IIPM-The Indian Institute of Planning and Management

While drug makers around the world are lamenting the death of their patent rights on many blockbusters, there is a certain tribe smiling about it – the Indian generic tribe by Steven Philip Warner

So how can Indian pharmacos leverage the opportunity ahead? Says Atul Sobti, CEO, Ranbaxy to B&E, “The opportunity is huge but a lot depends on how you exploit it. Recently we launched an authorised generic of Ocycodone ER tablets (pain reliever), which has been a huge success. Similarly the opportunity that we get through Daichi in Japan’s Generic market is also huge.” Experts like Sanjay K. Singh, Associate Director, KPMG comment to B&E that it has to be a three-pronged move ahead: First, in the coming five years, Indian companies can launch bio-equivalent generic products upon expiry of patents and take Paragraph IV filings route to challenge existing patents or file non-infringing products to launch generics with 180 days exclusivity. Second, as products go off-patent, MNCs look at cheaper manufactuirng options and will look to enter into manufacturing & supply arrangements with Indian companies. Third, emerging markets continue to grow at 10%+ growth rates and are branded generic markets. Indian pharma can further strengthen its presence in these markets.

There are over 100 USFDA approved drug-manufacturing units in India that represent the swarm willing to strip all opportunities to the bone, and this is just a modest expression of what the Indian players have in mind. Indian drugmakers have captured $23.6 billion of the $110 billion value of drugs that went-off patent since 2005, and if history is some proof, then of the $200 billion worth drugs that will lost patent rights by 2014 (as forecasted by Datamonitor), Indian drug manufacturers would atleast be looking at a windfall of $34.32 billion over the next six years, making it the world’s third-largest by value, at $63.42 billion and the highest by volumes by 2016 after US and Japan. Says Adige of Ranbaxy, “The Indian pharmaceutical market will continue to observe double digit growth in the coming years. With increasing incidence of lifestyle diseases, rising disposable incomes, a growing middle class, greater penetration of health insurance and expanding medical infrastructure, India’s consumption of pharmaceutical products will go up.” Indian companies should therefore look to increase their manufacturing capacity in order to meet the likely increase in demand. Indian companies could also look at potential acquisitions that could enhance their capacity as well as reach. But that’s a simplistic view, given cash flows.

For Indian generic drug companies, the news regarding expiry of patents will prove a double blessing – the first is that the imminent bagful of revenues comes minus any headache (Companies like Sun Pharma openly tell B&E they’re happy to be a generics company). Secondly, it’s also an emotional boost (“especially for countries which have a large base of generic manufacturers. India is one such country,” says Kumar of Datamonitor). But there are considerable cynics too, like US-based pharma analyst John Anthony, who while speaking from Massachusetts tells B&E, “You can’t lead by following a dying strategy: generics are the K-Mart part of the Wall-Mart curve. You don’t lead by following and you must innovate to generate income over the long term.” But that criticism cannot succeed in wishing away the future growth of generics and the subsequent fall in drug prices. The October 2009 report titled, ‘The Effect of Patent Expiration on Drug Prices...’ states, that once generic competitors enter the market, “the prices of formerly patent-protected drugs and the marketing expenditures on their behalf fall by about 60%.”

For the Benjamin Buttons, over the next few years (by the time their drug-discover pipeline gets some life-saving batteries that sets their clocks ticking clockwise), they could take two routes to salvation – either acquire generic players at good prices (an idea mooted to B&E enthusiastically by players like Sunil Bhaskaran, MD, Indus Biotech), or take a lesson or two from the GSKs & the J&Js – that is, investing in low-cost R&D developing the ‘diet & digestive’ clan of pills (that is, the body care variety) and non-expensive “patented” re-packaging of baby products for a start.

Steven Philip Warner

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Source : IIPM Editorial, 2010.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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