revitalising glaxo - business india cover story

Old timers in Mumbairecall bus conductorsbawling, ‘Glaxo’, toannounce arriving atWorli, a mid-town

manufacturing hub, dotted with tallchimneys of textile mills. Like severalof these mills that have been shutdown or relocated outside the high-cost island-city, Glaxo has also relo-cated its production unit, in existencesince 1937, to its Thane and Nashikplants. In 2004, it realised Rs107 croreby selling 180,000 sq ft of land inWorli, retaining only a part, to buildan office building.

This metamorphosis is in line withwhat is being witnessed across themanufacturing segment in general.The pharma industry is distancingitself from the commodity manufac-turing business to move up the valuechain, to the more desired and fancieddomain – the research-based knowl-edge industry. V. Thyagarajan, vice-chairman and senior vice-president(Asia-Pacific), has a down-to-earthexplanation for this about turn. “Thedemography of this company haschanged. And we wanted to give theemployees an environment which isconducive to creative thinking and

entrepreneurial work, which they feelproud of.”

Renamed Glaxo SmithKline (G S K)Pharamceuticals India, the new look,steel-and-glass edifice, is but an out-ward manifestation of the totalrevamping initiative scripted by Thya-garajan, (then vice-chairman and MD)way back in 2001 and executed by histeam including S. Kalyana Sundaram(the present M D), Mernosh Kapadia,senior executive director as well asPradip Nayak and Ashoke Banerjee,directors.

This was just after the merger ofGlaxo’s operations with SmithK-

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B U S I N E S S I N D I A ◆ June 6 –19, 2005 Cover Feature

Sundaram: spearheading a radicaltransformational change

GlaxoSmithKline (GSK) India is emerging stronger than ever before, in theunfolding post-product patent era. Business India takes a look at the

restructuring initiatives, its impact and what future portends

Toning up Glaxo

lineBeecham (S K B). Glaxo, at thattime, was the biggest pharma com-pany operating in the domestic mar-kets, a position it had held for 28years, and S K B, an equally wellrespected, though smaller (about 20per cent of Glaxo’s size) company.“The merger provided a trigger tocatalyse the next phase of transforma-tion to India’s largest pharma com-pany in the domestic market,” saysSundaram. The announcement of theproduct patent laws coming into forcein 2005 also induced the company tomove in the fast lane.

A clear needDespite being a dominant player,holding the largest share (6.6 percent) in a highly fragmented market(estimated at Rs15,000 crore in 2000),Glaxo was clearly slipping in terms ofgrowth – top line and also profit. TheP B I D T was less than 16 per centbetween 1997 and 2001 (except inone year) and cumulative top linegrowth during this period was 25 percent. P B T in relation to sales in 2000was below 10 per cent, the lowest inthe five years since 1995. And this washappening at a time when pharmabusiness worldwide was booming.Wockhardt, the fifth largest pharmacompany, boasted of operating mar-gins of 23 per cent in F Y2000. Ran-baxy Laboratories, virtually on a parwith Glaxo in mid1990s, had almosttrebled its turnover by 2001.

At that time, Glaxo was contend-ing with a bulging product portfoliorange. There were more than 250brands mainly in anti-infectives, res-piratory and anti-ulcerants, with thetop 20 brands contributing to over 50per cent of the sales. It had to grapplewith high multinational overheads,monitor over half a dozen productionsites across India and manage aspira-tions of a diverse workforce of morethan 7,300 people, post merger. Thelegacy of the bureaucratic colonialpast was also well preserved, withmore than 400 employees in theadministrative department housed atthe Worli office. These factors wereamplified in the prevailing environ-ment, where prices of a significantnumber of drugs, estimated at over 60per cent (48 per cent in value terms in

2001), were in the purview of theDrug Price Control Order.

Even after the merger with SKB, thecompany’s pharma business couldmuster a growth of only 7.2 per cent,as against the industry’s averagegrowth of 9.7 per cent. This wasnotwithstanding the fact that SKB hada unique portfolio comprising vac-cines for Hepatitis B, anti-infectivesand antibiotics, boasting of brandleaders like Augmentin. Glaxo, on theother hand, was more into the acutecare segments. Its other two divisions– Agrivet Farm Care and QualigensFine Chemicals – were not significant,with pharmaceuticals contributingnearly 90 per cent of the turnover.

The process patent regime, whichhad fostered the growth of Indiancompanies like Ranbaxy, Cipla,Nicholas, Wockhardt, Sun Pharmaand Dr Reddy’s was already erodingthe diminishing overall share of MNCslike Glaxo. The market share of allM N Cs together had fallen to 35 percent in mid-1990s, from 80 per cent in

1970. Though Glaxo had a few powerbrands, “Some medicines were soldbelow the price of chalk, thanks torigid price controls and import restric-tions,” confides an insider.

“Being No. 1 was important from asales perspective, but insignificantfrom a profit perspective,” recallsThyagarajan. The merger with cultur-ally different companies (S K B and Burroughs Wellcome), as also theimpeding introduction of the productpatent laws by 2005, made it impera-tive for the company to redefine its role, so as to retain its leadershipmantle.

The main mantra on which therestructuring blueprint was drawn wasthat profit growth should outpacesales growth and reach at least 25 percent of sales. “It was not just Glaxo butthe entire pharma industry that wasundergoing a phase of consolidationand restructuring in the late 1990s, inpreparation for the new productpatent era,” points out R. Shahani,managing director, Novartis India. A


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developing country like India, with itsgrowing population, was too big amarket to be ignored. So, each com-pany was devising its own policies forsurvival and growth. While Ranbaxy,Wockhardt and Sun Pharma looked atglobal markets to drive growth,Nicholas Piramal was partnering inno-vator companies in global market.

Methods of execution“In G S K India, what we really did wasto undertake a radical transforma-tional change from top to bottom,across companies,” says Sundaram, achartered accountant, who worked inNew Zealand and Singapore markets,

directly overseeing the marketingstrategies. Product portfolio review,with emphasis on profit, was one ofthe primary tasks undertaken. “Ourportfolio was vast, with product liferanging from over 50 years to lessthan six months,” says K. Shivkumar,VP, marketing.

What the company did was toidentify the lead brands as well asbrands under the purview of D P C O

and progressively reduce the less prof-itable brands. Five brands were soldand about 45 S K Us discontinuedbetween 2000-05. Focussed attentionon 30 lead brands saw their contribu-tion rise from under 40 per cent to

nearly 66 per cent in 2003. “Glaxohad, over the years, invested heavilyin building a pan-India disciplinedsales team and penetrated across inte-riors. This facilitated its movementfrom being sales-driven to marketing-driven,” says Harcharan Singh, V P,sales & marketing. Augmentin, whichwas ranked 50 at the time of mergerwith S K B, is today the number onebrand, accounting for Rs100 crore insales.

“To improve profitability andgrowth simultaneously, a dual strat-egy was adopted,” says ShainaMukadam of H D F C Se c u r i t i e s .“Accordingly, the promotion expen-diture on the power brands waspushed up, while taking aggressiveprice increases in some of the largestones such as Iodex, Augmentin, Cef-tum and Neosporin,” she adds.According to O R G figures for April2005, GSK’s Augmentin holds 43.5 percent share in the Rs137.68 crore Co-Amoxyclav market. The next closestcompetitor is Alkem Laboratories’Clavam brand, with an 18.2 per centshare, followed by Ranbaxy’s Moxclavat 12 per cent. Says an analyst whotracks the pharmaceutical sector atIndiainfoline, “Augmentin has a goodbrand value. Though it’s expensive, ithas a good demand.”

Sundaram, who took over thereigns from Thyagarajan in 2003, alsobrought in two major strategic shifts,which involved devising a country-


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“The demography of the company has changed,” says Thyagarajan

specific policy, filling in portfoliogaps through joint ventures for co-marketing and co-promoting withother Indian companies and MNCs.

Country-specific policyIndia’s share in Glaxo in terms ofvalue was barely 1 per cent in 2000,though it accounted for 25 per cent interms of volume sales. Writing off theinvestments would have been a littlemore than a rounding off entry in theconsolidated balance sheet of thegroup. New product launches – eight in the last five years – hardlyprovided any advantages, as the molecules through ingenious reverseengineering were identified and pro-duced through other processes by

competitors. And Glaxo P L C itself didnot have that many new products.

