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Pharma: Regulatory upsides in the making? - Views on News from Equitymaster
 
 
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  • Jul 10, 2007

    Pharma: Regulatory upsides in the making?

    With healthcare costs accounting for a sizeable chunk of the GDP in both the developed and developing nations, little wonder then that governments across the world are under pressure to reduce these costs. For Indian pharma companies the competition has been intense in both the domestic and the global pharma market and a host of regulatory changes in recent times (especially in the European generics market) have been weighing heavy on companies having a presence in this region. In this article, we have highlighted a few regulatory policies, which are likely to have an important bearing on the fortunes of the industry going forward.

    DPCO policy: The Indian government over the years has been laying increased emphasis on controlling the costs of medicines in India and had introduced the DPCO Act, which in its present form has listed 74 drugs under price control. The New Pharmaceutical Policy has proposed to bring 354 drugs under price control, which if implemented could likely bring 80% of the pharma market in value terms under price control. The Indian pharma companies have obviously stiffly opposed this proposal citing 'price monitoring' a more acceptable solution than 'price control'. Having said that, no official law has been passed as yet and the announcement of this policy has been consistently getting delayed since the latter half of last year. Thus, if this law to increase the scope of drugs under price control gets passed, the impact of the same is likely to weigh heavy on the profitability of Indian companies with the pressure being more on MNC pharma as they are highly focused on the domestic market with little or no exports.

    Biogenerics: High level of competition in the generics space has increased the focus on niche therapeutic areas such as biotech, which are technology intensive thereby having relatively limited competition. Biotech drugs have assumed significant importance given their ability to provide a more accurate treatment as compared to conventional chemical drugs. Having said that, while the EU has come out with draft guidelines for launching biosimilars (biogenerics) for 4 products, the US has been more ambiguous on this issue. However, recently, a US Senate panel voted to set a path for generic drugmakers to seek approval of generic and cheaper versions of expensive biotechnology medicines. Thus any further progress on this front will be a huge positive for companies such as Biocon and Wockhardt, which are focusing on biotech in a big way. Infact, Cipla, Dr.Reddy's, Ranbaxy and Glenmark have also just made a foray into the biopharma space to capitalise on the potential this field will hold in the future.

    Authorised generics: Authorised generics launched by innovators (either on their own or through partnerships with generic companies) have in the past couple of years been eating into the revenues and profitability earned by the challenging generic company during the 180-day exclusivity period. Thus, any law passed to ban authorised generics will be a positive development for the global generics industry as a whole and thereby domestic pharma companies such as Ranbaxy, Dr.Reddy's and Sun Pharma. However, those companies with a large pipeline of drugs having first-to-file (FTF) status such as Ranbaxy and Dr.Reddy's will stand to benefit the most.

    To sum up...

    While the above-mentioned regulatory changes are expected to impact pharma companies both in India and globally alike, implementation of the same as yet is unclear. Having said that, with the heightened competition in India and the global generics market, any positive outcome on the DPCO, biogenerics and the authorised generics front could further improve the fundamentals of the pharma sector in the future.

     

     

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