68 i chronicle

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Multinational Pharma companies find their match in India,
Rupee Outlook,
Automobile Sales hit the rock
The Iron Lady -Margaret Thatcher

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68 i chronicle

  1. 1. Investeurs ChronicleApril 2013, Volume: 68
  2. 2. CoverStoryThe rejection of the Novartis petition challenging one of the most progressive tenets of the Indian Patents Act (1970), as amended in 2005 by the Supreme Court, is a landmarkverdict for the public health community and the generic drugs industry, in particular, and for global health. Under the amended Indian Patents Act, Section 3(d) allows drugcompanies to obtain product patents for new salts or chemical ingredients. This is intended to encourage drug companies to protect their rights and prevent these from beingcopied by competitors, allowing for a 20-year protection period to recoup investments. However, Section 3 (d) does not encourage frivolous patents. It is intended to encourageonly breakthrough innovations and discourage new use of known chemical substances or new delivery mechanisms of existing chemical compounds.The Supreme Court’s Novartis judgment (striking down the patent for blood cancer drug Glivec) has given rise to polarized reactions. Patient groups, generic industry, publichealth activists and the government have hailed the decision as ‘landmark’ and ‘historic’. However, global Big Pharma has minced no words in warning that the judgment putspharmaceutical innovation in great danger, especially in India.Critics of the judgment feel there is an element of perceived bias in Indian patent law in its treatment of pharmaceutical inventions. It is easy to align oneself with either of thesetwo positions. It is more difficult, however, to analyse the issue rationally.‘Evergreening’ on the riseIn the absence of proof of inventiveness, the Court was constrained to assume that Novartis was seeking mere ‘evergreening’ of its existing patent. With inventions drying up,drug companies, in their desperation, are trying all the tricks in their repertoire. ‘Ever-greening’ is the easiest of them all, thanks to the indulgence shown towards it by manyWestern governments. That India has dared to defy the might of the multinational drug companies and their governments is galling to them.There are myriad reasons for this decline in ‘breakthrough’ inventions. Prohibitive input costs and the ‘risk’ factor (cost of failed R&D) are the most important.At the same time, it is important to note that patents are proliferating: a decline in new chemical entities (NCEs) has not resulted in a proportional decline in global pharmapatenting behaviour.The research-based global industry is leveraging its monopoly by patenting new forms of known substances without demonstrating their enhanced therapeutic benefits. Newproperties and new uses of known pharmaceutical substances are being patented, often by diluting patentability standards. In legalese, this practice is usually referred to as‘ever-greening’.Evergreening of patents to reap monopoly profits in perpetuity is as reprehensible as evergreening of loans — repay old loan only to seek a fresh one pronto, or repay and seekanother loan for a group company — done by crooks with the connivance of bank officials.Multinational Pharma companies find their match in India
  3. 3. The patent regime, ever since its inception, has spelt compromise for both parties — inventor and consumer. The inventor, in return for making his invention public, isguaranteed monopoly rights over his invention, typically for twenty years, during which he can recover his huge investments on R&D many times over throughunconscionable pricing as well as royalties. No one grudges this, because after 20 years when the invention becomes off-patent, its price would fall dramatically. Thuspatent is a fine balancing act, the one that rewards invention even while taking care of public interest by limiting the monopoly rights to a reasonable period.What has upset this delicate but fair arrangement is the pushing of the envelope by the drug fraternity in the West. Evergreening or its variant, incremental patenting,consists in not unburdening everything on the patent office at one go.The R&D mythThe night before the apex court verdict, Novartis threatened to stop investing in research and development in India, if the verdict went against it. How serious is the threatand how realistic the scenario? In India’s drug production of over Rs. 100,000 crore, Novartis’ turnover is a little over Rs. 1,000 crore, constituting around one per cent. Outof the total expenditure of over Rs 800 crores incurred by Novartis India in 2012, a paltry Rs. 29 lakhs was for R&D, constituting roughly 0.03 per cent of its entireexpenditure in India.Can such low spending can be considered R&D investment? In fact, Novartis R&D expenditure in India for the past five years has been in a similar range. On the other hand,Novartis consistently posted a profitability ratio (Profit After Tax as percentage of Total Income) of over 15 per cent in the last five years, something to envy for othersectors.Big Pharma argues that if global R&D of innovator companies were to be considered, transnational drug corporations spend over US $ one billion to come up with a newdrug. This includes cost of R&D incurred on failed drugs as well, as