The price war in the Indian pharma market has taken a new turn. Just a few weeks ago, mid-sized Indian firm Natco Pharma took on German multinational Bayer when it was awarded India’s first compulsory license. With this, Natco got the go-ahead to manufacture and sell sorafenib, the generic version of Bayer’s patent-protected renal and liver cancer drug Nexavar. While Bayer’s drug costs a patient around Rs. 280,000 (US$5,200) for a month’s treatment, Natco priced its version at Rs. 8,800 (US$163) per month.

On May 3, another Indian firm, Cipla, slashed prices of its sorafenib drug from Rs. 28,000 (US$519) to Rs. 6,840 (US$126) for a month’s treatment — a 75% reduction in a single move. Cipla has also sharply reduced the price of its lung cancer and brain tumor drugs by around 60% to 75%.

According to Yusuf Hamied, chairman and managing director of Cipla, this price reduction is a humanitarian approach by Cipla to support cancer patients. Talking to business daily The Economic Times, Hamied said: “Yes we are cutting prices; we are being humanitarian. But, at the same time, we are not doing any charity. Doctors in India link the quality of drugs to the price of drugs; we want to remove that misconception.” Cipla, incidentally, is currently contesting a patent infringement suit filed by Bayer over its generic version of Nexavar.

Observers say that Cipla’s expertise in reverse innovation and its economies of scale play a key role in its ability to reduce prices. They see this recent move as being part of Cipla’s strategy to garner a larger share in the growing oncology market in India. “It’s a smart move by Cipla. It will reach many more patients and will also be able to garner a greater market share,” said Anjan Sen, director – health care at Deloitte Touche Tohmatsu India, talking to The Economic Times.

This is not the first time that Cipla has been a price warrior. Some years ago when global pharma companies were selling anti-retroviral drugs for US$10,000 to US$15,000 per patient, per annum, Cipla priced its drugs at around US$350. At that time, Hamied had said: “AIDS is going to be a bigger holocaust in India than an earthquake. We’re not making money, but we are not going to lose money, either.” Cipla’s move compelled other players to lower their prices as well.

Ravinder S. Singha, managing director of FirmLink Pharma, a New Delhi-based pharmaceutical consultancy firm, notes that “this is history repeating…. Cipla’s current step to reduce the prices of its cancer drugs is a replay of what it did with its HIV drugs. Others will have to follow suit.” Singha believes that neither Natco nor Cipla will be incurring any loses at their price points. “This only goes to show how much global multinationals play around with prices,” he adds.

But this time around, it’s not just the global pharma firms that are concerned. Indian firms like Natco, too, have been caught unaware. Natco is expected to launch its version of sorafenib shortly. “As of now, we are sticking to our price of Rs. 8,800, as mentioned in the compulsory license. Over the next couple of days, we will weigh our options and take whatever steps we think are necessary,” says M. Adinarayana, Natco’s company secretary and general manager, legal and corporate affairs.

Adinarayana sees Cipla’s move as a knee-jerk reaction to counter Natco’s low-priced version of Bayer’s Nexavar. He adds, however, that “it is not healthy competition. This price war is going to be embarrassing.”

Singha of FirmLink Pharma points out that the pharmaceutical industry, like any other, is driven purely by business compulsions. “We will see a lot more price wars going ahead,” he says.

Meanwhile, the markets have given a thumbs-up to Cipla’s move. While the broader market plunged 1.87% (or 320 points) on May 4, Cipla was one of the few gainers — up 2.46%. Natco was down by close to 6%.

On Tuesday, Microsoft threw a lifeline to Barnes & Noble (B&N) by investing $300 million in the bookseller’s Nook e-reader and digital book subsidiary. Like other large retailers, particularly in the book industry, B&N has seen sales dropping in its brick-and-mortar stores, where analysts estimate that the company had an operating loss approaching $62 million in the year ending April 28. The investment will give Microsoft a 17.6% stake in the subsidiary, which also includes B&N’s college bookstore unit.

Microsoft’s cash infusion will help the bookseller’s digital business compete more aggressively with Amazon’s. According to The Wall Street Journal, B&N currently has a 27% share of e-book sales, whereas Amazon.com has 60%. Apple still leads in “media tablet” sales — 62% — compared with 6% for Amazon’s Kindle e-reader and 5% for B&N’s Nook device.

What does Microsoft stand to gain? “This is a platform play for Microsoft,” says Wharton management professor Daniel Raff. “If there is a niche for Windows 8-powered iPad-like devices, this might make them more attractive. The valuation suggests that [Microsoft sees] a lot of potential upside in this.” According to the Journal, Microsoft’s investment values the subsidiary at $1.7 billion. The change in B&N’s share price suggests that the market agrees, Raff notes: Following the announcement, the company’s shares were up 52% by the close of the day on Tuesday — the stock’s highest level in two years.

“The key actors here, in my opinion, aren’t centrally in books,” Raff adds. “They are Apple, Amazon and Microsoft.” According to Peter Hildick-Smith, president of Codex Group, which tracks trends in the digital book industry, these are among a handful of cash-rich companies that have “realized massive growth potential and are trying to grow share in the fast-emerging integrated device/media content/retail market.” (He notes that Google — with its Google Play online store and an anticipated device — is another significant player.) “This deal … gives Microsoft its first realistic stake in what we believe will be the dominant form of ‘retailing’ in this century, as Amazon is demonstrating with its 41% year-on-year growth rate. And starting with book consumers, who represent the top 20% of U.S. consumers, is a great place [to begin].”

