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Biofuels, Indian pharma & more... - Views on News from Equitymaster
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  • Feb 26, 2008

    Biofuels, Indian pharma & more...

    • Biofuels have been attracting considerable interest of late given the rising crude oil prices and heightened concern about the environment. Besides achieving greater energy security, countries are also looking to reduce the use of fossil fuels to lower greenhouse gas emissions and consequently improve air quality. At present, biofuels are being produced from food crops such as sugarcane and maize to produce ethanol and from vegetable oils such as rapeseed, soybeans, palms and others. To put things into perspective, IMF states that the global production of biofuels amounted to 45 bn litres in 2006, representing slightly more than 1% of global road transport fuels. Among the largest biofuel producers, the US used 20% of its maize production for biofuel, EU used 68% of its vegetable oil production and Brazil used 50% of its sugarcane for biodiesel production.

      Besides reducing emissions, biofuels are also touted to improve engine performance without having to go in for engine modification (to a certain extent). Having said that, the increased use of food crops for production of biofuels have contributed to the surge in food prices namely, maize, wheat and soybeans amongst others and prices are not expected to ease in the near term atleast. Besides this, the increased use of biofuels has yet to have any major impact on oil prices, which continue to scale new heights. Meanwhile, poorer income nations around the world continue to flinch from the impact of escalating food prices.

      Indian companies have also unveiled plans of stepping up biodiesel production by resorting to jatropha cultivation in wastelands across India. What is prompting this step is the eagerness to reduce the dependence on coal and petroleum given the rising prices of the latter and the increased demand for energy in the country. Various energy companies are entering into joint ventures to provide a fillip to their biodiesel ventures. However, how successful are these plans going forward remains to be seen.

    • While the introduction of the product patent law in India has been touted as a boon for the MNC pharma companies to launch patented products in the country, there has not been much activity on this front since 2005. One main reason for the same could be the various issues that these MNCs have with respect to the product patent law such as definition of patentability, scope of compulsory licensing, data protection issues and the like.

      At the same time, once patented drugs do get launched in the country, pricing of these drugs will be the key factor to watch out for. It must be noted that the government is likely to subject patented drugs of MNCs to price negotiation, while those of the domestic companies could be exempted. The rationale behind this move seems to be the fact that for MNC companies, India is just one of their many global markets to recoup R&D costs, while domestic companies are likely to receive differential treatment to promote indigenous research. That said, the price negotiation will have to be transparent and the chemicals ministry will have to see if such a differentiated approach would be consistent with India's international obligations.

      In this regard, practices adopted by some other countries particularly Canada, France, Australia and some of the Asian countries and their experience in this regard need to be studied at the time of framing the guidelines. However, it is likely that the negotiation may not be based on the cost of production, but may be on the premium the product commands in any other markets, applied to the price of a similar medicine in India. This premium would be the difference between the product's price in its lowest priced market abroad and that of its closest therapeutic equivalent there.



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