Industry Institute

Partnership Cell

inassociationwith



presents

Lupin Case study ChaLLenge

Cashing on the branded generics market in India

Anil Gupta, chairman of Inheim Limited, the holding company of Berger Inheim, was overlooking the
BKC road traffic from his cabin located in Bandra Kurla Complex. The traffic was highly unusual for a
weekday, so were the thoughts passing through his mind. He stared at the quarterly performance report
indicating the stagnant market in US and the scope for growth to be minimal. Albeit, the competitors
seem to be raking profits from Emerging Markets (EM) but Berger Inheims profits seems to be sub-
optimal in-spite of being the 3rd largest player in the Indian Market, which contributes a major share of
EM. Gupta was curious to know whats happening in the US market so he called Lucas, COO in US.
Highly entrenched market US
US has one of the most sophisticated healthcare system in the world. The healthcare system is highly
intertwined with insurance sector thereby making the MNCs operating in the healthcare industry,
specifically in the pharmaceutical, to be cordial with insurance companies. The insurance companies
decide the repayment for the medicine bills based on the drug used on a case basis leading to the choice of
drugs being prescribed or consumed (Exhibit 1). The market growth seems to be around 1-2%, the precise
reason behind companies hesitant to invest multi-million dollars in research for new drugs as there would
be not be much of significant difference from the existing drugs. When a new drug provides only a subtle
difference in the cure/care from the existing, insurance companies dont choose to refund for such a drug.
The indictment seems to be clear, unless there is any disruptive innovation, growth and profits would
suffer in the medium term for US market. Lucas informed of the modus operandi and high opportunity
being tapped by their competitors in EM.
Where the growth is? - The Indian Market
Indian Pharmaceutical Industry is one of the fastest growing in the world. It is ranked third in the world in
terms of volume and is 13
th
largest in terms of value.
Domestic Scenario
Major factors driving the growth in the domestic pharmaceutical market are the fast rising per capita
income of the domestic consumers, the advancement in the medical facilities, increasing prevalence of
chronic diseases in India and the increase in the health insurance coverage. Another major aspect
contributing to the growth is the fact that the patents of major branded drugs across the world are expiring
in the next couple of years, particularly in the US market.
Patents
Before 2005, the regulatory system in India focused only on process patents. Indian pharmaceutical
companies thrived during the process patent regime. They would re-engineer products of global innovator
companies, which were unavailable in India, and launch them in the country as generics, as India did not
recognize the product patents. In this manner, Indian companies gained process chemistry skills, but did
not focus on R&D for new drug discovery.
In January 2005, India complied with the World Trade Organization (WTO) to follow the product patent
regime [sale of re-engineered products (for drugs patented after 1995) is restricted]. However, enterprises,
which had made significant investments and were producing and marketing the concerned product prior
to January 1, 2005 and which continue to manufacture the product covered by the patent on the date of
grant of the patent, are protected, and the patentee cannot institute infringement suits against them, but
would be entitled to reasonable royalty.

Branded Generics in the Indian Market
The post patent era had brought in two major changes in the market. First, the reach of patented products
had come down drastically due to distribution issues. Earlier, 40 companies used to sell the same product
under different brand names but now the restrictions withhold. This lead to the second change in the
market, MNCs started manufacturing patented drugs, which were consumed in large volumes and price
de-controlled, with a slight change in the chemical formula but addressing the same therapy, thereby
applying patent for that drug and enabling better penetration.
Branded generics is said to explode in the Indian market during the forthcoming years. In order to cash in
on the branded generics market, MNCs developed a business model (Exhibit 2) where they can extend
their reach till the last mile through a channel partner. The model was based on selling the same product
through different brand names for different channel partners thereby accounting for their respective sales
and made sure that their channel partners sell at the same price thereby not undercutting any other
channel.
Diabetes market, known for Branded generics, has four MNCs competing for the share with their own
patented drug. They are MSD, Nova-Iris, Berger Inheim and Zeneca in which the Berger Inheim and
Zeneca were late entrants to the market. Their drugs are Sitagliptin, Vildagliptin, Linagliptin, and
Saxagliptin respectively. Since each of them had incurred significant investments for manufacturing the
drug, they had a pseudo agreement, not to spoil the market by waging price wars which is detrimental to
every player and toed the same line with their channel partners (Exhibit 3).
Undercut Name of the game
Glenmart, a local drug manufacturing company in India, wanted to cash in on the huge diabetes market in
India. They came up with a drug similar to that of the competitors (Sitaglyptin) and priced it at two-
thirds of the market price (Rs. 18 / day of therapy). The cartel operating in the diabetes drug market didnt
expect this coming as they had patents. They dragged Glenmart to court but to their surprise Government
backed Glenmart in-spite of the infringement, for the greater good i.e. making diabetic drugs available at
cheaper prices, for a country known to become the diabetic capital of the world in the near future (Exhibit
4).
Its just a matter of time within which the whole market would be taken away by Glenmart. For MSD and
Novartis, the branded generic glyptin has already provided more than expected returns after break-even
whereas for Zeneca and Berger Inheim their investment cost is yet to be recovered (Exhibit 5).
Suppose you were to be the CEO at Berger Inheim, what would be your Strategy in order to at least
recover the investment costs of the glyptin product line?






Checklist for drug
insurance


Exhibit 1 Healthcare System for Pharmaceuticals in US











Exhibit 2 Business Model

Drug Manufacturers Drug Name Channel Partners Brands Sold
MSD Sitaglyptin Sun-pharma, Abbott Januvia, Estavel, Zomelis
Nova Iris Vildaglyptin USV, Emcure Galvus, Jalra, Vyfov
Berger Inheim Linaglyptin - Trajenta
Zeneca Saxaglyptin - Onglyza







Sells in the market as
Estavel
Channel Partner
Channel Partner
Sitaglyptin MSD
Sells directly in the
market as Januvia
USV
XYZ
Sells in the market as
Zomelis
Either Insurance
pays or patient
pays Out of
pocket
Information
Availability
Information of drugs
enlisted for repayment
Influences to
approve the drug
for insurance
repayment
Seeks help
for a
disease or
therapy
Patient
Pharmacy
Doctor
Prescribes
medicine
Drug
Manufactures
Insurance
Company


Exhibit 3 Diabetes therapy
Drug Manufacturers Cost / Day of therapy (Rs.)
MSD 28
Nova Iris 29
Berger Inheim 29
Zeneca 28
*Cost/Day of Therapy is overall price paid by a patient for a day inclusive of the dosages per day
Exhibit 4 Diabetic Population in the World

Exhibit 5
Drug Manufacturers Drug Name
Investment Cost
(Rs. Crores)
Sold For
( In Years)
MSD Sitaglyptin 15 8
Nova Iris Vildaglyptin 20 7.5
Berger Inheim Linaglyptin 20 3
Zeneca Saxaglyptin 18 3.5

25%
17%
7%
4%
3%
3%
2%
2%
2%
2%
1%
1%
31%
Diabetic Population (CountryWise)
China
India
United States of America
Brazil
Russian Federation
Mexico
Indonesia
Egypt
Japan
Pakistan
Bangladesh
Germany
Others