Pharmaceuticals Industry
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The Finance Minister has actually announced a 'significant reduction in the span of control' of the DPCO.
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The 150% exemption that is available on the R & D expenditure would now include the costs of filing a patent, the cost of clinical trials and the cost of bio-studies.
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The budget has also hiked the allocation for the health and family welfare ministry from Rs 49.2 bn to Rs 57.80 bn for the year 2001-2002. Of this Rs 1.8 bn would be allocated to combat AIDS.
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Reduction in dividend tax from 20% to 10%.
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The most significant impact of the Budget is yet to come. It pertains to the change in the span of control of the Drug Price Control Order (DPCO). This will however be through a separate bill to be tabled in Parliament. So far there are around 74 drugs under the control of the DPCO. While top Indian companies have continuously introduced new products which reduces their span of control under the DPCO, the MNC pharmaceutical companies would be significant beneficiaries.
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The main beneficiary of the move to include cost of clinical trials for the R & D exemption would be the Indian pharmaceutical companies since the MNC companies get the products based on the research done by the parents. The exemption would be almost 52.5% of the R & D spending of the companies.
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The main beneficiary of the move to hike the outlay for combating AIDS would be Cipla, which is the only anti-AIDS manufacturer in the country. Cipla in fact has today announced a reduction in the prices of its anti-AIDS drugs.
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The reduction in dividend tax to 10% would benefit high dividend paying companies such as Glaxo, Hoechst and Knoll Pharma which pay anywhere between 40% to 55% of their profits as dividend.
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The removal of the 10% surcharge on imports would also benefit relatively higher import companies such as SmithKline Beecham, Pfizer, Novartis, Ranbaxy and Dr. Reddy's.
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Steps that would rev up two fronts: research and international markets.
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All R&D expenditure should qualify for weighted deduction- including the costs of filing a patent and the cost of bio-studies. Typically research costs escalate as a project moves closer to market.
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All income streams that are a result of indigenous R &D, and which result in innovation- should qualify for exemption from income tax.
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When capital goods are imported for R&D labs, they should either be exempt from customs duty or qualify for lower slabs.
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New research products should be exempt from excise duty for a period of 10 years, from 3 years as at present.
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Gradually increasing the R &D fund corpus from Rs1.5 bn at present to atleast Rs7.5 bn
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Reimbursing local taxes that are charged on exports.
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With the trend towards analogue research accelerating and the top Indian companies adjusting reasonably well, one can visualise the Indian companies tapping the emerging $7 bn USA generic market over the next three years.
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The expected consolidation of the domestic pharmaceutical sector in the forseeable future would benefit the top players in terms of the availability of the OTC brands and outsourcing for manufacturing capacities.
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Opportunity with brands in countries that have patent laws similar to those in India
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The sector growth has slowed down considerably. While domestic formulation sales are growing by 11–12% the bulk drug units are facing dumping from China which has led to many bulk drug units closing down
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The expected liberalisation of the Drug Price Control Order does not seem to be materialising soon.
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