Ranbaxy CEO & MD Brian Tempest: Battling it out

American drug giant Merck's move last September to delist two of its patents covering its anti-cholesterol drug, Zocor, has sent generics manufacturers into overdrive. From the start of this year, Ivax Pharmaceuticals, a us-based generics major, and Ranbaxy of India have filed Citizen's Petitions (CP) in the US courts requesting the US Food and Drug Administration to reinstate Merck's patents on its book of patents, popularly referred to as the Orange Book. Why? A generic manufacturer loses the regulatory and legal grounds for getting 180-day marketing exclusivity if the innovator company delists the patents under challenge. (Those who track patents say that the marketing exclusivity is meant more as a conditional incentive and not a right.) Both Ivax and Ranbaxy want marketing exclusivity because such a concession allows them to charge higher prices for the generic copy. Zocor (molecule name is simvastatin) is a $4-billion (Rs 17,600-crore) drug, whose patent expires in June next year.

Merck sympathisers say that it went in for delisting after the FDA revised its listing rules to say that a drug must claim the active ingredient and not just a metabolite (an example of the difference: antibiotic amoxicillin, which the body turns into ampicillin, the active ingredient; as a drug it is delivered in the amoxicillin form for better oral absorption). Ivax, which was the first to challenge Merck's patents, was told by the Federal Trade Commission (FTC) that it could not be given any exclusivity since patents had been withdrawn. Ranbaxy, which filed its cp following the FTC response, says that "its 180-day exclusivity on the 80-mg strength for simvastatin should be restored". Analysts, on their part, are waiting to see if such delistings will be a one-off event or become a standard ploy by Big Pharma to keep generics players out of lucrative markets.

-E. Kumar Sharma

AGRICULTURE
Weather Beaten

He's insured: Now he can afford to smile

The Indian farmer can now insure himself against the vagaries of the weather. ICICI Lombard General Insurance Company has launched a Weather Insurance Policy in 46 districts of Andhra Pradesh, Tamil Nadu, Rajasthan, Maharashtra and Punjab after successfully running a pilot project in the first three states over the last two crop seasons. The company hopes to add five-to-six more states in the next rabi season. Says Smita Aggarwal, Head, Rural & Agriculture Business Group at ICICI Lombard: "As you increase the geographical spread of the coverage, you hedge your risks better." Data on rainfall in each area is generated on a daily basis. If, for example, sowing is affected due to less than optimal rainfall, a farmer can claim compensation on account of the deviation from the ideal rainfall. Payouts to farmers are quick and paperless, she says. Aggarwal clarifies that weather insurance is different from crop insurance. For example, there could be times when the crop fails for reasons other than the weather. The policy does not cover such eventualities.

-E. Kumar Sharma

Matrix Outbound
Matrix stuns markets with a European acquisition.

Matrix's Prasad: In acquisition mode

It is being called the largest acquisition ever executed by an Indian pharmaceutical company. Less than 20 days after acquiring Strides Arcolab, an over Rs 400-crore, Bangalore-based formulations company, N. Prasad, Chairman and CEO of the Rs 637-crore Matrix Laboratories, announced his company's move to acquire a controlling stake in Belgian drug company Docpharma NV for $263 million (Rs 1,157.2 crore). Matrix will finance the transaction through a combination of cash in hand and bank borrowings. Later, it may consider a public issue, the proceeds from which may be used to retire the bank loan. The deal places Matrix among the top five pharma companies in the country. It currently ranks #12.

Says Prasad: "The acquisition of Docpharma accelerates our evolution as a growing force within the global generic pharmaceutical industry. This transaction allows us to gain direct access into the under-penetrated, high-growth generic pharmaceutical markets of Belgium and southern Europe." Docpharma's core competence lies in product selection, branding and marketing and distribution; these will complement Matrix's strengths in product development and manufacturing, adds Prasad.

Analysts point out that the deal will give Matrix access to Belgium and other European markets where generics players have only a small presence. Generics account for less than 5 per cent of the $4.4-billion (Rs 19,360-crore) Belgian pharmaceutical market.

Does Matrix still have the appetite for acquiring more companies? "Our plate is full at the moment. We have achieved critical mass in terms of our vertical integration and will now have to focus on consolidation," says Prasad. That's a good idea. The success of the two takeovers will depend crucially on how Prasad manages the synergies that exist between the companies. Says a Mumbai-based analyst: "In such cases managements tend to get stretched." Also, not everyone is clear on the valuation and whether it is fair. Some feel this may be sign of the likely valuations, and the fact that European valuations are perhaps coming in line with (higher) us valuations. There's clearly need for more clarity on the deal.

-E. Kumar Sharma

LIFTOFF
Oracle's Space Odyssey

Space, here we come! Krishan Dhawan, MD, Oracle India (L) with Bhagat

Code jocks will soon go to space, courtesy Oracle. Or, at least one of them will. Oracle has launched a contest, in partnership with Richard Branson's Space Adventure, with a unique first prize: a sub-orbital space flight-the winner will get to experience weightlessness and also view Earth from 100 km away. "The contest (which runs from June 1 to August 31, 2005) is designed to promote Java and Service Oriented Architecture," reveals Somesh Bhagat, Senior Director, Marketing, at Oracle, and is open to all software developers in India, Korea, Australia and Singapore. A total of 12 quiz contests will be held on a wide range of topics; each contestant has to pick a topic and a correctly completed quiz is treated as an entry. At the end of August, all correct entries go into a lucky draw scheduled for September 14, which will decide the winner. The runners-up and other winners will receive Mac PowerBooks, Apple iPods and Star Wars DVDs. The Asia-Pacific region is set to become the largest market for software developers by 2006 and India is tipped to lead the growth. "People want to move to global standards of Java and this is the perfect opportunity for them to discover it," explains Bhagat. Oracle already has 2.5 lakh professional developers in India and is looking to add to that number.

