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.
Pharma R&D: Unraveling the maze - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • May 9, 2003

    Pharma R&D: Unraveling the maze

    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 industry 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-à-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

    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

    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.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    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.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    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 21, 2017 02:01 PM

    S&P BSE HEALTHCARE 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS