Tuesday, February 27, 2007
can india make a blockbuster drug?
By Jason Overdorf
March 5, 2007 issue - India used to be big pharma's worst nightmare. Loose patent laws and a glut of talented scientists made that country the world capital for generics. As quickly as companies like GlaxoSmithKline, Merck, Novatis, Pfizer and others could develop innovative new drugs, nimble Indian companies could copy them—and sell them for a fraction of the price. The practice led to a tangle of litigation. But now, the legal battles are giving way to new partnerships.
Earlier this month, GlaxoSmithKline signed a groundbreaking deal to develop new drugs with India's Ranbaxy—the same company it is fighting over a copycat herpes treatment. In January, Eli Lilly began working with Mumbai-based Nicholas Piramal on a number of new drugs. Several similar partnerships are in the works, and they aren't just outsourcing deals. Rather than simply sending bits and pieces of lab work over to India, the Big Pharma companies are increasingly giving their Indian counterparts the rights to develop specific drug targets, and to share in the profits. Industry sources estimate that there are 500 new drugs in development on the Subcontinent today.
The end result could be the first-ever Indian "blockbuster" drug.
The new friendships reflect two separate changes in the pharmaceutical industry. First and most important is the drying up of Big Pharma's pipeline. Western companies have historically depended on sales of "blockbuster" drugs (mass treatments for big ailments like cancer or heart diseases, which typically generate more than $1 billion in annual sales). But the low-hanging fruit has been picked, and the cost of discovering big new drugs has increased from an average of $100 million in the '80s to more than $800 million today, even as the output of novel drugs has fallen. Meanwhile, many existing blockbusters are due to go off patent this year.
That will certainly open up new copycat targets for drug makers in India. But at the same time, there's been a recent tightening of patent laws there. This second shift is pushing scientists toward more profitable original research. Indian firms believe they can make new drugs much more cheaply than Big Pharma—the head of Nicholas Piramal believes the first Indian blockbuster will be made for less than $50 million.
That's the lure for companies like Lilly and Glaxo, which have huge libraries of molecules that have shown promise—more than they can possibly investigate themselves with today's cost constraints. By licensing them out to Indian firms that are starting their own R&D from scratch, Big Pharma gets to keep the lion's share of the profits with virtually no capital outlay. But the Indian partners aren't just cheap, they're skilled. Thanks to the intense focus on science education and extensive experience in reverse-engineering generics, Indian firms are now "at least as good in chemistry" as Western players, says Daniel Vasella, head of Swiss drug giant Novartis.
So what's the most likely candidate for first-ever Indian blockbuster? A tongue-twisting compound known as balaglitazone, which helps the body to produce insulin more efficiently, and may be used to treat diabetes. It takes the partnership between India and the West a step further than a simple alliance between two companies. First developed by an Indian company called Dr. Reddy's (which got the idea from a Japanese firm), it was then licensed out to Denmark's Novo Nordisk, a big pharmaceutical specializing in insulin. After a couple of failed efforts, Novo lost patience, and the patent went back to Dr. Reddy's. The Indian firm then picked up where the Danes left off, and is now tag-teaming with another European firm to bring the drug to market. It is already in Phase III trials, the final large-scale test on humans that is one of the last hurdles before public sale. It's a stage only one in 5,000 drugs reach.
If balaglitazone goes the distance, it will profit European and Indian drug makers. But it will also offer new hope for diabetes sufferers, more of whom live in India than anywhere else in the world. It may be that the rise of emerging-market drug makers will also mean better treatments for diseases that strike hardest in developing countries.
With Silvia Spring in London
© 2007 Newsweek, Inc.
Saturday, February 17, 2007
By Jason Overdorf (Business 2.0 March 2007)
A REBEL MOVIE PRODUCER IN INDIA LOOKS TO HOLLYWOOD FOR INSPIRATION--NOT JUST FOR HIS FILMS, BUT ALSO FOR HIS BUSINESS MODEL.
RONNIE SCREWVALA WALKED THE RED CARPET AT THE glitzy Dubai International Film Festival in December with Oliver Stone and Richard Gere. Westerners might have wondered who he was and why he deserved the company of two Hollywood luminaries, but anyone familiar with the Indian film industry would have understood. Screwvala, one of the leading movie producers in India, is bringing Hollywood-style filmmaking to the subcontinent. And U.S. moviemakers, desperate for new opportunities, want a piece of the action.
India's teeming film industry, known as Bollywood, is extraordinarily prolific. Indian filmmakers churn out 1,000 movies each year. Yet the industry grossed just $1.5 billion in 2005, and only a handful of movies made it to first-run theaters overseas. Compare that with Hollywood, which pumped out 563 movies that year and made more than $18 billion at the box office, including $9.6 billion from international distribution.
