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Will generics provide the answer for Indian pharma companies? - Views on News from Equitymaster
 
 
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  • Apr 19, 2000

    Will generics provide the answer for Indian pharma companies?

    A lot is being made out about the Indian pharmaceutical companies abilities to tap the US generic market post 2003 with almost 36 blockbuster drugs going off patent. The market is estimated to be worth around $ 32 bn almost five times the size of the domestic market. There have been articles and editorials recently to the effect that the Indian pharma companies have come of age. We seek to put things in perspective.

    Normally, once the drug goes of patent, the patent holder itself lowers the price of the drug by almost 75%-85% of the original levels, depending on the severity of the competition. For example when Tagamet an anti-ulcer blockbuster produced by SmithKIine Beecham, lost its patent in May 1994, the company offered a price cut of 80% to protect the product's $ one billion sales. If one takes this decline in prices into account the US$ 32 bn market size comes to around US$ 7 bn.

    There will be equally resourceful companies from Canada, Spain, Italy, Korea and Taiwan, which would also be aggressively tapping the US market. If one looks at the example of the CIS market, Indian companies have so far captured less than 5% of this market despite all its inherent advantages in trading with that country.

    Thus our estimate is that Indian companies could tap incremental sales of around US$ 500m from the US generic market. The country currently exports over US$1 bn of bulk drugs and formulations. A 50% growth over the market over a 7–8 year period (assuming that sales from existing products continue) is hardly sufficient to sustain in an entire industry.

    Besides, Indian companies tapping the US market would face the possibility of non–tariff barriers. Recently, the European Union has held that various benefits granted by the government to exporters in India were in the nature of subsidies and imposed an anti–subsidy duty. Such arbitrary imposition of duties by the Us authorities cannot be ruled out.

    Though top players such as Ranbaxy, Cipla, Wockhardt, Cadila, Dr Reddy’s may prosper, vast chunks of the Indian pharmaceutical industry may not benefit from the opening up of the US generic market.

     

     

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