HOW SMALL PHARMA STARTUPS CAN GROW THEIR BUSINESS :

How small pharma startups can grow their business:

In the past few years,  pharmaceutical Industry (especially india) has grown at nearly 12 to 15 per cent which is a tremendous pace of growth if we compare it to that of the US or European markets. No doubt the growth of the industry will continue to be in double digits and India may rank above the top five global pharma markets by 2030. But it is also becoming difficult for domestic companies to survive in the current scenario. Along with small and mid-size firms, even a few big players have exited the business in the last five to seven years. 

Big international houses are becoming more active  - they have both money and resources to flourish pharma industry. A lot of equity transactions are happening in the marketplace - a few recent ones being those of Piramal (Abbott), Agila Specialities (Mylan) and GSK (increased its own stake). It is not only big players who want to enter the country, but also domestic players don't see much growth in the near future despite the expected high growth in the industry. This is a pretty serious situation and must be discussed.

There are many reasons which are taking local players into troubled waters. Let's take them one by one.

1. No diversification :  This issue can be further subdivided into:
a. Focus on low value generics business only
b. Top line highly dependent on domestic sales

Players depending majorly on local markets and generics business (areas like antibiotics etc.) will have to diversify in order to survive in the future. The Indian market is already competitive. Foreign MNCs are adding more competition to it by launching products in both branded generics and generics categories. Government policies are reducing profit margins in order to provide low cost drugs to the people, causing problems for companies dependent on domestic market. It is becoming difficult to differentiate with similar products and a limited portfolio.

2. Enforcement of Drug Price Control Order :

 This is one of the biggest steps taken by the government to ensure availability and affordability of quality drugs for the masses. It has led to drastic reductions in the prices of several essential medicines, leading to a dent in the bottom line of pharma companies (mainly generic local players).

3. 100% FDI in both existing and new businesses :

Free FDI entry into the sector has brought in many big companies which has increased competition for small and mid-sized players in an already highly fragmented market. Domestic companies are finding it tough to maintain their share of the pie.

4. Stringent steps towards both IP (Intellectual property) policy and conducting of clinical trials :

In the post GATT (General Agreement on Trade and Tariffs) scenario, the implementation of a stringent IP policy in the country is one of the agenda points for the government, in order to facilitate the availability of the latest medicines to patients. Clinical trials are another issue associated with innovation. The administration is also paying more attention to the safety of patients following a few incidents that have happened in past. All of this has increased the hurdles in the path of getting approvals for new drugs in this country.

Now, we have some understanding of why it has become difficult for domestic players to survive, let us move on to measures which could help them sustain and grow their businesses.

·       STRATEGIES TO BUILD A SUCCESSFUL STARTUP :
To start with, domestic players will have to broaden  their vision and make plans for at least the next five to 10 years. Strategies which could be followed include :

1. Shift towards high value generics from the low value generics business model :

Domestic companies will have to shift their business models which are based on low value generics, to high value generics which are difficult to copy, to niche or specialty products or biosimilars. Biocon's launch of Herceptin biosimilar (CANMAb) is the latest example in this category. Dr. Reddy's and Sun Pharma have high profit margins due to their focus on specialty products.

2. Increase presence outside the domestic market :

It will be difficult for domestic companies to survive if they depend largely on the local market. The European and US markets are increasing their focus on generics,. Domestic players will have to move out and diversify their risk in order to sustain in the long run. 

3. Increase investments in R&D :

There is great need of innovation in the IPI. Companies need to spend money on R&D, not only for the growth of the market but also to strengthen their positions. Incremental innovation can be a good starting point. Companies can then move towards pure R&D. The IPI is still waiting for its first indigenous new product launch.

4. Follow GMPs (good manufacturing practices) and SOPs (standard operating procedures) to ensure production of high quality medicines :

No doubt foreign markets are opening up for generics and Indian companies are taking due advantage of the situation. But we have to be more cautious about the quality of products manufactured in the country. After Ranbaxy, Wockhardt also has been into troubles with US Food and Drugs Administration. If the things continue in the same vein, the whole domestic pharma industry may suffer going forward. Domestic companies should follow all the SOP guidelines and be responsible about quality which will surely benefit them in future.

5. Boost spending on brand building :

Domestic companies will have to increase and optimize spending on brand building. In case a company is successful in establishing its brand, it will be easy to create a market for its brand generics then. Branded generics not only yield better margins than generics but also provide an edge over the competition.

One positive is that even the government is concerned about domestic pharma companies. Recently, the Department of Industrial Policy and Promotion (DIPP) raised concerns over allowing 100 per cent FDI in the pharma sector. Although the cabinet has rejected the proposal to reduce FDI, it has agreed to one condition - non inclusion of the non-compete clause in all brownfield pharma transactions. This will help domestic players - even if they sell their businesses to MNCs, they can restart or invest in new ventures of a similar nature.

In sum, it can be concluded that domestic companies will definitely have to put some serious effort into remaining in business. They have to align themselves to the existing scenario or they will fall prey to it.