US Takes Objection Over The Nexaver’s Generic

The recent move of the Indian Patent office to grant the compulsory license (CL) to Natco pharma has become a worry to the USA. The US commerce secretary has expressed the US concerns over the ruling by the patents office saying that the pharmaceuticals is a very competitive area and heavy investments are required to carry research and development every year.

Natco got a nod for its compulsory license application for the cancer drug Nexaver which is originally made by germen MNC Bayer. Natco will now sell this drug at 97% discount to the original drug price of Rs 2,80,428 per month.

The success of the Natco Pharma has caused anxiety in the MNCs. This also forced Swiss pharma giant, Roche Holding AG, to cut the prices of two of its cancer drugs Herceptin and Mabthera in India starting from the year 2013. The prices of these drugs are about USD 3,000 to USD 4,500 a month per patient. We believe that many other MNCs my follow Roche Holding and cut the prices of their top drugs. Pharma MNCs like Pfizer, GSK pharma, Merck, Allergan, Solvay, Novartis, Eli Lilly, AstraZeneca, Fresenius Kabi, Wyeth etc may see their top drugs at the risk. Even though Indian market is not very big, but the eminent risk would arise if the low cost drugs are being sold in other through the illegal routes.

There are three factors which need to be seen together. First and foremost is that the American MNCs are currently losing patents in USA and hence there is severe price erosion of the products affecting their profits. Secondly the Indian market is giving good growth opportunities to the pharma companies. Thirdly as the Indian population is now moving towards the life style diseases (Cancer, Heart diseases, Diabetes etc) where there are patented products which will earn good revenues for these companies. Looking at this we believe that the US concern over the Nexaver case is towards securing the business interests of its own pharma companies rather than any noble reason.

Having said this, we believe that the MNCs would grant voluntary licenses in order to protect their patents. Voluntary licenses will earn them royalties and will also keep their profits intact. The voluntary licenses would also give an opportunity to the Indian companies going ahead. Another possibility is that these MNCs (if not manufacturing the drugs in India) may start the manufacturing facilities in India which would curb the competition for them.

As far as Natco is concerned, its shares rose sharply to Rs 361 in the week when it received the CL. From this high the scrip has lost 6 per cent to Rs 341 today.