RAJ JAIN, Wal-Mart’s chief executive designate for Indian operations, has spotted a world of opportunity. The global retail behemoth is in advanced stages of negotiations with Indian pharma players for direct sourcing of generic drugs for global supply. The move, a proposed departure from the earlier direct marketing by Indian companies in western markets, would mean better margins for them, and fortunes for the US giant, with the demand for generic drugs soaring in developed countries.
Sources said leading domestic firms like Ranbaxy, Dr Reddys’ Lab (DRL), Cipla, Lupin, Sun Pharma and some mid-sized firms from Bangalore, Chennai and Hyderabad, were in discussions with the retail major. They said the UK-based Tesco has also initiated similar talks with Indian pharma firms. Mr Jain is explicit about his India plans. “Wal-Mart continuously researches the market to identify all new product categories that are available for sourcing and which would benefit our retail operations.
There are numerous categories that our global procurement office is evaluating, such as pharmaceuticals and consumer electronics.” His firm sources $600 million worth goods directly from India. The retail firm’s move assumes significance as drug regulators in the developed world are pushing the case of generic drugs as an alternative strategy to reduce the mounting healthcare cost. DG Shah, director general of Indian Pharmaceutical Alliance (IPA), says the increasing importance of generic drugs in the developed world may be a reason behind the bulk sourcing.
What’s more, Indian drug firms operating in the US and European markets are facing heavy marketing and litigation expenses in the those markets. “Companies like Ranbaxy and DRL are involved in expensive litigation to get 180-day exclusive marketing rights in the US for over two dozen drugs that are going off-patent in the next few years. Even if they get the marketing rights, they have to invest huge funds for establishing a marketing network, or to form marketing joint ventures with US firms. Marketing the drugs through the retail chains will be an alternate strategy to reduce their marketing expenses in the US and Europe markets,” VVLN Sastry, country head, Firstcall India Equity Advisors, said.
US and UK drug giants are seeing high litigation expenses as they fight hard to block the entry of cheaper supply from India. Indian companies are chasing the $60-billion global market for generic (off-patent) medicines, which is expected to grow to $300 bn in five years. Almost half of this market is in the US and the UK.
For last few years, the US subsidiaries of the Indian drug firms like Ranbaxy and DRL have been supplying drugs to Wal-Mart in the US. Ranbaxy, for instance, is supplying anti-infective drugs to Wal-Mart. If Wal-Mart wants to extend the scope of the supply agreement with Ranbaxy, it can be extended to more therapeutic segment like anti-diabetic anti-cholesterol drugs. A Ranbaxy spokesperson told ET: “Ranbaxy has a good working relation with Wal-Mart and they are one of our leading customers in the US.” He declined to comment on the negotiations with the retailer.
Cipla MD Amer Lullaalso declined to comment. In the US, the Democrats who control the US House of Representatives have given strong indications that they want to reform some aspects of healthcare in the US, particularly drug pricing. The US accounts for nearly half of the $600 bn global drugs market, and is of crucial importance to pharmaceutical companies around the world. The top pharma giants are facing pressure from global generic companies, including those from India.The move by retail giants to source offpatented drugs from Indian companies directly may lead to less sourcing from foreign drug majors.
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