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Why Europe Generic Companies Should Fear Indian Companies (this time). Lessons for Newcomers.

For more than 30 years, European market has been a priority for Indian pharmaceutical generic manufacturers. Aurobindo, Dr Reddys or Cipla, among others, have been trying to penetrate the competitive European market for decades. Low production costs and the lax patent protection system in force in India were supposed to be important competitive advantages. As of April 2014, India was designated as "the country with the worst record of compliance with respect to the protection of intellectual property" in its annual review by the Office of the United States Trade Representative. This national permissiveness provides Indian companies with an important competitive advantage: the possibility of starting drugs development when the patent is still in force in other places, guaranteeing them one or two years in advance against other competitors who can’t do the same in their respective countries. As the need of European governments to release resources for new and expensive treatments is becoming more pressing, the opportunity for Indian companies to “colonize" Europe seemed more evident. Europe needed cheap and abundant generic products and, with few specific exceptions, only India and China were able to meet this demand. China had the infrastructure and technology, but with growth in the local market of up to 20% per year for nearly a decade, going out to sell outside did not seemed to be a priority. In addition, there was the language problem: its demographic power and influence on Asian markets made local expansion much easier than to try it in the "distant Europe". On the contrary, Indian companies were going down the road to reach an adequate technological level and at the same time had the full support of their authorities in the form of sectoral development plans. In addition, due largely to their history as a British colony, they had a large middle class with sufficient knowledge of English. In short: they were more prepared to try. The first attempts were not entirely positive. In the first place, Indian companies faced all kinds of problems to get GMPs certificates (Good manufacturing practices) with the highly demanding European agencies. Used to distribute in markets of mid-low regulatory level, Europe was a first level challenge. On the other hand, it did not help the existing perception in the market about the quality of the Indian products. In addition, Indian companies came with a model in their heads...which did not work because it was not adapted to European reality. Executives with a sound theoretical background, but little knowledge of the market thought that offering low prices would be enough, but they forgot that many of the stakeholders involved do not move only by costs and neglected other essential aspects of Market Access. After several unsuccessful attempts, enduring large losses and sometimes abandoning key markets or putting themselves in the hands of intermediary distributors that pressured them with prices and relegated them to mere contract manufacturers, Indian companies seem to have learned the lesson, even if it was the long way. They have also had a factor in their favor: the increasingly pressing need of European governments to keep spending under control in a context of older population, with longer life expectancy and expensive new drugs near to be approved. To put it in some way, Europe needs Indian companies to pay for the new treatments and Indian companies need, for various reasons among them prestige, to be in Europe. It is a symbiosis with related partnership issues to be solved. Things have changed a lot in the last five years. According to the latest report recently published by Emergpharma, 12 Indian companies already represent 10% of the German generics market in units, with a sustained market share increase of 1% per year in the last four. Germany is the largest generic market in Europe, with more than 100 competitors of all origins, which gives an idea of the size of the success achieved. In varying degrees, almost all Indian companies got good results, in some cases more than outstanding as it happens with INTAS, whose sales have gone from just over 2 million stus (standard units) to 86 million in just three years. Only one of these 12, Cipla, has performed under average, under rumors about their intention to abandon their commercial activities in Europe. Business models of Indian companies are very diverse, but it seems clear their commitment to follow a "Europeanization" of their activities starting with the incorporation of executives with extensive expertise in local markets and improvement of their previous weaknesses: distribution, quality, local conditioning and adaptability to the, sometimes complex hidden barriers. Although cultural differences look everyday easier to overcome due to the globalization, many companies seem to forget that in order to succeed in a foreign market, and Europe is not an exception, local rules and business etiquette should be understood and taken into consideration, and it represents time and a big amount of lateral work with different stakeholders. Shortcuts usually doesn't work. At present, Indian companies seem much better prepared than before and represent a formidable competitor both for already established European manufacturers and for new actors from other places of high technological level and relative low manufacturing costs, particularly China. The core question is if these companies are willing to follow the lessons learned by predecessors or will repeat the same mistakes.

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