Policy, Markets and Knowledge: Strategic Synergies in Indian Pharmaceutical Firms

Abstract

This paper addresses the question of how Indian pharmaceutical firms have transformed themselves from reverse-engineering firms focused on the domestic market to research-driven firms with global presence. It analyses the crucial and changing role of national, then international, innovation and regulatory policies and their impact on growth, performance and technology evolution of Indian pharmaceutical firms. The paper argues that although public policy increased market turbulence, it also provided new opportunities for firms to expand and build new technology, knowledge and market capabilities. From the 1950s Indian firms have pursued a variety of research, marketing and internationalization strategies to tackle changes prompted by policy, markets and knowledge complexities. The paper traces firm strategies that vary both in time and by firm, and argues that the successful firms have evolved substantively towards knowledge-based strategies. The paper then attempts to identify future directions for strategy, knowledge and markets.

Notes

1. KPMG, The Indian Pharmaceutical Industry, Collaboration for Growth (Mumbai, KPMG Consulting Private Limited, 2006).

2. P. Ganguli, The pharmaceutical industry in India: a report business briefing PHARMATECH 2003, at http://www.bbriefings/pdf/17/pt031_r_15_ganguli.pdf (accessed 15 June 2005); K. Chaturvedi & J. Chataway, Strategic integration of knowledge in Indian pharmaceutical firms: creating competencies for innovation, International Journal of Business Innovation and Research (IJBIR), 1(1/2), 2006, pp. 27–50.

3. D. J. Bower & J. Sulej, The Indian challenge: the evolution of a successful new global strategy in the pharmaceutical industry, Innogen Working Paper No. 21, 2005; M. D. Halemane & B. Dongen, Strategic innovation management of change in the pharmaceutical industry, International Journal of Technology Management, 25(3/4), 2003, pp. 314–333; C. Fink, Patent protection, translational corporations, and market structures: a simulation study of the Indian pharmaceutical industry, Journal of Industry, Competition and Trade, 1(1), 2001, pp. 101–121.

4. M. E. Porter, Towards a dynamic theory of strategy, Strategic Management Journal, 12, 1991, pp. 95–117; R. Rumelt, The evaluation of business strategy, in: B. De Wit & R. Meyer (Eds) Strategy: Process, Content, Context, West Publishing Company, St Paul, MN, 1994, pp. 186–192; D. J. Teece, G. Pisano & A. Sheun, Dynamic capabilities and strategic management, Strategic Management Journal, 18(7), 1997, pp. 509–533.

5. Teece et al., op. cit., Ref. 4; S. Winter, Understanding dynamic capabilities, Strategic Management Journal, 24, 2003, pp. 991–995; K. M. Eisenhardt & J. Martin, Dynamic capabilities: what are they?, Strategic Management Journal, 21, 2000, pp. 1105–1121.

6. A. Schumpeter, Capitalism, Socialism and Democracy, 2nd edn (New York, Harper and Row, 1947).

7. N. Rosenberg, The direction of technical change: inducement mechanisms and focusing devices, Economic Development and Cultural Change 18(6), 1969; R. Nelson & S. Winter, In search of a useful theory of innovation, Research Policy, 6, 1977, pp. 36–76; C. Freeman & C. Perez, A structural crises of adjustment: business cycles and investment behaviour, in: G. Dosi, C. Freeman, R. Nelson & L. Soete (Eds) Technical Change and Economic Theory (New York, Columbia University Press, 1988).

8. E. T. Penrose, The Theory of the Growth of the Firm (Oxford, Basil Blackwell, 1959); P. Selznick, Leadership in Administration: A Sociological Interpretation (New York, Harper and Row, 1957).

9. K. Pavitt, What do we know about the strategic management of technology?, California Management Review, 32(3), 1990, pp. 17–26; D. Leonard-Barton, Wellsprings of Knowledge: Building and Sustaining the Sources of Innovation (Boston, MA, Harvard Business School Press, 1995).

10. R. Keller, A resource-based study of new product development: predicting five year later commercial success and speed to market, International Journal of Innovation Management, 8(3), 2004, pp. 243–260.

11. M. Sakakibara & M. Dodgson, Strategic research partnerships: empirical evidence from Asia, Technology Analysis and Strategic Management, 15(2), 2003, pp. 227–245.

12. Teece et al., op. cit., Ref. 4, p. 509.

13. E. Mosakowski, A resource-based perspective on the dynamic strategy–performance relationship: an empirical examination of the focus and differentiation strategies in entrepreneurial firms, Journal of Management, 19(4), 1993, pp. 819–839; Winter, op. cit., Ref. 5.

