If they don't heed the danger signals, Indian companies could well miss the bus back home.

While the growing incidence of chronic diseases might make India a lucrative market for pharma companies by 2020, the fast-growing Indian pharma industry could face hurdles in its bid to achieve the $25 billion mark in the next few years.

In fact, if the current trend continues, Indian pharma, especially smaller players, may not even be in a position to cash in on the burgeoning market and serve its own people.

The Indian pharma industry has predominantly been a generics one, focusing more on sales and marketing and less on innovation. A major focus for large and mid-size players has been the overseas market, especially the CIS countries, Africa and Latin America.

Luckily for it, this trend is not going to cease anytime soon. In the next few years up to 2011, drugs worth $45-50 billion will go off patent globally, opening up opportunities for pharma majors to market their generic products at lower costs.

However, regulatory and legal constraints, too much focus on the overseas market, and innovation challenges in research and development could act as dampners.

And the smaller players are likely to be the biggest losers. In its report Pharma 2020, Pricewaterhouse Coopers (PwC) hails India as the next big market, at the same time cautioning that the current industry model needs to make basic changes in its method of operation to make the most of the growth opportunities.

One of the biggest concerns of the pharma industry is the proposed pharmaceutical policy 2006 that intends to bring nearly 354 essential drugs under the drug price control order, over and above the current 74 drugs.

This would bring almost 60-66 per cent of the industry under price control, putting a question mark on production plans of several essential drugs in the country by local and foreign manufacturers.

But the larger issue, say analysts, is the lack of pioneering R&D work. Post 2011, R&D innovation will be the only savior. Despite companies like Ranbaxy, Dr Reddy’s Laboratories, Sun Pharma, Glenmark, Wockhardt, Advinus Therapeutics and Nicholas Piramal beginning to focus on new chemical entities (NCE) and novel drug discovery systems, the market for contract research and manufacturing services (CRAMS) has slowed down novelty.

“Ultimately the capability to create intellectual property and planned transformation into innovation-based business model will determine overall growth,” says a spokesperson for Glenmark Pharma.

In India, innovation is still largely governed by contract work and development of generics. Sujay Shetty, associate director, pharmaceutical and life sciences, PwC, says, “There are pockets of R&D excellence in the country but not enough.”

Sadly the global R&D pipeline is drying up and increasing global competition has put the industry under pressure.

The top 10 companies have increased their R&D spends by almost 6 per cent following the introduction of product patents, but smaller companies with limited financial backing are likely to struggle to keep afloat.

Hitesh Gajaria, partner, KPMG reasons, “NCE research is a lengthy, expensive process. Indian companies are fairly new in this field and lack the experience and financial resources. So, over the long term, players having a rich NCE pipeline and strong patent product portfolio will emerge winners.”

Adds Amar Lulla, joint MD, Cipla, “The success rate in new molecules is not easy and very rare.” A case in point is the recent debate over GlaxoSmithKline’s diabetes pill, Avandia, boosting heart attack risk.

Also, in its attempt to capture a global market and given the heavy investment in sales and marketing it entails, big Indian pharma companies might miss the bus back home. The need of the hour is to develop novel drugs for chronic diseases for the Indian market.

“We are growing globally but eventually the industry would want to come out with drugs for the Indian market. However, Indian companies are working towards foreign acquisitions and losing out on the cost advantage,” stresses Shetty.