India's pharma industry grows up

NYT story on how India's pharma industry is both moving up the ranks and consolidating its position as a low-cost manufacturer. The development recalls Andy Grove's arguments about losing manufacturing and thereby losing the long-term innovation edge. This piece gives you the sense of how hard--if not impossible--it will be to stem such losses in existing mature industries, which says we do best to follow his advice in new industries.

The gist of the piece:

India’s drug industry — on track to grow about 13 percent this year, to just over $24 billion — was once notorious for making cheap knockoffs of Western medicines and selling them in developing countries. But India, seasoned in the basics of medicine making, is now starting to take on a more mainstream role in the global drug industry, as a result of recent strengthening of patent law here and cost pressures on name-brand drug makers in the West.

And while the Indian industry has had quality-control problems, it nonetheless benefits from growing wariness about the reliability of ingredients from that other historically low-cost drug provider — China. The United States is India’s top export customer for drugs.

India is becoming a “base for manufacturing for the global market,” said Ajay G. Piramal, the chairman of Piramal Healthcare, a drug maker based in Mumbai. Eventually, in Mr. Piramal’s perhaps overly optimistic forecast, only the very first and very last steps of the business — molecular drug discovery and marketing — will be run by the West’s global drug giants.

Those companies “don’t create much value” in the steps in between, he said.

It is not only Indian executives, though, who are bullish about the pharmaceuticalsindustry here. Analysts, research groups and consultants have been making similar predictions in recent months.

Big pharmaceutical companies have come calling, too. This year, Mr. Piramal sold his generic drug business to Abbott Laboratories for $3.7 billion, the latest in a string of takeovers and joint ventures here.

Like China, India seeks to move up production chains as rapidly as possible:

The shift to pharmaceuticals is part of a subtle, broader shift in the Indian economy. Moving beyond less sophisticated, outsourced services like telephone call centers, India has been advancing up the business value chain, particularly in law and medical diagnostics. Now it is showing a flair for manufacturing, particularly in goods demanding high-skill production and superlow prices.

Which says we have no alternative but to do the same.