Pharma sector's mixed bag of fortunes

In the same league as the last couple of years, 2007 also saw a handful of overseas acquisitions by home-grown drug companies.

But dampening some of the pharma industry's optimism this year were developments back home, including the suggestion of increased government-control on medicine that hovers over the segment.

It has been a story of mixed fortunes for the estimated over Rs 60,000-crore pharmaceutical industry, with the highs including more than half-a-dozen acquisitions in markets as varied as France, Italy Japan and Thailand. But this comes even as the industry's second largest deal, a $454-million proposal by Sun Pharma to acquire Israeli generics company Taro is pending closure, with a few issues including concerns raised by minority share-holders yet to be ironed-out.

It also was the year that the product-patent regime that came into effect in 2005 started getting implemented on the ground. Following the rejection of Novartis' patent application on its cancer-drug Glivec in January 2006, the company had entered into a legal battle at the Madras High Court (HC). The Swiss drugcompany, in separate litigations at the Madras HC, had challenged the patent application rejection and also provisions of Section 3 (d) of the Indian Patents Act based on which the patent application had been rejected.

But 2007 saw a judgment from the Madras HC, upholding Section 3 (d) of the Indian Patents Act that disallowed incremental innovation from being patented, unless the innovator proved that it significantly increased therapeutic efficacy of the drug. Patientgroups like the Cancer Patients Aid Association, one of the stake-holders in the Glivec case, expressed relief as now frivolous extensions on existing medicines would not be given a patent monopoly.

Another case filed by Novartis over the initial rejection of its patent application on Glivec, has also seen some progress this year. Novartis had appealed against the appointment of the former Patent Controller Mr S. Chandrasekaran on the Intellectual Property Appellate Board (IPAB), that was to look into the case.

The contention being that the former Patent Controller was heading the Patent Office when it originally rejected Novartis' patent application in January 2006.
This case will also spill into the forthcoming year, with the Madras HC ruling that a twomember Bench comprising the Chairman and Vice-Chairman of the IPAB could look into the rejection of Novartis' patent application on Glivec.

Besides grappling with the product-patent regime, price has been the other constant concern for drug-makers, be it in global markets like the US or in the local market.

In the US, for instance, companies have been witnessing the erosion of prices to over 90 per cent when a medicine completed its patented life and became a generic medicine.

This was because a slew of drug companies jumped onto the band-wagon to produce amedicine when its patent ran out after a period of 20 years of exclusivity that is envisaged in a patent.
To deal with such pricing pressures, companies of all hues were fanning out into other regulated and un-regulated markets.

Adding to the pricing concerns of the export market was the strong Rupee. Exports account for revenues of over Rs 30,000 crore, according to industry estimates, and exportoriented companies have braced themselves for the changing currency climate, given the rupee backdrop.

Medicine prices have been on the radar of the Government as well, with a Group of Ministers looking into the proposed Pharmaceutical Policy.

And with the policy still fluid, it inhibits investment plans of companies, especially midsized companies that put their might behind products with good revenue-earning prospects.
Moving away from its earlier stated intent of reducing the span of price-control, the Centre now seems to want more drugs under price control.

And that seems to worry the pharmaceutical industry that believes that competition is the best leveller and Government should play a monitoring role and intervene only when it witnesses unnatural behaviour in prices.

Navigating through fluctuating fortunes, the silver lining for drug companies came from the accent on research. A host of drug companies, including Sun Pharma, Nicholas Piramal and Ranbaxy have kicked-off the demerger of their research.

The rationale behind the move vary from looking to give investors a choice of participating in an innovative company, to de-risking the pharma business to bringing in more investments as more drug molecules get into undertaking clinical trials.

The initiative to demerge research was seen in larger companies with prospective drug molecules in their pipeline, looking to bring into the market a locally developed drug.
Meanwhile, Sun Pharma got its innovative research company listed this year, and the rest are slated for listing in the coming year, even as pharma grape-vine has it that more drug companies are evaluating plans to demerge their research entity.

On a different track, Glenmark realigned its entire generic and innovative businesses, as opposed to merely demerging just the research entity. How the different research-oriented strategies will play out is something that will unravel with time.

Given the fluctuating fortunes, if there is anything that the pharmaceutical industry seeks in 2008, it would be clarity on issues like pricing and other regulatory issues. A growth prescription for the pharmaceutical industry, even as the Centre grapples with making medicines affordable and accessible to more people in the country.

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