Made in New Delhi: Next Medicine
Your Doctor Chooses to Order
December 28, 1999
By MIRIAM JORDAN
Staff Reporter of THE WALL STREET JOURNAL
Most Americans haven't heard of a New Delhi company called Ranbaxy
Laboratories Ltd. But its factories spit out generic drugs that wind up in
medicine cabinets across the country, including the popular antibiotics
cefaclor, cephalexin and amoxicillin.
Ranbaxy is part of a massive, low-cost medicine industry in India built
around reverse engineering -- copying an established drug by developing
an innovative process to make it. The company has quietly churned out
low-cost copies of Western drugs for most of its 38 years. It turned up the
volume four years ago when it adopted an unusual strategy for a
generic-drug lab in a developing country: It started inventing its own
molecules.
This year, Ranbaxy tasted the first major success: For $60 million plus
royalties, it sold to Bayer AG an advanced formulation of one of the
German company's most profitable drugs, ciprofloxacin, an
infection-fighting antibacterial agent. The tablet conceived by Ranbaxy
enables patients to take only one dose a day, instead of several, by
discharging the drug over a prolonged period of time.
"From a reverse-engineering, copy-product company, we will become a
research-based company," says Davinder Singh Brar, who became
Ranbaxy's chief executive officer in March.
Roughly 14 out of every 100 researchers working in U.S. pharmaceutical
labs are of Indian origin, and Ranbaxy is luring some back home. Twenty
of the 85 members of its drug-discovery team were poached from U.S.
and European companies. "It's reverse brain drain," says J.M. Khanna,
Ranbaxy's head of research. To meet Food and Drug Administration
standards and keep the scientists happy, the company built state-of-the-art
laboratories in New Delhi's outskirts.
The company has little choice but to change. Under a World Trade
Organization pact, New Delhi has agreed that by 2005 it will recognize
and protect patents for pharmaceutical products (not just the process by
which they are made). In any case, Ranbaxy seems to be on the right
track. Its stock has risen 150% this year, giving it a $3 billion value, bigger
than some U.S. generic-drug rivals. With $500 million in annual revenue
and units in seven countries, including China and the U.S., Ranbaxy is
India's largest home-grown drug multinational.
Now, Ranbaxy is about to start patient trials on a
new molecule to treat swelling prostate glands in
aging men. If successful, it could propel the
company into a $3 billion-a-year market
alongside Glaxo Wellcome PLC and Abbott
Laboratories, among other giants. And a handful
of other drugs are advancing inside Ranbaxy's
labs.
'Large Investments'
The competition is impressed. "Drug discovery
calls for large investments, and Ranbaxy won't do
it overnight," says Anustup Datta, business
development chief at SmithKline Beecham PLC's unit in India. "But their
vision is very clear, they have attracted extremely good scientists and they
are investing substantially."
The Ranbaxy story offers insights into the role of foreign drug makers in the
creation and supply of medications to the American market. It began in
1962 when a Sikh refugee and moneylender from Pakistan, Bhai Mohan
Singh, acquired a small drug-import business and a pharmacy from two
debtors in New Delhi who owed him $100,000. That concern, run by men
named Ranbir and Gurbax, was little more than a warehouse and offices in
three Indian cities. Mr. Singh gradually converted it into a pharmaceutical
lab, hiring inexpensive local scientists to reverse-engineer foreign drugs.
In 1982, Mr. Singh's son, Parvinder, became Ranbaxy's joint managing
director alongside his father. That event kicked off a period of dramatic
change -- and family antagonism. The younger Mr. Singh, a graduate of the
University of Michigan, where he took just 22 months to earn a doctorate
in pharmaceutical chemistry, wanted to go global.
Then, as now, India's drug makers basked in a protected domestic market.
But while other Indian tycoons kept their empires safely in family hands,
the younger Mr. Singh hired the best managers he could find, despite
opposition from his conservative father.
By the early 1990s, the younger Mr. Singh had steered the company
overseas with joint ventures in Nigeria, Thailand and Malaysia, all
brokered by Mr. Brar, then a 30-year-old rising star. In 1993, the younger
Mr. Singh formed a joint venture with Eli Lilly & Co. to manufacture Lilly
products in India and market them throughout South Asia. In 1994, he
listed Ranbaxy global depositary receipts in Luxembourg. In the
mid-1990s, the company began manufacturing in China, Britain and
Ireland, and set up marketing offices in Russia and several European
countries.
In 1994, when it looked as if U.S. health-care reform would trigger an
explosion in the generic-drug market, Lilly struck a deal for Ranbaxy to
make generics for it. Down the road, the companies aimed to collaborate
in research. However, after the U.S. Congress blocked President Clinton's
reform plan, both parties agreed to dismantle the deal.
It was also in 1994 that the managerial and personal differences between
father and son reached the boiling point. Indian newspapers reported that
the son removed his father's belongings from the corporate office in 1994.
His justification: The elder Mr. Singh had withdrawn from day-to-day
management and hadn't used the office in two years. The father filed a
police complaint against the company, but authorities took no action.
Expansion continued. In 1995, Ranbaxy bought Ohm Laboratories, a small
New Jersey maker of over-the-counter drugs such as cough medicines.
Last year, Ranbaxy launched 15 generic medicines under its own label in
the U.S. and is awaiting approval from the FDA to sell several more.
'Big Boys'
"They are breaking into territory reserved for the big boys," says Hemant
Shah, an independent industry analyst in Warren, N.J. "No other Indian
company has had the tenacity to invest like them."
This past July, Parvinder Singh died of cancer. He was 56 years old.
Today, the elder Mr. Singh, 85, is in court with his son's widow in a
property-ownership dispute, but he isn't fighting the company. He didn't
respond to repeated messages at his home seeking comment.
The U.S. is now Ranbaxy's largest market outside India, with sales
expected to hit $47 million this year. China and Britain are the other two
main markets, each at about $15 million this year.
Ranbaxy devoted about 4% of its $500 million revenue to R&D last year,
and plans to spend 6% by 2003. That's small compared with leading
Western pharmaceutical companies, which pour about 15% of revenue
into research, but high compared with major generic-drug makers,
according to industry analysts.
It will take at least another eight years before Ranbaxy's prostate drug can
be commercialized, and the company realizes that it will need to
collaborate with a pharmaceutical firm with muscle: It costs about $500
million to get a new drug to market. |