Sundaram’s new policy aimed atmoving into the fast growing chronicdiseases segment (that would requireregular medication to keep the symp-toms under check), which was grow-ing at 16-24 per cent per annum, incontrast to the acute medical care seg-ment growing at 6-8 per cent. He alsounderscored the need to retain a dif-ferential pricing policy, in line withthe country’s pricing policies.

Glaxo P L C was also undergoing ametamorphosis of sorts in late 1990sand early 2000s and had a few drugsaddressing the central nervous andcardio-vascular segments, which weregrowing at 24 per cent. “Glaxo P L C

was persuaded to bring in more of theresearch-based drugs to cater to thechronic diseases segments in theIndian markets,” says Deepak Parekh,chairman of the company.

Another major shift in the policydriven by Sundaram was the decisionto go for in-licensing, to strengthenthe product portfolio gaps. Thisinvolved getting into strategic tie-upswith the original researchers of thedrugs, to enable Glaxo to officiallymarket the products, under its ownbrands, after paying royalty to theinnovator. Nine such agreementshave been entered into, including the ones with Organon for marketingoral contraceptives with Ranbaxy for co-marketing cephalosporin and

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Kapadia: an integral part of a revampinginitiative

Nayak: absorbing the best of cultures toform a new entity

Banerjee: creating modern, integrated andcost-effective plants

anti-infective cefalexin drugs.It recently tied up with a Japanese

firm Eisai to co-promote a drug totreat peptic ulcers and gastric disor-ders, though this new product wouldcannibalise its own 20-year-old raniti-dine, which is under the purview ofDPCO. Apart from converting a formi-dable competitor into a business part-ner, these initiatives also created abarrier against newer entrants in thealready crowded industry. The man-agement’s rationale was to exploit thecompany’s well-developed infrastruc-ture for developing and expandingthe range of its products. “An India-specific policy would allow G S K In d i ato position itself as acompany of choice forpartnering,” says RaviLimaye, VP, marketing &business development.

CompetitivenessThyagarajan’s blueprintalso involved rationali-sation or realigning ofmanufacturing andreducing complexitiesahead of getting into the

preparatory mode for the 2005 post-patent regime. “Overheads werekilling – too many people, too manyexpenses. We realised that, in thegeneric market, we were up against alot of competent Indian companieswho, apart from having a much betterproduct portfolio than ours, also hada lower cost base. As a result of whichthey were able to promote more,”explains Thyagarajan.

“Instead of top-driven mergers,where change is literally forced onemployees, we decided to go in for amore open and transparent method,with the aim of absorbing the best ofcultures from both companies to forma new entity,” says Pradeep Nayak,director, who looks after the entireplant and man-power rationalisation.Amalgamation of S K B’s workforcewith Glaxo, cutting down operationsat factories from the existing nineunits to two units, streamlining production schedules, etc, were someof the initiatives the managementtook to send a signal of its determina-tion to break away from the colonialpast totally. As a part of the change,Worli plant was the first to cease operations.

The management came up with V R S schemes, which helped it claimthat, with no employees left, it had to sell off units. Despite opposi-tion from workers, union leaders andgentle and not-so-gentle persuasiveovertures from politicians, Nayakmanaged to bring down the workforcefrom 7,300 at the time of the mergerto 4,000 in 2004. Of this, the strengthof the production staff alone was cutto 1,400 – one-third of what it was earlier.

The initial costs of relocating the Worli plant and the severance

payments to 600 employees workingin Mumbai and Bangalore (estimatedat Rs100 crore in 2001) was partiallyoffset by the Rs40 crore profit madeon the sale of one of its properties inWorli. The Mulund plant, acquiredthrough the merger with Burroughs,followed, as did the Ankleshwar plant.The Mulund unit, housed on 19 acresof land, is in the process of being soldat an estimated amount of over Rs200crore.

“Rationalising production alsohelped in creating one of the most

modern integrated and cost-effec-tive plants at Nashik. It is today

one of the biggest plants in theGSK global group, catering to

50 per cent of the Indianc o m p a n y ’ s r e q u i r e -ments,” says Ashoke

Banerjee, technical direc-tor in charge of productionand research, who wasentrusted with the task ofintegrating process andproduct manufacture. Thecreation of huge capacitieswas also done to take care ofthe company’s policy ofacquiring brands sans theirproduction units.