-Amanpreet Singh

POLITY WATCH
Monsoon Woes
Rains still bring succour, though they are not as important as in the past.

Will the rains come? Even if they don't, he's happy

Every kharif season, there are increased levels of interaction between the Ministry of Agriculture and the Indian Meteorological Department (IMD). Every Monday morning beginning April, top farm ministry officials meet departmental heads of IMD to take stock of the monsoon. At the June 20, 2005 meeting, IMD officials dropped a small bombshell: the monsoon, which was expected to be normal this year-around 98 per cent of the long-term average-had suddenly weakened in the middle of June. It had also bypassed large parts of the country-Andhra Pradesh, Gujarat, Orissa and Madhya Pradesh. Will this impact the economic boom we're experiencing?

S.R. Kalsi, Assistant Director-General of IMD, informs that there has been a 49 per cent shortfall in rainfall by June-end. "But there is no need to press the panic button because there's still time for the monsoon to pick up." Senior agricultural ministry officials agree. "If the rains fail in July, then we can say goodbye to a good kharif crop. But June is just the sowing season; the transplantation method for rice cultivation and the use of short duration crops could help farmers tide over this crisis," says a senior official in the ministry. So, it is fair to say that we still don't know whether we will have a normal monsoon or bumper crops this season.

But monsoons are no longer as important as they were, say, 10 years ago. Statistics show that the co-relation between agricultural production and industrial growth and, therefore, overall growth, has weakened considerably over the last past few years. In other words, the Indian economy has developed a mechanism to cope with failed or weak monsoons. A recent study by the National Council of Applied Economic Research shows that this correlation-between agricultural production and industrial growth-had dropped to 0.13 for the 1999-2003 period from 0.90 for the 1994-98 period. The proof: the Indian economy has clocked manufacturing growth rates in excess of six per cent, despite bad monsoons in 2002 and 2004. Moreover, the declining share of agricultural sector in the overall GDP-it has fallen from 25 per cent in 1995-96 to 20 per cent now-ensures that poor agricultural growth, at worst, limits India's GDP growth to around 6 per cent.

The earlier link between farm income and rural expenditure, too, seems to have loosened. The increased penetration and popularity of various types of financial products offered by both the banking and non-banking sectors, especially for the purchase of consumer goods, has been a big factor in this. The increasing share of non-farm incomes in rural households is another important factor behind this trend.

Similarly, the demand side linkages, too, seem to have undergone some transformations. A bad agricultural year now does not necessarily mean a disruption in the normal supply chain or an increase in the prices of raw materials. The reason: greater integration of India with the global economy ensures increased and easier imports of raw materials. Again, buoyant farm exports-20.3 per cent (compared to total exports last year) in 2002-03, 21.4 per cent in 2003-04 and 24.4 per cent in 2004-05-mean the Indian farmer is less dependent on the domestic economy for sustenance.

So, how important is the monsoon to the well being of the Indian economy? Still significantly so, despite its declining importance, say economists. First, even today, only about 40 per cent of the land is irrigated; the rest still depends on the monsoons. Secondly, 67 per cent of the Indian population-mostly the poorer section-still depends on agriculture and any fall in output hurts them the most. Further, the long-term decline in investment in agriculture-from 1.2 per cent (of total investments in agriculture) in 1982 to just 0.4 per cent in 2004-has resulted in a stagnation of farm output and falling productivity. And when monsoons fail, lots of people get hurt.

-Ashish Gupta

ZOOM
IndiGo's Flight

Interglobe's Bhatia: Ready for takeoff

It was day five of the 2005 Paris Air Show; Airbus executives were ecstatic. IndiGo Airlines had just placed a massive $6-billion (Rs 26,400-crore) order for 100 Airbus A320 aircraft to be delivered over the next 10 years. Indi-who? IndiGo Airlines is promoted by Delhi-based travel house Interglobe and former CEO of US Airways Rakesh Gangwal. "The sector is opening up and we want a slice of the pie," says Rahul Bhatia, Managing Director of the Rs 1,000-crore Interglobe. "We are close to filling our key positions. We plan to be a low-cost domestic carrier." Gangwal, who was in India to attend his niece's wedding, was not available for comment.

The airline is being started with Rs 400 crore in funding. Interglobe is putting in 75 per cent of this and Gangwal the rest. According to Bhatia, there are no immediate plans of approaching financial institutions or other venture capitalists for more funding, though he does mention that the company might tap the capital and debt markets for funds in future. IndiGo will start operations next year. "We plan to have 15-17 planes flying by the end of 2007," he says. However, unless there is greater clarity on the source of funding, such statements will be taken with large doses of salt.

-Kushan Mitra