Typically, a drug patent lasts for 20 years, during which the innovator company enjoys a monopoly on the market and thus earns a premium on the price of that drug. This period of exclusivity allows companies to maximize their revenues, profits, and overall growth.
When the patent expires, the other generic drug manufacturers They enter the game and are allowed to produce and sell the same drug under a different brand name. Due to the sudden influx of manufacturers, production volumes of the drug skyrocket, ultimately leading to lower manufacturing costs and a lower price of the final drug.
The impact on the pharmaceutical industry
This industry runs on a wheel of research and development, but the patent cliff presents a significant challenge for global innovative companies. When the patent on a high-yield drug expires, it faces a drastic decline in revenue. To be more precise, during the patent cliff of 2010, some companies were forced to withdraw their patents. innovative companies recorded a drop in revenue of up to 90%.
PfizerThe cholesterol-lowering drug Lipitor lost its patent protection in 2011. Eli Lilly’s Zyprexa, used to treat schizophrenia and bipolar disorder, and Bristol-Myers Squibb’s Plavix, a widely used blood thinner, met similar fates around the same time.
Between 2011 and 2016, patents on drugs worth more than $100 billion expired, but this is where the story gets interesting for Indian investors.
Opportunities for Indian pharmaceutical companies
While the patent chasm poses challenges for innovative companies, it also creates significant opportunities for generic drug manufacturers around the world, particularly those based in India. When a drug’s patent expires, generic companies can produce bioequivalent versions of the drug at a fraction of the original price. This not only makes the drug more accessible to patients, but also allows generic manufacturers to strengthen their finances.
India, one of the world’s largest producers of generic drugs, is likely to benefit greatly from the looming patent crisis. With over 60,000 different generic brands across 60 therapeutic categories, Indian pharmaceutical companies have already established themselves as a key player in the market. global marketIn FY23, India Pharmaceutical exports exceeded $25 billion and the future looks even brighter.
Looking ahead: the patent chasm and investment opportunities
We are in the midst of a massive patent expiry, with over $200 billion worth of drugs due by 2030. This presents a golden opportunity for investors to tap into the growth potential of Indian generic pharmaceutical companies..
He Nifty Pharma Index outperformed the Dow Jones Pharma Index between 2010 and 2015. During this period, the Dow Jones Pharma Index grew by 99%, while the Skilled The pharmaceutical index rose 219%, doubling its profitability.
The ratio chart below illustrates this trend. The Nifty Pharma index outperformed the NASDAQ VANECK Pharma ETF from 2009 to 2016, after which the sector showed slow momentum and moved sideways for the next 7 years. However, the Nifty Pharma sector has started to recover in the last few months and broke its previous high in June 2024. This current rally and the continued patent chasm are pointing to the strong growth potential of the sector. Indian Pharmaceutical Sector.
India is expected to play a crucial role in the global pharmaceutical market in the coming years. The Indian pharmaceutical sector is likely to grow at a CAGR of 12-16% during the period 2024-30, while the global pharmaceutical sector is likely to grow at a CAGR of 6-8% during the same period.
The Federation of Indian Chambers of Commerce and Industry (FICCI) estimates that the size of the Indian market Pharmaceutical industry will reach $130 billion by 2030. Since India exports about 30% of its total pharmaceutical exports to the United States, the world’s largest pharmaceutical market, the potential for growth is enormous.
The patent cliff may be a challenge for some, but for those who see the potential in the Indian pharmaceutical sector, it represents an opportunity for significant gains.
Technical perspective:
ETMarkets.comThe Nifty closed at 25,236 on Friday, up 1.66% for the week and 1.14% for the month. After a period of consolidation in mid-August, the Nifty bounced back strongly and advanced for 12 consecutive sessions.
The daily chart reveals a breakout of a diamond pattern, with the rally gaining strength. Nifty is now positioned above all short-term moving averages, while the daily RSI remains strong near the 70 level. Sector-wise, Nifty IT is up 4.13% during the week, strengthening the bullish momentum of the index.
Global markets are maintaining a positive tone, which the domestic market has effectively reflected. India’s VIX is currently at 13.39 and remains below the 15-mark, hence there would be a mixed outlook. Overall, Nifty is expected to trade sideways with a positive bias. Important support lies around 25,000 levels.
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