTERLY 2001 NUMBER 1

Ashwin Adarkar is a principal in McKinsey’s Los Angeles office, and Sankar Krishnan is a principaland Sanoke Viswanathan is a consultant in the Mumbai office. Copyright © 2001 McKinsey &Company. All rights reserved.

he problems and opportunities facing midsize pharmaceutical companies in the developed world are similar to those that will soon

face India’s leading drug makers. Historically, these Indian companies haveconcentrated on reverse engineering patented drugs and selling them locallyfor 8 to 15 percent of what they cost elsewhere. This strategy is unsustain-able, for impending regulatory and demographic changes are making theIndian market more similar to global markets, thus forcing Indian companiesto compete against global ones according to global rules. Indian companiesmust either identify arenas in which they can compete successfully with thelarge multinationals or develop new models of collaboration.

Significant changes are expected in the Indian market over the next fiveyears. First, in signing the General Agreement on Tariffs and Trade (GATT),the Indian government agreed to adopt worldwide patent standards by 2005.Despite industry expectations, the impact on prices is likely to be limited,since only drugs patented in the West after January 1995 will receive protec-tion, and they are likely to constitute less than 10 percent of the Indian pharmaceutical market by 2010. The real impact of India’s decision to signthe GATT will be the stagnant sales facing Indian drug makers, whichcannot reverse engineer and launch molecules patented by multinationals.

Second, rising incomes and a growing number of elderly people—sustainedby advances in hygiene and medicine—are driving a shift in the market awayfrom sales of vitamins and anti-infective and gastrointestinal treatments andtoward sales of treatments for cardiovascular problems, central-nervous-system disorders, and other complex ailments. By 2010, cardiovascular andcentral-nervous-system treatments, which accounted for only 15 percent ofthe market in May 1999, are expected to account for 33 percent (exhibit).

T

Ashwin Adarkar, Sankar Krishnan, and Sanoke Viswanathan

India’s drug companies will soon have to compete against global ones—by global rules.

India’s pharmachal lenge

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This increased convergence of multinational product pipelines and theIndian market will inspire multinational pharmaceutical majors, most of which have sat on the sidelines, to renew their interest in India.

These market shifts will require Indian players to develop new skills and toform new kinds of partnerships. Since reverse engineering promises little orno growth, Indian drug makers need their own source of patentable products.Although taking on the majors may be difficult, Indian companies coulddevelop their own drugs by focusing on products that would be uneconomi-cal for the multinationals to develop and commercialize: any drug with asales potential of less than $300 million a year. Examples include treatmentsfor diseases (such as tuberculosis) prevalent in low-price markets. In develop-ing these treatments, local companies have the advantages of lower costs andeasier access to patients. Moreover, a savvy Indian company that lacked theresources to conduct basic research could buy such compounds languishingin Western pipelines. Capturing the full value of these products, however,will pose a challenge, for Indian pharmaceutical companies typically lack asignificant global sales force; alliances may be required.

Developing drugs independently isn’t the only option. Indian compa-nies, with their world-class skills inchemical synthesis and process engi-neering, could be valuable partnersfor multinationals. Indian companiescould, for example, help reduce thetime it takes Western pharma com-panies to produce commercial lotsizes. With today’s time-to-marketpressures, six months saved in scal-ing up production could be the difference between a blockbuster and a “me-too” drug. At one end ofthe scale, an Indian company couldin effect become part of the R&Dorganization of a large multinationalby specializing in a step in the devel-opment process or in a set of molecules. At the other end, world-class,world-scale Indian “processing hubs” could serve global players in areas(such as clinical trials) that leverage India’s cost position.

Finally, Indian companies could position themselves as marketing partners ofchoice for multinationals trying to enter the Indian market. A local companywith a dominant franchise and access to India’s 400,000 doctors would beindispensable for multinationals that lack minimum local scale.

127I N D I A’ S P H A R M A C H A L L E N G E

E X H I B I T

What’s ailing India?

Composition of therapeutic treatments, percent

1Forecast.Source: ORG-MARG; interviews; McKinsey analysis

Increase in sales Decrease in sales

$3.7billion

May 1999

100% =$6.5

billion$10.5billion

20051 20101

Cardiovascular

Anti-infective

Gastrointestinal

Vitamins

Antirheumatic

Other

Respiratory6 6

23

106

29

117

32

11

10

9

118

23

10

15

8

15

9

18

8

69

Central nervous system

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