May 22, 2001|
Does DPCO hurt innovation?
The Drug pricing control order (DPCO) was introduced by the government in 1970 with an objective to make essential drugs affordable. Over the years, these controls coupled with consumer price sensitivity in the domestic pharma markets have become a dampener for new product innovations. The average cost of bringing one new medicine to the market is about US $ 500m and it takes an average of 12-15 years as per international standards to develop it. Quite obviously, companies recover such huge research expenses on future medicines from medicines currently in the market. However, due to the price controls companies cannot afford to allot funds for their research activities.
The DPCO thus in-effect has discouraged R&D spend in the country, providing a hurdle to precious innovation.
The above chart shows a comparison of PBT (Profit before tax) margins vis-à-vis R&D spend of some leading international and domestic companies. It is evident that PBT margins of even the best Indian companies do not compare favourably with their international counterparts.
Total R&D spend of Indian pharmaceutical industry for FY00 was approximately US$ 68m. As mentioned earlier development cost of a single drug costs anywhere around US$ 500m, which means that it would effectively take 7 years (at the current rate) for the Indian pharma industry to fund a single successful molecule.
Besides most of the research expenses, which is incurred in India is for process engineering or reverse engineering. A company copies a molecule by arriving at it through a different process. As these would not be recognized post 2005 due to recognition of product patent, Indian companies have started hiking their R&D spends focusing towards research in Novel Drug Delivery System (NDDS) and genetic research. A modest beginning in the field of fundamental or basic research is also being done and a few of the vanguards have started reaping benefits for the same.
In a nutshell increasing the research base of the Indian pharma industry is imperative as it is a key to its survival. Indian consumer has to accept the fact that the cost of a capsule is simply not the cost of the ingredients, which goes into it but also the intangible cost of years of hard work. The companies also have to recover the cost of R&D to fight future diseases. The knowledge required to discover and develop new medicine does not come cheap. Discovering, testing and gaining new drug approvals is expensive, time consuming and a risky proposition. Its high time for the Indian consumer to realize this.
More Views on News
Aug 14, 2017
A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.
Aug 14, 2017
GST impact coupled with price erosion in US leads to lower profits for the quarter.
Aug 8, 2017
Profits plunge due to higher raw material costs.
Jun 16, 2017
Here's what you can expect from The 5 Minute Wrapup in the coming months and years.
Jun 23, 2017
Net Profit lower due to exceptional items in the previous year.
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Aug 22, 2017
Post demonetisation, a cut in bank savings deposits rates was in the offing.
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407