TO GET an idea of where the world’s pharmaceutical industry is heading, a leafy complex tucked off a hectic road in Mumbai provides a clue. In one part of the building, Abbott, an American firm, is developing generic drugs—a privilege it won when it bought the copycat business of Piramal, an Indian firm, for $3.7 billion in 2010. In the other part of the building Piramal is developing new drugs. The American firm wants to sell cheap generics in India; the Indian firm plans to sell original drugs in America. One might think that they were having an identity crisis, if each were not so excited by the switch.
The world’s drug industry is in flux. In the past, Western drugmakers thrived on innovation while firms in emerging markets made cheap copies of their products. Now they are invading each other’s turf. Blockbuster drugs are losing their patents and, despite some bright spots, research has become more costly and less fruitful. Big Western firms are now looking to emerging markets for growth, hoping to sell not just their patented drugs but generic ones, too. Firms in emerging markets are expanding their footprint, ramping up sales in the West and investing in research. It is an energetic exchange, but a risky one.
It is no surprise that Western drugmakers are looking further afield. America’s spending on prescription drugs increased by just 2.3% in 2010. As incomes rise elsewhere, the demand for health care grows. IMS Health, a research group, expects emerging markets’ share of drug spending to jump from 12% in 2005 to 28% in 2015.
Western companies are keen to tap this growth. Sanofi-Aventis, a French giant, has become the biggest producer of generic drugs in Latin America after its purchase in 2010 of Medley, a Brazilian firm. Not to be left out, America’s Pfizer, the world’s biggest drugmaker, bought 40% of Teuto, a Brazilian generics company. Some firms also hope that developing countries—many chock full of talented scientists—will help to fill their bare pipelines with new drugs. Merck, for example, recently announced that it would create a new research and development centre in Beijing, investing $1.5 billion over five years.