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Pharma: Wait and see!

Dec 13, 2004

The new patent regime is closing in the Indian pharmaceutical sector in few days from now. From January 2005, it will become applicable and Indian manufacturers will not be able to bring out generic version of patented drugs. Despite the ongoing debate concerning the implications of the patent regime, we believe that such a regime is here to stay. But it may be a refined one. The salient aspects of the 3rd amendment of the patents act are:

  1. It will help India to progress into product patent regime in field of technology.

  2. It will remove the EMR (exclusive marketing rights) provisions from the 2nd patent amendment act.

  3. It will make provisions regarding ‘Compulsory Licensing’ in case of national medical emergency.

  4. It will bring in provisions regarding the extension of patent.

While these are important features, which will ensure an effective patent act in the country, there are political issues, which might hamper the smooth transition. While several section of the government is against the extension of patent clause, we believe that other issues like compulsory licensing will become clearer after the bill is passed in the parliament.

As far as implications on the domestic pharma companies are concerned, investors need to understand that a majority of the branded drugs sold in India are outside the purview of product patents. So, the Indian manufacturers will continue to sell these drugs. Here companies like Cipla, Ranbaxy, Nicholas Piramal and Cadila will take the lead, as they have a strong brand portfolio. But at the same time, the impact on the domestic companies will be more apparent beyond 2007, as new product introduction by these companies might slow down in light of the new product patent law. However, there are some domestic companies, which have started strengthening their domestic field force to keep an option of partnering with MNC companies that do not have a presence in India. Companies like Nicholas Piramal and Cadila Healthcare are well into this process.

In the new regime, MNC pharma companies are likely to benefit the most. These companies will have advantage of their strong drug pipeline of the parent majors in the long run. We do not expect MNC pharmaceutical companies to register immediate gains post 2005. Some companies are planning to immediately launch new products while some have adopted a wait and watch strategy. According to us, companies like Glaxo, Pfizer and Aventis are likely to benefit the most in this scenario. This is also because of their strong marketing network.

This apart, Indian companies will also have opportunities in contract manufacturing, 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.


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