Pharma Voice

Strategies for the product patent regime

Implementation of the product patent regime calls for a change in strategies. The most important aspect seems to be better asset utilisation policies

Dr GBRK Prasad

The Indian pharma industry has become globally competitive and is a force to reckon with in the global competition. However, one should recognise the fact that product patent regime would slow down the growth of industry and act as a retarding force for the growth. The speed of introduction of new products in domestic and unregulated markets would be at a rate lesser than that of before the product patent is introduced.

Currently, the domestic industry is of the size of $5 billion and the 15th largest market by sales, but fourth by volume of product. What this industry needs is a booster in terms of strategy, which can make it a winner in the global space. Considering the above facts, a company which has a strong product pipeline, keeping in view the manufacturing complexities and competitive pressures will emerge as a winner in this race. For example, a company which has strong domestic base and market, would be able to exploit its strengths by focusing attention on regulated markets and is most likely to emerge as a winner in this segment, will also be leveraging its volumes and designing a manufacturing strategy, which is cost competitive. Considering the regulatory approvals and implementing the same for FDA approvals, majority of companies have experienced that their cost of goods sold (COGS) has increased from 15 percent to 20 percent.

Pharma companies can make use of the new opportunities arising out of the introduction of product patent regime in India by asking relevant questions. Strategies and opportunities provided for all companies uniformly based on product patent regime are as follows:

1) Products with end to end value chain integration should be given higher preference for service, ie. products which are manufactured from API to generic stage/formulations stage should be given preference for cost reduction and benefits of large market size. Backward integration to API for every generic drug would mitigate and counteract on generic drug pricing pressure.
2) Companies should pursue an IP policy of launching before 2005 many products for domestic market for post 1995 molecules. This at least would have strengthened company's case in the domestic market. The utility of this thought is marginal now, as it is post dated.
3) Identify companies which do not have presence in India and target their products for launch through alliances and in-licensing.
4) Identify products which have access to regulated markets and their market share versus the same product with higher market share in less regulated markets. This may increase sales and improve profitability.
5) Companies should set up a mechanism to monitor global launches of drugs by innovator companies after 1995. One can successfully contest these if they are not launched in three years period at a reasonable cost in India after global launch. One should try and monitor these launches and track them.
6) Companies should focus on in-licensing in specific therapeutic areas as focus areas rather than attempting at everything.

Apart from the above, Indian companies, which adopt collaborations with innovator companies and launch generic drugs would find the business attractive as proved in the case of Dr Reddy's Laboratories. Going forward, Indian pharma companies would not be able to raise the necessary capital for enhancing their manufacturing capacities and build additional capacity at competitive terms. A company that realises this and adopts a strategy of lean manufacturing and improves its asset base utilisation on meaningful terms and metrics would emerge as a winner. The strategy to be decided is not singular in context and has to focus on multi-dimensional decision making approach. For example, companies have to focus their investment plans as follows:

• For supporting and strengthening their R&D expenditure
• New manufacturing capacities etc have to be incurred through an efficient and effective capital goods procurement process

Whereas R& D expenditure is a must and requires careful allocation of priorities with existing body of knowledge and leveraging the same, it is crucial that capex plans of companies be carefully curtailed through better asset utilisation policies. Firms have to develop meaningful metrics to measure plant productivity and asset utilisation and find out if there is scope for further improvement. It is noticed that most of the time the industry gets into the habit of large capital investment plants for their plants because of process patent regime. Emphasis now needs to be put on asset productivity. For example, the sales to gross fixed assets ratio needs to be calculated and monitored periodically. However, there will be variability in this parameter due to the timelag of investments and they becoming productive in regular operation and the same needs to be put down to the minimum.

(The author is a pharma professional)