Why isn't Bollywood making more money? That question is the driving force behind Screwvala's company, UTV Software Communications. "Broadcasting [in multiple channels] started here in 1992, and it's already a $4 billion business," says the 49-year-old entrepreneur. "Yet this 100-year-old industry is still less than $2 billion. We have to grow." His solution is to revolutionize Bollywood--blow up the business model and replace it with traditional studio rules.
It's a huge job. Bollywood has always been a haphazard affair. Half a dozen prominent families controlled it, but they weren't very businesslike. Movies started shooting with no scripts and little money. Stars disappeared midshoot for weeks at a time to vacation, go home, or work on another movie. Theater owners underreported ticket sales to avoid sharing revenue with producers. It was nearly impossible to figure out whether a movie had made money and, if so, how much.
In addition, Indian story lines did not appeal to many outside the country. To the Western eye, Bollywood movies were chaotic, a surreal combination of Sylvester Stallone and Busby Berkeley musicals. In a typical plot, the hero sang, danced, fought bad guys, got the girl, found his long lost brother, and wept on his mother's deathbed--for at least three hours.
Screwvala broke into Bollywood in the late '90s, teaming up with anyone willing to work by his rules. UTV has produced a dozen movies with all the earmarks of professional filmmaking: budgets, marketing and distribution plans, real preproduction, and three-month shoots. The company distributes them worldwide and milks Hollywood-style ancillary revenue, from product placement to soundtrack rights and video-on-demand. Screwvala has also cut the running times and dumped the disorganized and stale story lines. His hit Rang de Basanti (The Colors of Spring) tells the story of India's disaffected urban youth; it also made more than $2 million in the United States. "We're breaking the mold," Screwvala says, comparing his experience to the days when Star Wars and other independent films paved the way for new genres in Hollywood.
Screwvala likes pioneering. The former game show host started his business career walking around Mumbai, asking apartment dwellers to try a newfangled gadget called a remote control. He got Indians to give up their single-channel, government-run television and brought cable to the country in the 1980s. He used the money from that to get into television production, making a steady stream of animated cartoons that attracted U.S. producers looking to outsource their own animation.
But all the while, he had movies on the brain. "Indians have always been voracious movie viewers," he says. "That's in our DNA. But we're as strong in commerce as we are in creative. It seemed to me that there was a huge opportunity here."
He was right. Now U.S. filmmakers, their revenue streams threatened by videogames, the Internet, and video-on-demand, knock on his door. This year, along with his Indian films, he's partnering with Sony Pictures and Fox Searchlight on movies starring Chris Rock and Will Smith, as well as an adaptation of Jhumpa Lahiri's novel The Namesake. News Corp. and Disney bought stakes in UTV last year.
And Screwvala's plan is starting to bear fruit. In 2005, UTV took in $52 million--$32 million of it from movies--and turned a modest profit. That made it the second-largest producer in India, counting box office and ancillary revenue, a meteoric rise for an industry newcomer. And its "new" business practices are spurring changes at competing studios. Contracts, budgets, and balance sheets are more common. So are shooting schedules, bigger marketing budgets, and the exploitation of ancillary revenue. According to PricewaterhouseCoopers, Indian films will generate $2.3 billion by 2010
UTV has many other ventures, including 15 straight-to-DVD movies, an animated feature co-produced with a U.S. company, and a U.S. television series. But Screwvala has yet to reach his ultimate goal. "We have a good relationship with Disney," he says. "I'm hoping it can help us get some of our films into Wal-Mart." Spoken like a true Hollywood producer, albeit with a distinct colonial accent.
UNECONOMIES OF SCALE
Indians crank out nearly twice as many movies as U.S. producers but reap less than 10 percent of the revenue.
[This article contains a table. Please see hardcopy of magazine or PDF.]
2005 films released
Sources: Box Office Mojo; MPAA; PricewaterhouseCoopers
3 STEPS TO SUCCESS
Find a fragmented industry
Enforce standards and discipline
Grow the market via exports
Tuesday, February 06, 2007
book review: way out there
By Jason Overdorf
(Outlook Traveler, February 2007)
This may sound like a strange confession for a magazine writer, but I've never been much of a fan of reading magazines. Secretly, I've always had the sneaking suspicion that anything of any consequence will eventually make its way into a book. Reading Way Out There, a new anthology of writing from Canada's top travel magazine, almost changed my mind.
A collection of 30-odd features from Explore, Way Out There shows that the Canadian magazine has terrific range. There's no endless slog of gear-based, “I'm-more-daring-than-you” articles here, and none of the formulaic, begin-with-colourful-anecdote-and-end-with-hotel-prices articles that plague travel mags. From Ross Crockford's piece about the fastest cyclist on planet Earth (“What has two legs, 122 teeth and goes 80 miles an hour?”) to Charles Montgomery's interview with the Solomon Island's last surviving headhunter (“Searching for Big Man Magik”) these are thoughtful, surprising, and above all informative stories—not of the “how I rate the service at the Plaza” variety, but the kind you remember and irritate your wife by reading aloud.
Consider, for example, Explore contributing editor J.B. MacKinnon's piece on traveling in the Sudan (“Behind the Grass Curtain”). It begins with a gimmicky, commercial magazine premise—MacKinnon sets out to prove that Canadians are no longer the world's most welcomed travelers, now that Canada has begun to interfere in world affairs. But MacKinnon hardly allows the sales-pitch to distract him as he narrates his story of traveling across the southern region of the warring country. The result is a more vivid and accessible portrait, certainly, than anything you'll find in the newspaper, all the more perceptive because it has no journalistic purpose, because the entire project, like the war, is essentially absurd.
Similarly evocative, though in a completely different vein, is Jerry Kobalenko's feature about the extreme sport of marathon swimming (“Gruelling, on a summer afternoon”). Like many outdoor pursuits, marathon swimming has in recent years changed from a feat of endurance like climbing Everest (all those paddlers who dared the English Channel) into an organized sport with a tour along the lines of the one ran by the Association of Tennis Professionals. Kobalenko manages to capture the drama of competitive swimming and the freakish psychology of the athletes who risk their lives in Canada's freezing waters remarkably well. But I mention it here because it illustrates the great strength of many of the articles in this collection: they evoke the bizarre nature of Canada's remote and cold expanses as dramatically as most “travel writing” describes India, Africa, and other places deemed to be “exotic” by editors on the other side of the world.
And for that reason, Way Out There offers great armchair traveling.
Sunday, February 04, 2007
the 100 dollar un-pc
Rajesh Jain thinks the next billion computer users hold the key to the industry's next big innovation.
By Jason Overdorf
Feb. 12, 2007 issue - In a humble residential neighborhood in the south Indian city of Chennai, Hema Malini—a quiet 13-year-old girl whose hair was braided with jasmine flowers—switched on the family television and a curious new device called Nova NetTV that was connected to the TV and a keyboard. In a few seconds, the Microsoft Windows logo appeared, and suddenly her TV was transformed into a PC. With her mother looking on proudly, Hema fired up encyclopedia software, checked her e-mail and Googled for a site that offers free versions of Nintendo's Mario Bros. games.
If Rajesh Jain is successful, the NetTV, which hooks up to any television, could be the first in a family of devices that connect the next billion people to the Internet. Jain, 39, is cofounder and chairman of Novatium, the Chennai-based company that makes NetTV and NetPC, a similar product that uses a normal computer monitor. Both are based on cheap cell-phone chips and come without the hard-disk drive, extensive memory and prepackaged software thatadd hundreds of dollars to the cost of regular PCs. Instead, they are little more than a keyboard, a screen and a couple of USB ports—and use a central network server to run software applications and store data. Novatium already sells the NetPC for only $100—just within reach of India's growing middle class—and Jain believes he can soon drive the price down to $70.
Entrepreneurs, philanthropists and established computer firms have for the better part of a decade invested millions of dollars to lower the cost of a desktop PC and develop cheaper alternatives. Intel has made its Eduwise laptop; AMD, a Personal Internet Communicator; Microsoft, the FonePlus. MIT computer guru Nicholas Negroponte's Children's Machine, now called the XO, is the most publicized recent attempt at converting the poor into computer users. But Negroponte's idea is to spread computers to the poor, with the help of heavy subsidies from private and public philanthropy. His price is still about $140, too high for India. Indeed India rejected Negroponte's offer of a million for cost reasons. Jain's motive is different: he wants to make money.
And he knows India. Despite the country's rise as an outsourcing hub, PCs are selling slowly—far more slowly than mobile phones or motorbikes—because they are too expensive, too complicated to use and too difficult to maintain. What people have been waiting for, some experts think, is a new approach to computing that boils the essence of Internet access down to its lowest cost—and lowest risk. Jain plans to offer all this in lease deals that include easy-to-use hardware, Internet connection, application software and service—for $10 a month.