Hildick-Smith, who notes that B&N is a Codex Group client, points out that entering this new form of retailing is particularly difficult for most companies to pull off and, according to his firm’s research, requires several elements in order to succeed, including: “a major, high equity brand in the content space,” “a best-in-class shopping platform with deep content available,” ” a deep reservoir of star ratings and thoughtful consumer reviews from its shoppers on every title it sells,” and a highly integrated store and device — or “e-tail solution.” And lastly? “Deep pockets.”

That last ingredient — as well as a long-term commitment — is precisely what Microsoft brings to the table for B&N, Hildick-Smith points out. “The integrated device/media content/retail business is phenomenally complex to build and deliver successfully,” requiring, among other things, significant funding to “grow it and spend on advertising,” he says. (The New York Times reported that Kindle ad spending was $150 million in 2010 alone, he notes.) “This is a land grab. The first to lock up a household with a branded, closed-platform device owns that household for the foreseeable future, meaning huge ROI. Kindle and Nook households are very loyal to their brands, and buy a lot more books within their brand family. Plus, the more additional types of content/products that are available to buy … the greater the [incremental] sales long-term.”

B&N has indicated that it will likely spin off the subsidiary into its own business. Wharton management professor Emilie Feldman, who studies divestitures, says this would be a wise future move. “I think the Microsoft investment was the right decision for the time being,” she says. “The investment gives B&N much-needed liquidity, allowing it to make strategic investments in both the Nook business and its ‘core’ brick-and-mortar operations.” Still, she adds, “B&N is a classic case of the whole being worth less than the sum of the parts, meaning that a spinoff of the Nook business in the future will unlock that value for shareholders. The Microsoft investment is useful because it gives investors preliminary information on the individual valuations of the two parts of B&N’s operations, paving the way for a complete separation.”

On April 25, ratings agency Standard & Poor’s (S&P) downgraded India’s sovereign rating outlook from “stable” to “negative.” It warned that further action was possible if the country did not find a solution for its twin problems of a high fiscal deficit and a widening current account deficit. In lay language, this means that the government is spending too much.

S&P also lowered the rating of 21 banks and companies, including majors such as the State Bank of India, ICICI Bank, Infosys and Wipro. This will make it more expensive for them to raise money.

Indian finance minister Pranab Mukherjee, however, said that the downgrade did not indicate a crisis — and the stock markets shared his opinion. The Bombay Stock Exchange sensitive index (Sensex) had gone down 190 points on the S&P news, but it recovered to end the day only 56 points down.

Meanwhile, other government officials underscored the point that the only solution was to speed up reforms. The opposition parties have successfully stonewalled all attempts to pass relevant reform bills through Parliament. The day after the downgrade, the Asian Development Bank (ADB) made the same point. The S&P rating cut “is a timely warning,” Rajat M. Nag, managing director general of the ADB, told Kolkata-based daily The Telegraph. “Reforms are running into some headwinds.”

On the reform issue, the government has created its own problem. A few days earlier, chief economic advisor Kaushik Basu reportedly told a Washington meeting of the Carnegie Endowment for International Peace that there were unlikely to be major economic reforms in India before the next Parliamentary elections in 2014. Basu later issued a statement claiming that journalists had juxtaposed his comments on Europe in 2014 with the Indian election of 2014. Read Basu’s statement: “This is unfortunate, because the central message of my talk was the possible European crisis of 2014 and India’s major rise thereafter, likely overtaking China.”

The damage, however, was done. Indian industry has been saying for some time that the anti-corruption movement in the country has resulted in a policy paralysis in Delhi; bureaucrats and politicians are afraid of making decisions in case they are accused later of having ulterior motives. Basu’s statement has been highlighted by the opposition as an official admission that this is indeed the case.

There are other problems which are Mukherjee’s own creation, critics note. In the Union budget, he had introduced a capital gains tax on offshore transactions involving Indian assets — but he did it with retroactive effect from 1962. Vodafone and other affected firms are now fighting back. British chancellor of the exchequer George Osborne has met with Mukherjee to lobby for Vodafone. Companies which had their licenses cancelled by the Supreme Court in the telecom scam have also tried to persuade government officials to plead their case with Mukherjee. This includes Norwegian minister of trade and industry Trond Giske: Norway’s public sector Telenor was partner in a joint venture — Uninor — that had its license cancelled. Sistema of Russia has meanwhile sought a solution in the India-Russia bilateral investment treaty.

The Supreme Court had asked the Telecom Regulatory Authority of India (TRAI) to come up with an auction scheme for the cancelled licenses. The TRAI has confounded everybody by setting the floor price at a very high level. Telecom industry players say they will go into the red if they have to pay such prices.

Meanwhile, another budget provision, the General Anti Avoidance Rules (GAAR), is causing other ripple effects. Says economic daily Mint: “GAAR gives sweeping powers to the tax authorities to question any transaction with retrospective effect. Overseas investors say they will have to exit India if the law is implemented.” According to credit rating agency ICRA: “GAAR is adding to the anxiety of foreign investors.” In April, the fund flow from foreign investors turned negative for the first time this year, reflecting the growing negative sentiment.