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Pharma MNCs: Patent protection or growth? - Views on News from Equitymaster
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  • May 6, 2000

    Pharma MNCs: Patent protection or growth?

    What has been hampering the valuation of multinational pharmaceutical stock valuations so far is the absence of topline and bottomline growth. This is partly due to the slowdown in overall formulation market to 9.2% against 15–16% growth last year. Another key reason for the slowdown in MNC growth numbers is the fact that almost 55% to 60% of revenues accrue from products under the Drug Price Control Order (DPCO)

    One way out for the MNCs could be the introduction of new products into India. For instance the product portfolio of Glaxo India is quite different from its international’s parent’s portfolio. While the parent is a leader in the anti–asthma segment with a 31% share in the global market, its Indian subsidiary gets less than 5% of its revenues from respiratory drugs. Similarly while anti–bacterial drugs contribute around 10% to the parent’s turnover, in India it amounts to a fourth of the company’s turnover.

    Therapeutic Areas Glaxo Plc Glaxo India
    Respiratory 29% 2%
    Viral Infections 19%  
    CNS Disorders 16%  
    Bacterial infections 10% 26%
    Gastrointestinal 8% 7%
    Oncology (Anti–cancer) 6%  
    Dermatological 3% 18%
    Cardiovasculars 3%  
    Anaesthesia 1%  
    Others 5%  
    Vitamins/Minerals   18%
    Anti–TB   2%
    Anti–allergics   3%
    Expectations, Nasal congestions   7%

    % represents approximate contribution to FY99 turnover

    One reason that has been advanced for the difference in product portfolio is the difference in disease profiles between a tropical region and the temperal region. However, India is a very big market for viral infections (which include AIDS) and respiratory diseases, treatment for which contributed almost 48% to Glaxo Wellcome’s turnover. Similarly, the lack of purchasing power has been touted as another reason for the reluctance on the part of the MNCs to introduce their top of the line products. However if one sees the growth numbers of companies highly dependant on antibiotics vis-à-vis those which are relatively less dependant it is evident that the latter have done much better of late

    The reluctance for the introduction of new products by MNCs seems to stem from an apprehension that their products would be copied and they would rather wait for the patent law to be in place. How long would investors have to wait for growth prospects in MNCs to improve only the government (which can relax the DPCO) or the international parents of these companies (who can introduce new products) can tell?



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