This formula could provide a long-sought bridge over the digital divide—and may just change the way the average person thinks of computing. The solution would open up a huge new market for Internet service providers, starting in India but possibly spreading to other emerging markets, a possibility that is already attracting the attention of the world's biggest computer companies. It would become a target for innovation on a global scale, forged by immense competition for new customers, and that would have a big impact on the PC world in the West. And if the winning formula turns out to be Jain's, or something like it, it could kill the PC altogether.
Google's push into web-hosted software and Web-based data storage is already prompting the world's software makers (including Microsoft) to rethink a business built on selling copies of software for installation on hard drives. As a consequence, the compulsion to upgrade to a more powerful PC every few years is gradually disappearing. As PC sales slow, hardware makers are looking to the developing world as the source of future profits. But if Novatium or a similar competitor succeeds, that market won't ever materialize. Dell, Hewlett-Packard, Compaq and the rest will have to phase out PCs and concentrate on devices that are similar in concept to Novatium's NetPC. The hardware business will be dead. The real money will be in providing the network, applications, data storage and other elements that are even now becoming synonymous with computing. Compaq will have to become more like Comcast.
Jain makes an unusual agent for such sweeping change. He has none of the bombast of Oracle's Larry Ellison. He lives more like a monk than a millionaire—though he sold his first successful venture, IndiaWorld, for more than $100 million in 1999. Jain first got the idea to build a low-cost computer alternative back in 2000, when he realized Western PCs weren't getting cheap enough fast enough to serve India's needs. He considered buying secondhand computers from abroad, or opening cybercafés. Then he read about Oracle CEO Ellison's plans for the so-called network computer. Maintenance and management costs for the PC were untenable, Ellison proclaimed, and businesses would soon save millions of dollars by putting software and data back onto their network servers. Ellison's idea hadn't taken off, Jain decided, because so many users in Western markets already had PCs and resisted the change. Jain realized that India would be a better target for the idea.
Aiming first at small and medium-size enterprises, Jain started to explore the potential of network-based computing software at Netcore Solutions, a company he started in 1998 (he remains its CEO). But the hardware costs were a problem. After giving a talk in 2003 at a conference in Bangalore, he was approached by Ashok Jhunjhunwala, a professor at the Indian Institute of Technology in Chennai, who runs a research lab and business incubator much like MIT's Media Lab. "The device you're talking about, the network you need?" Jhunjhunwala told him. "We can build it."
A few months later Jhunjhunwala and researchers at IIT came up with a plan that builds on the "thin client" concept that has been popular in the West for years, but only for business applications. It uses a cheap microprocessor (not Intel or AMD's standard PC chips) and removes the hard disk, CD/DVD drive and other costly and problem-prone components, leaving the keyboard, screen and USB port. Easier to maintain than regular PCs, sales of thin-client PCs to businesses are growing at about 20 percent a year in developed nations, even as sales of regular PCs flatten. Instead of working backward from the PC, Jhunjhunwala pioneered a new architecture from the ground up, replacing the expensive microprocessor with the guts of a mobile phone—thus tapping a supercompetitive industry with enormous economies of scale. In 2003, Jain and Jhunjhunwala cofounded Novatium, along with Analog Devices Chairman Ray Stata, with the aim of taking thin-client computers into the home market.
Making the computer affordable was only part of the equation, Jain realized. It also had to be what users want: something that looks and performs like a PC, with all the necessary software and an Internet connection, but which is also easy to maintain and operate. Products like the Simputer, an inexpensive, Indian-made version of the Pocket PC launched in 2004, never took off because it didn't match potential buyers' image of a computer. Meanwhile, people resisted purchasing low-priced or secondhand conventional desktops because they were too threatening—there was software to install, viruses to fight and all manner of mysterious problems.
The device shouldn't be a stripped-down version of a PC, Jain says. It should be entirely new machines, like the NetPC and NetTV, with streamlined technology and a lower price. Already, Novatium can afford to sell computing like the power company sells electricity, providing everything you need, including Internet access, for about $10 a month. And once production volume hits 1 million units, the cost of materials for a NetTV will fall to $35, bringing the sale price down to $70. In July Novatium started a commercial pilot program in Chennai with a cable operator whose feed goes into about 1,500 homes. By the end of December, it had 100 users. By the end of March it's expected to have 500, all of whom would pay around $10 a month. Started with only $2.5 million, Novatium has just 60 employees, but it is attracting attention from many major players.
