Foreign Investment in Indian Pharmaceuticals Surging

According to official statistics, annual foreign investment in India's drug sector increased by nearly six times in 2004, reaching a total US$340mn. Government studies show that the pharmaceutical sector is now the country's leading target for foreign direct investment, indicating that the local industry is seeing benefits from the new WTO-compliant Patent Law. Significantly, minority stakes in Indian drugmakers acquired by foreign private equity firms accounted for much of last year's total.

However, India's new intellectual property environment poses some key challenges for local companies, as generic product pipelines shrink and multinational competition intensifies. New product launches currently account for roughly half of Indian companies' annual revenues, although the new patent regime is now likely to ensure that multinationals launch most of their leading products in India within the next few years.

Despite words of warning from local observers, opportunities still exist for Indian drug companies. Assuming that the Indian sector's current wave of joint ventures and alliances bears fruit, local producers will be well-positioned to develop and market products for locally prevalent diseases which have gone largely overlooked by the multinationals. Compulsory licensing provisions in the Patent Law could also allow exports of HIV/AIDS generics to lower-income countries to continue.

Meanwhile, there is evidence that Indian companies are moving to increase their financial resources and build drug development. Some INR60bn (US$1.37bn) has recently been raised to finance local company expansion, and the value of India's biotech sector has reportedly increased by 39%, reaching a value of US$705mn, during the 2003-2004 financial year. In 2005 alone, the country's biogenerics industry is expected to grow 43% INR13.05bn (US$298.27mn) over 2001.