Summary
The extremely promising Indian pharmaceutical market is at risk of losing foreign investment if it does not upgrade its intellectual property framework to international standards. Demonstrating this, following its defeat in the August 2007 court case, Swiss multinational Novartis announced that it would reduce investment in the country in favour of regional rival China. Nevertheless, India presents numerous opportunities for drugmakers, such as low-cost manufacturing. For the US$11.2bn market, BMI is projecting CAGR of 7.93% through to 2011.
The court case with Novartis involved the company arguing that India's patent laws were unconstitutional. Novartis claimed that the legislation, which restricts the issuing of patents to products that provide more than 'incremental' improvements, contradicted international trade laws. However, the court rejected the challenge on the ground that it does not have jurisdiction over whether Indian patent regulations are in compliance with World Trade Organisation (WTO) rules.
Subsequently, a leading representative of the WTO said that India must update its patent laws to international standards, thereby truly encouraging and rewarding innovation. It is BMI's view that the change is inevitable as the reform will benefit domestic drugmakers, which are increasingly involved in R&D, as well as foreign players. If changes are not undertaken, investment in the country will fall, severely hampering economic development.
Meanwhile, The Federation of Indian Chambers of Commerce and Industry (FICCI) believes that it would cost approximately US$200bn over the next five years to solve the crisis in Indian healthcare. According to study conducted by the FICCI, even though 72% of India's population lives in rural areas, 80% of doctors, 75% of dispensaries and 60% of hospitals are in urban areas.
India's retail pharmacy market is highly fragmented and dominated by archaic independent kiosks. Modernisation is the emerging trend and the ultimate consequence of this is consolidation of small players, instigated by the large chains. Furthermore, operators are expanding out of the historical middleclass customer base to the challenging low-income demographic, both in rural areas and urban conurbations. Low margins are to be expected but increased brand awareness to vast numbers of new consumers will ensure long-term stability and growth.
The market for prescription anti-obesity medicines in India is expected to achieve phenomenal 50% yearon-year growth over the next five years, making it the most attractive pharmaceutical industry sub-sector in BMI's universe. Multinationals such as Roche, Sanofi-Aventis and Abbott Laboratories will reap some returns with their patented products, but local generic drug companies - such as Torrent and Zydus Cadila - are destined to capture greater market share.
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