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Pharma: New product introduction... - Views on News from Equitymaster
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  • Aug 28, 2007

    Pharma: New product introduction...

    The introduction of the product patent law has led the Indian pharma companies to adopt a host of strategies to augment their revenue streams and sustain the pace of new product launches especially in the domestic market. It is expected that while there is not likely to be any significant impact in the medium term, in the long term, the number of new product launches especially from domestic pharma companies are expected to slow down as they can no longer bank on reverse engineering of drugs. At the same time MNC pharma companies are expected to accelerate the pace of new product launches from their parent's folio. In this article, we shall take a look at the strategies being adopted by companies to launch new products in the domestic market.

    New chemical entity (NCE): Though no significant benefits will accrue from new drug discovery research in the short term, from a long-term perspective, if a drug is successful, then the potential upside in terms of revenues and profitability is huge. No major domestic company focused on R&D from 1970 till the early 90s due to the process patent law prevalent in India. However, in anticipation of the product patent law 2005 onwards, domestic pharma companies such as Ranbaxy, Dr.Reddy's, Glenmark Pharma, Biocon and Wockhardt began focusing on building an R&D programme from the mid 90s.

    However, the programmes of these companies are still in the nascent stages in comparison to their global counterparts. The riskiness for domestic companies is also higher, as they have only four to five molecules in the pre-clinical stages, which is considerably lesser than their global peers. Having said that, last month, Dr.Reddy's anti-diabetic molecule 'Balaglitazone' reached the Phase III clinical trials and is the first drug from any domestic pharma company to reach this stage.

    In-licensing of drugs: Given the fact that most of the domestic pharma companies have started their R&D programme, it will be a while before an NCE gets launched commercially in the market. In fact, the earliest possible launch date is not expected to be before 2009/2010. In the meanwhile, to keep up the pace of growth, Indian pharma companies are looking to adopt the in-licensing route to launch new products. Alliances are generally struck with global innovator companies, who do not have a strong presence in the Indian market. These companies, rather than building a presence from scratch, are partnering with Indian companies, as the latter have strong marketing and distribution networks in place in India. Thus, global companies are looking to leverage the same to increase the reach and consequently, revenues from its products. This is a beneficial arrangement for Indian companies too, as they can have a share in the revenues generated from these in-licensed products and further strengthen their presence in the domestic market.

    Launching from parent's folio: With the introduction of the product patent law, product launches by MNC pharma from their respective parent's folio is set to accelerate. While certain pre-1995 patented products have been launched in the Indian markets, post-1995 patented launches will most likely take place after 2007. Therefore post 2007, the value of the Indian pharma market is expected to be significantly higher than the market value at present.

    That said, pricing of these drugs will be the key factor to watch out for going forward. It must be noted that the government is likely to subject patented drugs of MNCs to price negotiation, while those of the domestic companies could be exempted. The rationale behind this move seems to be the fact that for MNC companies, India is just one of their many global markets to recoup R&D costs, while domestic companies are likely to receive differential treatment to promote indigenous research.

    To sum up...
    We believe that with the ushering of the patent law in the country, companies investing in R&D will stand to benefit in the long-term despite the risks involved. Considering that Indian companies do not have the resources and the money required to invest in the entire stage of development of the molecules, we remain positive on the partnership strategies followed by these companies. Similarly, in-licensing of molecules will also enable both domestic and MNC companies to keep up the pace of new product launches going forward.



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