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Pharma: How crucial is 2005 - Views on News from Equitymaster
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  • Dec 4, 2003

    Pharma: How crucial is 2005

    2005 is expected to be a landmark year for the domestic pharma industry as product patents will become applicable and Indian manufacturers will not be able to bring out generic version of patented drugs. In view of the above, there is a perception that domestic pharma companies are doomed post 2005. In this article we shall give you a brief view of how the patent regime has evolved in India and how correct the above perception is.

    The fortunes of the Indian pharmaceutical industry are significantly influenced by the regulatory structure under which it operates. While the prices are controlled by the DPCO (Drug Price Control Order), patents on the drugs are governed by The Indian Patent Act, 1970. Although the Indian Patents Act, 1970, was a first step towards the recognition of intellectual property in India, the objective of providing drugs to all at an affordable price ensured that the Act recognized only process patents and not product patents.

    Absence of product patents resulted in domestic manufacturers making generic version of patented drugs, which were sold at very low prices. Gradually, the domestic pharma companies ate into MNC Pharma Company's market share. However, subsequently, India became a signatory to WTO resolution on TRIPS agreement. Consequently, India is required to recognize product patents by bringing about the necessary amendments to The Indian Patent Act, 1970.

    As a step in this direction, the Indian government passed The Patents (Second Amendment) Amendment Bill, 1999. As per the new Act, although application for product patents will be accepted, the same will be processed only after 1st January 2005. Until then, Exclusive Marketing Rights (EMR) would be granted to such products.

    EMR will give the right holder exclusive right to sell or distribute the drug or medicine for a period of five years or till the grant of a patent. However, EMR will be granted only incase of those drugs for which patent application has been filed after 1st January '95. Given that it takes roughly 8 - 10 years for a patented drug to come to the market, very few drugs actually qualified for EMR. Moreover, since the amendment was introduced, not a single EMR for a drug was granted by the Patent office. This raised doubts regarding the commitment of government regarding moving towards a patent regime.

    However, the recent grant of EMR (the first for a pharma company) to Novartis for its anti-cancer drug 'Glivec' has reinstated faith in government's commitment towards the patent regime. However, the grant was not without opposition from domestic drug manufacturers on technical and legal grounds. Thus, while granting of EMR has silenced those who might argue that the government is not serious about implementation of product patents post 2005, the opposition that the EMR approval has received from domestic pharma industry has certainly indicated that bringing a third amendment to The Patent Act, 1970 will not be easy.

    As far as implications of the implementation of product patents on the domestic pharma companies is concerned, investors need to understand that with a majority of the branded drugs sold in India are outside the purview of product patents (since product patents will be granted only to those drugs that are patented post '95), the Indian manufacturers will continue to sell these drugs. However, the impact of product patents will be felt once new products patented post '95 enter the domestic market, as the Indian companies will not be able to manufacture generics version of the same.

    This apart, the Indian companies will also have opportunities in contract manufacturing and contract research and co-marketing. Further, R&D initiatives undertaken by Indian pharma companies could see the launch of innovative drugs by these companies. Moreover, the potential of the global generics market, given the fact that majority of the block buster drugs are expected to go off patent in the next few years, is also a good opportunity for domestic pharma companies. Thus, although a third amendment to the Patent Act is eminent, all is not lost for the domestic pharma companies. Instead of worrying about the introduction of patent regime, investors need to carefully study the strategy adopted by individual companies for countering the 2005 threat.



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