14. G. Dosi, Sources, procedures, and microeconomic effects of innovation, Journal of Economic Literature, 26, 1988, pp. 1120–1171; D. Leonard-Barton, Core capabilities and core rigidities: a paradox in managing new product development, Strategic Management Journal, 13, 1992, pp. 111–125; R. Garud & P. Karnoe (Eds), Path Creation and Path Dependence (Mahwah, NJ, Lawrence Erlbaum and Associates, 2001).

15. J. Watal, Pharmaceutical patents, prices and welfare losses: policy options for India under the WTO TRIPs agreement, The World Economy, 23(5), 2000, pp. 733–752; OPPI, Outsourcing opportunities in Indian pharmaceutical industry, OPPI and Monitor Company Group L.P, Mumbai, 2003; S. Chaudhuri, The WTO and India's Pharmaceutical Industry Patent Protection, TRIPs, and Developing Countries (New Delhi, Oxford University Press, 2005).

16. A. V. Desai, The origin and direction of industrial R&D in India, Research Policy, 9(1), 1980, pp. 74–96.

17. NCEAR, Indian pharmaceutical industry—problems and prospects, A report published by National Council of Applied Economic Research (NCEAR), New Delhi, 1984.

18. Justice N. R. Ayyangar, Report on the revision of the patent laws, Government of India, New Delhi, 1959.

19. N. Kumar & J. P. Pradhan, Economic reforms, WTO and Indian drugs and pharmaceutical industry: implications of emerging trends, CMDR Monograph Series No. 42, The Centre for Multidisciplinary Development Research, India, 2003.

20. S. Lall, Learning to Industrialize: The Acquisition of Technological Capability by India (London, Macmillan Press, 1987); G. Felker, Introduction: pharmaceuticals, in: The Pharmaceutical Industry in India and Hungary, World Bank Technical Paper No. 392, 1997.

21. S. E. Smith, Opening up to the world: India's pharmaceutical companies prepare for 2005, Occasional Paper, Asia/Pacific Research Centre, Institute for International Studies, Stanford University, 2000.

22. S. Mani, The sectoral system of innovation of Indian pharmaceutical industry, Working Paper No. 382, Centre for Development Studies, Kerala, India, 2006.

23. T. R. Madanmohan & K. T. Krishnan, Adaptive strategies in the Indian pharmaceutical industry, International Journal of Technology Management, 20(3/4), 2003, pp. 227–246.

24. A Para III filing is made when the ANDA applicant does not have plans to sell the generic drug until the original drug is off patent; A Para IV filing is made when the ANDA applicant believes its product or use of the product does not infringe on the innovator's patent listed in the Orange Book or where the applicant believes such patents are not valid or enforceable. In Para IV filings, patents are validly circumvented. If successful the generic drug company gets an exclusive marketing right (EMR) to sell the drug for 180 days.

25. For more details see Chaturvedi & Chataway, op. cit., Ref. 2.

26. R. Rothwell, Successful industrial innovation: critical factors for the 1990s, R{&D Management, 22(3), 1992, pp. 221–239.

27. Siliconeer, Insulin from yeast: indian innovation, Siliconeer, IV(8), August 2003.

28. FICCI, Competitiveness of the Indian pharmaceutical industry in the new product patent regime, Report for National Manufacturing Competitiveness Council, FICCI, New Delhi, India, 2005.

29. Hatch–Waxman Act granted chemical drug manufacturers the option of filing an Abbreviated New Drug Application (ANDA). The rationale for Hatch–Waxman was to enable manufacturers to sell lower cost drugs immediately upon expiration of a pioneer manufacturer's patent.

30. KPMG, op. cit., Ref. 1.

31. BLAs: under current law, biologic manufacturers are not granted expedited FDA approval of their product like generic small molecule (chemical pharmaceutical) manufacturers. The Drug Price Competition and Patent Term Restoration Act of 1984 (commonly known as ‘Hatch–Waxman’) grants chemical drug manufacturers the option of filing an Abbreviated New Drug Application (ANDA). There is no such mechanism for biologics.

32. OPPI, op. cit., Ref. 15.

33. Tufts Centre for the Study of Drug Development (CSDD) Report, The price of innovation: new estimates of drug development cost, Journal of Health Economics, 22, 2003, pp. 151–185.

34. R. A. Mashelkar, New geographies of innovation, Paper presented in the ‘Atlas of Ideas: Mapping the New Geography of Science’ Conference, 17 January 2007, London.

35. The conduct of clinical trials is governed by the Drugs and Cosmetic Rules (DCR), 1945, subordinate legislation of Drugs and Cosmetics Act, 1940. The government has decided to amend DCR and has emphasized the incorporation of Good Clinical Practices (GCP) protocols, which includes the legally binding safety of patients and strict accordance to ethics. Earlier, in 2002 the government had established national Good Laboratory Practices (GLP), a Compliance Monitoring Authority that certifies compliance with OECD norms and principles for Indian companies, laboratories and testing facilities.