Pharma R&D: Unraveling the maze - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Pharma R&D: Unraveling the maze

May 9, 2003

There has been a lot of hoopla about the need to invest in Research & Development (R&D) by the Indian pharmaceutical companies to remain competitive after the product patent regime is implemented in India in 2005. We feel the importance laid on R&D by domestic pharmaceutical companies can be better understood by understanding the global R&D scenario. The Global R&D process

It can be safely said that the pharmaceutical sector is more research-intensive, as compared to the any other industry. One of the activities of research and development of the companies is directed towards finding newer molecules as a cure for diseases.

The innovator company synthesizes a New Chemical Entity (NCE), which can probably be a cure for a disease. The synthesis of a NCE takes place in the pre-clinical testing period. The innovator company, after synthesizing a NCE, files an Investigational New Drug (IND) application, prior to commencing clinical trials. The FDA grants patent to the NCE at this stage.

The drug discovery process

Source: PhRMA

As can be seen above, after the IND filing it takes around 10 years for a NCE to pass through the three phases of clinical trials, attain the final FDA (Food & Drug Administration) review approval and post marketing tests to ultimately launch the product. As already mentioned, the FDA grants patent to the NCE at the time of the IND filing and the duration of such patent is around 20 years. In this context, a drug ultimately enjoys patent protection after its market launch for only around 10 years, to recover its costs.

After the expiry of a patent, generic companies immediately launch the products and consequently, there is a sharp downward correction in the price of the particular drug. The fall in prices can be as much as 90% depending upon the number of generic manufacturers and the nature of the drug. The fall in prices also result in a fall in the margins for the branded drug. The generic market has witnessed significant growth over the years. While generics account for around half of the prescriptions in the US, it accounts for only around 10% of the pharmaceutical market in the US in value terms. The reason for the same is low realizations of generics vis-a-vis patented drugs.

Generics

A generic drug has similar effects in terms of its rate and extent of absorption of an approved product, which has to be proved by the generic company. In other words the generic drug has similar effects in curing a disease as the approved product. The generic approval process is called Abbreviated New drug Application (ANDA).

While filing an ANDA, the generic company has to choose one of the following four options (referred to as paras)

  • Para I - The drug has not been patented
  • Para II - The patent for the drug has already expired
  • Para III - The patent for the product exists but the generic company wants to enter the markets after the date of patent expiry passes.
  • Para IV - Patent is not infringed upon or is invalid

In a Para III filing the company acknowledges the patent of the approved drug and intends to enter the market after the patent for the approved product expires and there exists a scenario of falling prices for the drug, whereas in Para IV filing the company claims that the generic product of the company does not infringe upon the existing patent or the patent of the branded product is invalid and the company strives to win an exclusivity of 180 days during which the margins for the product are very high. For instance, recently Dr. Reddy's filed an application with the US FDA to market a generic form of Eli Lilly's schizophrenia drug 'Olanzapine' in the United States.

In all the generic filings, the FDA has 180 days to deem the generic application complete and accept it for review, or incomplete and reject for filing.

In case of Para I and Para II filing, once the application is deemed complete, it is simply processed for approval. In case of Para III the application is processed for approval, however its approval status depends upon the products patent expiry. Apparently Para IV filings are the most lucrative, tedious, time consuming and expensive of the above.

The approval process of the Para IV is as provided below:

Post 2005 scenario

After the patent regime is implemented in India in 2005 no company would be allowed to launch products patented after 1995. In other words Indian companies will still be allowed to launch NCE patented before 1995 in the market. As already discussed it takes around 10 years for a NCE to be commercially launched, as a result of which the Indian companies will have additional cushion in terms of time to gear up fully for the patented regime

Already Indian companies have forayed into basic research and their success has so far been very very limited. However, as it is said, the secret of getting ahead is getting started and every small step by Indian companies will raise their probability to succeed in the future.


Equitymaster requests your view! Post a comment on "Pharma R&D: Unraveling the maze". Click here!

  

More Views on News

LAURUS LABS LTD Share Price Down by 5%; BSE HEALTHCARE Index Down 1.0% (Market Updates)

Sep 24, 2020 | Updated on Sep 24, 2020

LAURUS LABS LTD share price is trading down by 5% and its current market price is Rs 1,347. The BSE HEALTHCARE is down by 1.0%. The top gainers in the BSE HEALTHCARE Index are APOLLO HOSPITALS (up 5.2%) and SYNGENE INTERNATIONAL (up 3.5%). The top losers is LAURUS LABS LTD (down 5.3%)..

NARAYANA HRUDAYALAYA LTD Share Price Down by 8%; BSE HEALTHCARE Index Down 1.6% (Market Updates)

Sep 24, 2020 | Updated on Sep 24, 2020

NARAYANA HRUDAYALAYA LTD share price is trading down by 8% and its current market price is Rs 302. The BSE HEALTHCARE is down by 1.6%. The top gainers in the BSE HEALTHCARE Index is SANOFI INDIA (up 1.6%). The top losers is NARAYANA HRUDAYALAYA LTD (down 7.8%)..

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE HEALTHCARE


Sep 24, 2020 02:36 PM

S&P BSE HEALTHCARE 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS