| The pill pops
Mumbai, June 17: The Cassandras have started to question the Big Indian Pharma Dream — and are worrying about its fallout. Indian pharmaceutical companies have been looking to grab the opportunities being thrown up by the expiring patents for the world’s blockbuster drugs.
This mad scramble has brightened the prospects of raking in big bucks — but it has also raised the spectre of shrinking margins with the inevitable commoditisation of generic drugs. A generic drug is identical to its brand-name rival in dosage form, safety, performance characteristics and the intended use.
This concern is now growing with G. V. Prasad, CEO of Dr Reddy’s Labs, admitting to analysts that significant erosions have taken place in products like Ciprofloxacin.
Prasad, pointing to the “gold-rush” from India in global pharmaceutical ingredient (API) and generics, said even innovators were authorising another firm to launch a generic version of their key drugs.
Even in the 180-day exclusivity period after the expiry of a patent, there are far more players in business. Earlier, only one company was allowed to get in.
Indian companies, which have targeted the lucrative US generic market on hopes of a huge gain arising from the expiry of patents over the next decade, now jostle with many rivals making the same formulation. For instance, DRL was the lone player to obtain exclusivity for the sale of generic version of Eli Lilly’s Prozac, but sources say conditions have changed since then.
“There have been some changes in the regulations whereby more than one company is now capable of obtaining product exclusivity for 180 days,” a senior official from a research-based pharmaceutical firm said.
To market a generic drug, companies have to submit an abbreviated new drug application (ANDA). The company that is first to file such an application on expiry of a patent is granted a 180-day exclusivity from the day it begins marketing the product. Others with similar versions of the same drug are not allowed to sell.
Giving an instance of the increasing commoditisation that has happened because of the the presence of a large number of players, Prasad said 13 generic companies received approval for ciprofloxacin. On the day it hit the market, the competition resulted in a deep erosion of prices, forcing generic players to sell it at a loss to distributors.
The FIIs who have staked out big bets on drug makers are aware of the downside too. CLSA, a foreign fund with large investments in pharmaceutical stocks, said in its recent research note that “the ability of generic companies to sustain growth momentum, both in terms of revenues and profits, is at a rising risk”.
The report says the rise in authorised generics — more than 20 in the recent past — by branded players has made it re-think the notion that competition would be restricted in a way that would keep margins healthy.
CLSA also submitted other examples about commoditisation. A case in point relates to the drug benazepril, where more than eight generic companies launched it and prices crashed 95 per cent on launch day.
The report says 10 firms have tentative approvals on Pfizer’s fluconazole. Prices are estimated to fall 90 per cent when they launch it together on July 29.
The fears did not bypass the markets, where most pharmaceutical shares weakened. DRL lost Rs 35.70 at Rs 754.95, Ranbaxy Rs 32.80 at Rs 965, Cipla Rs 5.70 at Rs 210.45 and Wockhardt Rs 15.15 at Rs 248.10.