X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Prescription for pharma MNCs: DPCO or EMR? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 6, 2000

    Prescription for pharma MNCs: DPCO or EMR?

    Two issues that have dominated and confused investorís perception about Multinational Pharma companies (MNCís) are DPCO (Drug Price Control Order) and EMR (Exclusive Marketing Rights). We view DPCO to be critical than issues related to EMR.

    The ground reality for MNCs operating in the country is that their pipelines (flow of products into India from international parents) are irrelevant, unless full patent protection is provided. Until then, their pipelines will consist of products, which their parent organizations are willing to launch at cutthroat prices, without worrying about patent protection.

    As full patent protection is likely to come into effect only from 2005, the Government of India introduced an interim arrangement whereby MNCís were granted exclusive marketing rights (EMRís) till 2005 for products patented after January 1, 1995. Though the perception at the time when this facility was given was that MNCs could benefit immensely by this rule (the perception was that they could enjoy selling a product till 2005 without competition), the facts are otherwise.

    The fact is that it takes anywhere between seven to eight years from the time a molecule is patented to the time it is introduced in the market as a drug. Hence even if a company had received a patent approval on January 1,1995 the actual product may come into the market only by 2003, hence the benefits of EMR would only be for 2 years. Alternatively if the approval was received in 1997 the product would come into the market by 2005 by which time full patent protection would any way be in force.

    Hence most MNCs are unlikely to use the EMR facility to launch products in India as the cost of R&D is so high that the short period of EMR may not be enough to recover costs. It could take anywhere between US$350 to US$ 500 m (the entire annual turnover of the biggest Indian pharmaceutical company Ranbaxy) to conduct research and launch a new drug.

    The more important problem for the sector is the Drug Price Control Order (DPCO). The DPCO was promulgated in 1970 and revised thrice thereafter in 1979, 1987 and 1995. It was originally introduced to check the supernormal profits reportedly being made in the industry; the social objective of ensuring availability of common drugs at reasonable prices was almost an afterthought. There has been many debates on whether to relax this order by reducing the number of drugs under its purview (they stand at 76 currently). Though no decision has yet been made on this issue, if any relaxation is given it could have substantial impact on the bottomline of MNCís. For instance Hoechst Marion Roussel sells one billion capsules of Avil (antibiotic) at 25 paise each. Even if the price were to be increased to Rs 1 it would add Rs 750 m to Hoechstís bottomline, almost four times its expected profits in the current year (Rs 200 m).


    * - Drug Price Control Order

    And with the relaxation of the DPCO unlikely in the short term, the health care environment for MNCs is unlikely to undergo a significant change in the near future, EMR or no EMRs. Hence to conclude, MNCís would continue to be regarded as DPCO plays irrespective of the quality of their parentís product portfolio.

     

     

    Equitymaster requests your view! Post a comment on "Prescription for pharma MNCs: DPCO or EMR?". Click here!

      
     

    More Views on News

    Sun Pharma: Bottomline Slips into the Red Amidst Challenging Environment (Quarterly Results Update - Detailed)

    Aug 14, 2017

    A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.

    Lupin: Bigger Challenges or Bigger Margin of Safety? (Quarterly Results Update - Detailed)

    Aug 14, 2017

    GST impact coupled with price erosion in US leads to lower profits for the quarter.

    Dr Reddy's: US Pressure Continues to Haunt (Quarterly Results Update - Detailed)

    Aug 8, 2017

    Profits plunge due to higher raw material costs.

    The Power of 5 Minutes (The 5 Minute Wrapup)

    Jun 16, 2017

    Here's what you can expect from The 5 Minute Wrapup in the coming months and years.

    Biocon: Lower Licensing Income Leads to Muted Growth for the Quarter (Quarterly Results Update - Detailed)

    Jun 23, 2017

    Net Profit lower due to exceptional items in the previous year.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE HEALTHCARE


    Aug 18, 2017 (Close)

    S&P BSE HEALTHCARE 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS