Domestic market: The leveller

Sanjiv Shankaran

THE domestic pharmaceutical market is in the midst of a slowdown. It has had a far-reaching impact on the different segments of the sector.

Among the worst affected are the multinationals. They primarily sell drugs in the domestic market. The slowdown has freed them to look at cost-cutting as the most important way of driving profits. Consequently, most MNCs have found their valuations marked down.

The domestic companies too have been affected, but they have been able to mitigate the impact by exporting. In general, exports provide better realisations -- the tax benefit on the export turnover just adds to the returns. Lax patent regulations in parts of Asia, Africa and Latin America have helped a number of companies record impressive growth.

Most MNCs are bound to face difficulties over the next few years. The domestic slowdown shows no signs of going away. Till patent laws are tightened, in 2005, Indian companies can quickly duplicate any patented drug introduced by an MNC. For instance, soon after GlaxoSmithKline introduced drugs to combat the HIV virus, Cipla duplicated it and sold it at a much lower price.

Price-driven competition has taken a toll on the MNCs. Even established MNC brands -- often regarded as their biggest asset -- have been pushed hard by low-price competitors.

Barring the odd MNC, such as Pfizer, most have lost their sheen over the last two years. Perhaps, none more than GlaxoSmithKline.