US moves: Potential generics boom - Views on News from Equitymaster

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US moves: Potential generics boom

Jun 17, 2003

Indian pharma companies, which have been plagued by uncertainties that are likely to arise in the post-patent regime, have finally got something to cheer about. The US government has made two announcements, one in relation to reduction of approval time for generics and the other in respect of increasing the number of prescription drugs under the state funded health insurance scheme i.e. Medicare. The US government was under increasing pressure to bring down healthcare costs. As a result, it has announced a regulation that would bring down the time taken by generics to enter the market. Under the new regulations, the patent holder of a drug will not be able to stall the launch of the generic version by more than 30 months. This is likely to reduce generics approval time considerably. The increased budgetary allocation to the US-FDA generics department will help US-FDA to increase its approval staff and thus process the generics applications in less time. This will result in huge benefits to the Indian generic companies, as generics will be quickly introduced in the markets and also the legal expenses borne by companies to challenge an existing patent will come down.

Apart from this, US government has also decided to provide a wider range of prescription drugs through Medicare. This will increase the demand for generics as it accounts for a major portion of the total prescriptions made. As Indian companies specialize in the export of generics to the US markets, a good portion of the fresh prescriptions is likely to be made in their favor.

Among the Indian companies, Ranbaxy and Dr. Reddy’s Laboratories are likely to be the major beneficiaries of the above regulations. Let us briefly examine the advantage likely to be derived by these two companies.

US Focus
Company % of revenues
from USA
Applications
pending approval
Ranbaxy 39 30
Dr. Reddy's 32 23

With over 30% of the revenues being derived from the US markets, widening of the number of prescription drugs in Medicare system and with 35 blockbuster drugs going off patent by 2005, the growth rates of these two companies will get a fresh impetus. Moreover, with 30 and 19 applications respectively pending with US-FDA for approval, the reduction in the approval time will further help the two companies in making rapid introduction of the generics in the market. The Indian companies will thus be able to further reduce their dependence on the Indian markets before product patents regulation comes into effect in 2005.

Even for companies like Cipla, who till date have shown little visible signs of significant R&D expertise, the US move will open a lot of doors. The company can become a significant contract manufacturer for large MNCs who will now be under pressure to cut costs. All in all, a move that will bring smiles to the Indian pharma industry.

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