Russel Greig , president of G S K In t e r n a-tional, heads the $5bn internationaloperations in 120 markets across thecontinents. In a telephonic conversationwith Daksesh Parikh, Greig speaks aboutGSK India’s growth potential, future posi-tioning and GSKPLC’s plans for looking atIndia as a sourcing and research develop-ment base. Excerpts from the interview:

What is the relevance of G S K India in theglobal context?India has made a significant contributionand is growing year by year. It figuresamong the top five markets and so it is acornerstone of the performance in theinternational markets. If India doesn’t dowell, international division will also havea problem doing well too.

What is the future role envisaged for G S K

“India is verymuch at the top”


GSK India was dethroned from its 28-year-old reign as the numero uno in

the Indian retail market by Cipla in 2004.Cipla with sales of Rs1,128 crore wasahead of G S K India by Rs14 lakh. Whilethe lead is not much in terms of value, ithas shaken up the industry. ORGIMS datais, however, restricted to retail sales anddoes not capture institutional sales orsales of vaccines. If these are taken intoaccount, GSK India’s share comes to 6.45per cent.

28th year re g i m es h a k e n

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Negotiations through a newly cre-ated sourcing department for bulkquantities of material delivery at pre-determined rates, e-procurement andmore emphasis on outsourcinghelped in drastically curtailingexpenses by roughly 20 per cent. “Atone time, there were 19-20 courierszipping in and out of the premises,each catering to different divisionsand department. Now, there are just three,” says JayantDwivedy, V P, procurement.The focus was not just oncosts but on adding value tothe total expenditure of theorganisation. Centralisedsourcing, emphasis on out-sourcing and use of technol-ogy also saw back roomoffice staff cut from 400 to125.

Similar gains alsoaccrued from restructuringthe supply chain of distribu-tors and carrying & forward-ing agents, as also fromintegration of service func-tions like finance and information technology.“Mapping territories, pro-file of doctors on the net

also improved productivity, says M.R.Vasanthkumar, V P, I T and supplychain.

Beneficial impactResults of cost-containment andother strategic policy changes, likeaggressively marketing vaccines,which currently account for 8 percent of the total income, had a benefi-cial impact. In FY2004, sales increased

to Rs1,479 crore, with P B I D T r i s i n gsharply to Rs436 crore, on a three-foldgrowth in margins over 2001.

The margins were the highestamong all pharma companies, sur-passing those of Ranbaxy (28 percent), Wockhardt (27.1), Cipla (22.1)Nicholas Piramal (13.8) and Pfizer(18.8). The PAT in 2003 and 2004 werealso the highest in the recent past,even after excluding the profit made

on the sale of land in Worli.While it is still below the 25per cent of sales target, ana-lysts are confident of thetarget being reached soon.

To retain its leadershipposition, the company isbanking on a high level ofinterest from the parentcompany, introduction ofcombination vaccines,patent and off-patent drugsand the continuance of theIndia-specific strategy in the new environment. Theliquidation of its land atWorli and the likely sale ofsurplus Burroughs Well-come land in Mumbai andS K B property in Bangalorewill provide the necessary

India?With the passing of the patent law, we willsee a distinct change in the businessatmosphere for India, as it opens a newchapter in its intellectual property laws.

We have partnerships and might considerthe prospect of setting up our own discov-ery unit. It raises the prospects of doingmore clinical trials of India, which will bemutually beneficial. We will bring inexpertise and knowledge and innovationfaster into the Indian market place. Thiswill be good for the Indian economy aswell as the commercial health of GSK.

Is the shutting down of plants in India aglobal G S K strategy of de-emphasising onmanufacturing?With globalisation, every company is try-ing to reduce the manufacturing cost bymoving to high-quality and relatively low-cost markets. And we are no different. Butwe have been happy with the quality andthe cost of manufacturing in India, as weundertake a constant review of the manu-facturing plants. We have to take 3-5-10years’ horizon.

Will you be setting up more productionbases for servicing other markets?

I don’t want to give you any firm commit-ment. All I can say is that India has severalattractions as a manufacturing base,along with two or three other countries.We are looking at consolidating our man-ufacturing base and place more emphasisabout manufacturing and high quality inlow-cost countries. India is very much atthe top. The other country we are taking aclose look at is China.

Can you tell us what products will belaunched in India and when?It will depend on the performance of ourproducts in phase II and phase III of theclinical trials throughout the globe and Ihope to see regulatory approvals for thefirst wave of products from G S K to come inby, say, end 2007 or, more likely, 2008. Ialso hope that we have two vaccine prod-ucts – Rotarix for the treatment of paedi-atric diarrhoea and Cervarix, which has thepotential to prevent 80 per cent of the riskto cervical cancer. Both these productshave been filed for registration in India. ◆


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Shivkumar and Singh: focussing attention on brands

funds for the repositioning of thecompany in the competitive post-patent period.

“When you are at the top of themountain, you can see the panoramabeyond. If you are mid-way or at thebottom, you see only the mountain,”says Thyagarajan, explaining that theMNCs who took a different view of theIndian market in the last 30 years andexited to a lower profile will have toclimb the mountain first. Sundaramtoo is gung-ho about the prospectsand feels that Glaxo has a clear edgeover other M N Cs. He cites well-spreaddistribution network, knowledge ofthe country, rapport with the doctors,among others, as advantages.

Thyagarajan points out that GlaxoP L C has the largest product pipeline inthe world, with many drugs in

advanced stages of development.According to David Stout, president ofpharma operations, there are 140 pro-jects in clinical development stage –with 34 new chemical entities (N C E) i nPhase I, 43 in phase II and 11 in phaseIII/registration stages. Besides, thereare 20 vaccines too, awaiting trial.They include medicines for breast,lung and prostrate cancer, diabetes,thrombosis and bacterial infection.

Besides widening product portfo-lio, opportunities for conductingclinical trials and also assessing theresults of the trials conducted else-where in the world are expected toincrease G S K India’s overall impor-tance in the group. Stout points out that, by 2025, cumulative marketsize of India and China would have asignificant number of senior citizens,

which would see cumulative growth in consumption of medicinescomparable to the US.

Vaccine – a growth driverVaccine is being positioned as one ofthe major growth drivers. G S K, whichhas been marketing vaccines, willstart production at a site near itsNashik plant. This is the first plantoutside Europe where Glaxo P L C

would be producing vaccines. Whilethe proprietory technology would beretained by Glaxo’s Biologicals inBrussels, marketing of the vaccineswould be done through G S K In d i a .Marketing of these vaccines isexpected to give an edge to the Indianarm. G S K is banking on the launch oftwo new vaccines – Ceravarix (fortreating virus causing cervical cancer


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Markets love turnaround stories. Thedoubling of the G S K India’s share

prices from a level of Rs348-398 in May2001 to Rs748 in May 2005 can beviewed as a demonstration of theinvestors’ faith in the restructuring initia-tives. The company’s market capitalisa-tion stands at Rs6,483 crore – up fromRs2,566 crore in May 2001.The higher

dividend payouts, with the likelihood ofmore cash being generated over the nexttwo years from the sale of its properties inMumbai and Bangalore as also the deci-sion to go in for a buyback of shares fromthe open market at a price not exceedingRs800, has sustained interest in the stock.

Says Shaina Mukadam of HDFC Securities,“We expect G S K India to be one of thebiggest beneficiaries of the change inpatent laws, in the long-term. Its parenthas one of the largest and most promisingpipelines in the industry, with 140 pro-jects in clinical development (as at the endof February 2005). This includes 88 N C Esand 20 vaccines.”

Notwitstanding the aggressive postur-ing, G S K IIndia ranks fourth in market capbehind Ranbaxy, Cipla and Sun Pharma.In the global markets also, Glaxo P L C,despite having the biggest productpipeline, is still trailing behind US basedPfizer, with Novartis breathing down its

neck. Sanofi-Aventis leads in Europe.G S K India also enjoys a lower P/E r a t i o

compared to its peers. Says Deven Chok-sey, M D of research-based broking firmKisan Ratilal Choksey: “It is natural thatGlaxo valuations are trailing Ranbaxy,Cipla and Sun, largely because theexports business for Ranbaxy, Cipla andSun are growing at more than 30, 50 and50 per cent respectively. This driver is notpresent with Glaxo.” However, Chokseysees the huge cash balance on its books,almost Rs100 per share, and its buybackprogramme as positive, which couldallow it to acquire companies and grow, ifopportunities exist. The downside inGlaxo is minimum, he says, while theupside would depend upon growth fromcore business and new launches.

“While the cost containment drives ofgovernments is fostering generic growthglobally and the expiration of some of themajor blockbusters in the US by 2006-07could accelerate it, there is nothing toprevent M N Cs from entering this genericmarket,” says Gul Tekchandani, a fundmanager. He feels that GSK India is one ofthe greatest turnaround stories in pharmaand its full impact has yet to be felt.

Hope, however, rules high amonganalysts. They feel that G S K’s potential tobring in more blockbusters and new vac-cines will be the differentiating factor,which will help it maintain the leadershipposition.

Inspiring confidence

in women) and Rotavirus (for control-ling diarrhoea in children).

Challenges galoreThe newfound confidence notwith-standing, G S K will be facing chal-lenges from new entrants andaggressive moves by competitors.Bristol Meyers, Bohreigner Manaheimand Merck are looking at re-enteringIndia in a big way. While initially theymay enter niche areas, they may optto increase their presence subse-quently. The market share of Glaxo,post-mergers, has come down to 5.4per cent from 6.5 per cent.

The product patentrules in India are unlikelyto bring about radicalchanges in the fortunes ofthe pharmaceutical com-panies – at least, not for afew years. Generic marketswill continue to dominateand account for 95-98 percent of the overall mar-kets. Says R. Shahani ofNovartis, “Market seg-mentation will take placeover the next 5-10 years.”Novartis which, likeGlaxo, has been aroundfor decades, agrees thatcompanies like G S K In d i aand Novartis will have anadvantage over otherM N Cs, as they have aready-made platform for introducinginnovative drugs.

Competition from domestic firmstoo cannot be wished away. “Indiancompanies, which have built manu-facturing competitive skills in the last30 years, will look at growth throughinnovation,” says Habil Khorakiwala,C M D of Wockhardt India (which isexpected to develop mastery inresearch in new molecules soon).However, “Development may be a dif-ferent ball game and only those withdeep pockets will be able to undertakeit,” says Parekh. “Companies arealready de-emphasising manufactur-ing activity and looking at moving upthe value chain.”

Researchers point out that the long product pipeline should not betaken at face value. Nor can it beassumed that all the drugs that are in

the clinical trial stage will meet withsuccess. “Developing a new drug iscostly, its results uncertain and theprocess lengthy,” says a spokespersonof a major Indian pharma company.There is also no guarantee that thenew drug will be able to command apremium price right through theproduct cycle of the drug, especiallyin Europe and developing markets inthe Asian continent.

The research and development of anew molecule (from the discoverystage through the transition from theclinical and data verification stages to

the ultimate drug stage) is estimatedto cost $800 million. Besides, risks offailure are high and can occur at anystage of the development. Its com-mercial viability also may beimpaired, due to excessive cost ofmanufacture or inability to differenti-ate the drug sufficiently from thecompetitors. Even Glaxo P L C had torelinquish the marketing rights ofLevitra in all but the US markets.

The affordability issueThe affordability question does notconcern just the individual’s ability topay but also of the government’scapacity to fund the social health pro-grammes. While, in India, it is still theindividuals who largely pay for themedical bills, governments the worldover are questioning the high cost ofR & D. And getting premium pricing is

becoming more and more difficult.In India, generics still account for

bulk sale in the municipal and state-run hospitals. Even GPs and specialistssuggest cheaper alternatives topatients. In India, competition fromalternate system of medicines, includ-ing ayurveda and homoeopathy, fortreatment of chronic diseases is gain-ing ground.

Sundaram agrees that differentialpricing policies, based on purchasingpower parity, will be the norm in alldeveloping markets. “It is not correctto assume that the introduction of

product patent will see asharp rise in the price ofpatent drugs being intro-duced in the country,” hesays. Sundaram, however,foresees the introductionof one new drug every yearin G S K for the next fewyears.

Skilful marketingThe introduction of patentdrugs and vaccines tocombat lethal and lifestylediseases like cancer, dia-betes will also require thebuilding of a different skillset among marketers. Incase of cancer drugs orheart diseases, evidence-based marketing will haveto be done at the hospital

levels, convincing super specialistdoctors, as against mass selling depen-dent on prescriptions through generalpractitioners. Harcharan Singh andShivkumar point out that Glaxo hasalready started training its workforcefor development of these skill-sets,though they feel that more technicalknowledge is still required. However,there is no guarantee of GSK India notbecoming a fertile poaching groundof new talent like in the past.

Acquisition – a mind setThey have a buy-back of shares (seebox), but is that the best way to cratelong-term value for shareholders?Another challenge concerns theaggressiveness in the emerging mar-ket place. G S K investments were val-ued at Rs700 crore at end March. Thesale of other properties may increase it


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even more. But has the company beenable to shed off its ultra-conservativeimage acquired over the decades, askscritics. Glaxo India has never beencredited in moving swiftly for clinch-ing deals, be it assets or brands (thetwo major mergers with S K B and Bur-roughs in India had followed globalmergers of the parent companies).Indian companies, on the other hand,have been swifter and more agile inseizing opportunities.

Nicholas Piramal, a late entrant inpharma, grew rapidly through a seriesof takeovers, to emerge among theleading pharma companies of India,in a period of 16 years. Ranbaxy has,likewise, become the leading pharmacompany in India, with revenues (ofdomestic and export sales combined)of Rs3,764 crore in F Y2004. SunPharma, a company started inmid1980s, has gatecrashed into thetop five slot through takeovers ofcompanies. Glaxo, on the other hand,has not been able to grab businessopportunities, which could have com-plemented its product portfolio andhelped in ramping up sales.

Sundaram agrees that there wouldbe a shakeout in the pharma industryover the next few years. “We wouldlook at acquiring brands/companiesat the right price,” he says. Indiancompanies, which have grown to thisstature, have different mind-set.Emphasis on asset-growth eclipses

decision of ‘right price’, the rationalebeing that higher price can be recov-ered and new products can be builtalong the periphery to extend andcomplement the original product.International companies like Teva, arealready sniffing around in Indianmarkets. And a couple of landmarktakeovers may actually drive up valua-tions rather than bring them to morerealistic levels.

Exports & production hubThe major growth drivers of Indiancompanies (of servicing generics) asalso overseas market clearly place G S K

India at a disadvantage. G S K P L C h a v-ing manufacturing bases in severalcountries may not permit GSK India topursue growth through exports. Indiaalready has the largest number of USapproved plants outside US. “It hasthe ability to produce quality drugs at

low costs and this will make it an idealproduction hub for meeting theglobal needs,” says an analyst.

India, with its skill-sets for develop-ing creative and innovative products,is also looked on as a centre for fur-thering research-based activity, a factthat even GSK PLC has realised. “Valueaddition through contribution inresearch and development will grow,”says Thyagarajan. “Pharma compa-nies are looking at doing research incheaper and more productive places.India has good quality doctors, sohigh quality trials can be done here. Isee India as a centre of manufacture, asource of scientific talent and, there-fore, scope for R & D here,” he adds.However, it may be a while beforeMNCs are able to enter into the gener-ics markets. Despite the fact thatM N Cs like Novartis has entered thegenerics markets, most experts feelthat it requires a different skill set toenter into this segment.

Future hazyThe future for the pharmaceuticalindustry is still hazy. Everyonebelieves that 2005 will be seen as aninflection point in the history of phar-maceutical industry in the future. Butwill there be a shakeout? Which com-panies will survive? What will operat-ing in product patent period entail?Will patent products be able to grab a 5per cent share over the next five years?There are of course no easy answers tothese queries. “The passage of theproduct patent bill in India, despitethe hue and cry, is just the beginningand, in a few years, it may well beregarded as the easiest step undertakenin the transformation of the industry,”says Shalini Thaker, I P director of UK-based Huntleigh Healthcare, who hadearlier worked in the patent office inthe UK for several years.

“The growth in pharmaceuticalsmay well surpass if not equal thegrowth in I T in the coming years,” saysSundaram. And Glaxo will remain inthe forefront, driving the change, hesays. As it was for the bus commutersin Mumbai in the past, G S K India willcontinue to remain a landmark for theIndian pharma industry in the future –a benchmark, of sorts.

◆ DAK SESH PA RIKH


India is looked on as a centre for research

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