One reason is that Novatium machines are open to all. Unlike most thin clients, Novatium's devices work with any network server without requiring major modifications, whether it uses proprietary software from Microsoft or Sun, or free software from an open-source company like Linux. Microsoft is participating in the Chennai pilot program because Novatium's subscription-based payment system could generate profit in markets where most users run pirated versions of Microsoft products. Top U.S.-based executives from Microsoft, Yahoo, AOL and other companies have visited Hema's house and other homes wired with the NetPC and the Nova NetTV to see how the utility computing model could work in the home. And network server giant Sun Microsystems—whose slogan has long been "The network is the computer"—has already inked a deal to market the NetPC to enterprises and schools in India beginning this year. "There's a 100 million-unit opportunity in the next five years in India itself," Jain says.
The difference between Jain's approach and Negroponte's is stark. Negroponte is world famous, and teamed up with Rupert Murdoch at Davos to promote One Laptop per Child (OLPC), a program to get computers into the hands of poor, rural users. Negroponte's XO laptop is truly innovative in its own right: it has no moving parts—it uses flash memory instead of a spinning hard disk—because they are prone to failure and overheating, and it uses so little power that it can run for hours on a car battery and can be charged by hand in a pinch. To extend Internet access, it uses "mesh networking" technology that turns each device into a relay that bounces the network onward.
But the XO also needs help. Though Negroponte promises he'll meet the $100 mark by the end of 2008, today each XO costs about $140, even with subsidized parts. AMD, for instance, offer its processors and Chi Lin Technology supplies screens at prices below what they charge for-profit companies. So OLPC is dependent on the kindness of wealthy partners, and does not get great reviews for performance—at least from rivals in the for-profit business. Microsoft's Bill Gates has disparaged the machine as an underpowered and obsolete PC, and Intel executives call it a "100-dollar gadget."
Novatium's approach has been to completely redesign the computer, slashing costs while keeping the form and functions typical of a top-end PC. Once it's set up, it doesn't look all that different from a conventional PC—the basic box plus a keyboard and monitor. It installs and operates as simply as a television—you plug it in and switch it on. And the money doesn't come from government budgets or philanthropic largesse, but from Jain's profit-oriented business model. "We do want to serve people, but we want to be profitable first," says Novatium CEO Alok Singh, who was hired for his experience bringing new products to market at Cummins Auto Services Ltd.
Negroponte is critical of Novatium's approach. For one thing, he argues that reliable networks aren't available in the rural areas where his target users live. He's adamant that the XO's approach, in which software resides on the PC, is better suited to India's needs. "The [Novatium] thin-client approach is not suited for the poor or developing [countries], because it leads to a metering economic model and presumes a stable, omnipresent, broadband network," he said in an e-mail. It's "a bit like buses versus bicycles. I would recommend the bicycle for daily use."
The Novatium team makes no apologies. It is not targeting the deeply poor rural farmers that Negroponte sees as his market. It is looking first to make money on the urban middle class, where many people are too poor to buy PCs but have ready access to cable and telecommunications networks. Taking inspiration from University of Michigan management expert C. K. Prahalad, author of "The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits," Jain says that in India's PC market there are 10 million relatively wealthy Indians at the "top of the pyramid" who buy computers just like consumers in developed countries. There are an additional 30 million urban Indians at the "middle of the pyramid" and 100 million very poor Indians at the "bottom of the pyramid." "What we are saying is how can you dramatically bring down the entry levels for computing in this country and make it accessible to the middle of the pyramid?" he says. "This is the sweet spot."
Novatium, of course, has a long way to go. It needs to build a network along the lines of those run by India's mobile and Internet service providers. For that, the company will need to partner with telecom or cable companies that are pushing broadband Internet access. (It is working to line up a contract with a few small cable companies, which if successful could lead to deals with larger broadband firms like Airtel, Hathway, Sify, Tata Indicom and state-owned BSNL and MTNL.) Success will bring competition from Western firms such as San Jose, Calif. -based Wyse, which already sells some network PCs to India's IT firms. But Wyse and the others aren't yet interested in the home market. And Novatium has licensed its technology to Sun Microsystems for the enterprise and education markets so Novatium can focus on selling to home users. Jain is hoping that that head start plus a rich offering of features—such as streaming video, video-on-demand and voice-over-IP, which other low-cost thin-client PCs don't offer—will give Novatium an edge for at least a few years.
Down the road, Jain envisions his device transforming the computing landscape. "It's taken a quarter century for computer makers worldwide to get to 700 million users," he says. "The utility and network computing model can double that number in the next five years. That means there's a huge opportunity for the likes of Dell, HP, Lenovo, Intel, Microsoft and so on, and the entire existing computer value chain. But they'll have to reinvent their businesses. They have to look at an entirely different model." And they'll have to look to India.
With Jessica Bennett in New York