pharmaceutical companies take, on an average, roughly 12-13 years to get patents on new drugs. Themagic one billion dollar figure is a gross overestimate. Even by conservative calculations, this figure would be one-fifth or one-fourth of the billion dollar estimate. But BigPharma is quick to recoup its R&D spending from blockbuster drugs. Take the case of Gleevec (ImatinibMesylate), sold in the US. Novartis raked in a total turnover of US $1.69 billion from the US alone in 2012 from the drug. The global turnover on Gleevec is anybody’s guess. It is also widely known that the cost of manufacturing drugs is onlya fraction of the turnover.Novartis currently sells Glivec (Gleevec) for Rs. 4,115 per tablet, while Resonance, an Indian generic drug company dispenses it at Rs. 30 per tablet. The annual cost oftreatment per patient on Glivec would be in the range of Rs. 15 lakhs while Indian generic companies are offering it at Rs. 10,000. If Novartis were to get its patent on Glivec,Indian generic companies would have to stop their production, and therefore an unaffordable scenario would have prevailed for the common man in not only India but inother developing countries.CoverStory
  4. 4. Therapeutic efficiencyIt can be argued that the Supreme Court’s decision is geared towards changing thedirection and the pattern of pharmaceutical research in India.Patent incentives will now be aligned towards not merely inventing a new form of aknown compound with some random benefits, but by showing that new forms of theknown substance contribute to some curative benefits as well.After seven years of battle, the Supreme Court verdict seals this issue, facilitating PatentControllers to strictly enforce Section 3 (d), thereby pre-empting pharmaceuticalcompanies that seek to evergreen products. However, there are several other safeguardsthat are enshrined in the patent law that must be utilised to make life-saving and essentialdrugs affordable. And one such key safeguard is invoking compulsory licensing forblockbuster drugs, if the original manufacturer fails to sell it affordable rates.Last year, India invoked the provision to license generic player Natco to produce Nexavar,after Bayer, the innovator failed to make it affordable. Such policy measures are critical, inorder to improve access to life-saving medicines, as households in India are known to paynearly 70 per cent of their health care spending on medicines.CoverStory
  5. 5. RUPEE OUTLOOKFiscal Year 2012-13 has been a bad one as far as performance of Indian Rupee is concerned.The Indian currency hit its all-time low of 57.33 per US dollar in June 2012, setting the tone for the rest of the year. Even as the government and Reserve Bankstepped up efforts to boost the Indian currency, rupee has emerged as one of the worst performers among major global currencies in 2012.The fall of the rupee infiscal year 2013 created many trends in the market. For one, the rupee’s neo-normal exchange rate was established at above 50 a dollar. It also forced importersand borrowers of foreign currency loans to hedge their exposure, something domestic firms have never taken seriously.What makes the situation worse for the currency market is the gaping current account deficit. At 6.7% of gross domestic product, it is at a record and the gap couldwiden. India has always bet on capital flows to bridge its current account deficit (CAD), something that has a direct bearing on the rupee’s exchange rate. If CADwidens, the rupee will depreciate further and easily become one of the worst performing currencies in Asia.The year ended March also saw India paying a huge amount of money towards its external debt in dollars, which put additional pressure on the rupee. As perReserve Bank of India (RBI) estimates, short-term debt obligations worth $1.47 trillion were due in one year from March 2012 and $26,718 million is due by March2014.The Indian rupee may depreciate 10% versus the US dollar by December 2013 as weakness in other Asian currencies converges with Indias fragile externaleconomy and a snail-paced recovery in industrial activity to pummel the currency.The probability of the rupee falling to 60 this year to the US dollar is higher than it moving towards 50 with record foreign fund flows of the last eight monthstapering off. This is largely on account of the boost in sentiment following a rash of reforms failing to translate into real business activity.Tax havenA country that offers foreign individuals andbusinesses little or no tax liability in apolitically and economically stableenvironment.Tax havens also provide little or no financialinformation to foreign tax authorities.Automobile Sales hit the RockStatsOutlook- RupeeGloss
  6. 6. Emerging Country- ChileChile, officially the Republic of Chile is a country in South America occupying a long, narrow strip of land between the AndesMountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east,and the Drake Passage in the far south. The Chilean economy has long been the model for Latin America and maintains the region’shighest credit ratings. In May 2010 Chile became the first South American country to join the OECD.In 2006, Chile became thecountry with the highest nominal GDP per capita in Latin America.The Chilean economy, like Brazil’s, is heavily dependent on commodity exports, especially copper. Copper accounts forapproximately 45% of the country’s export revenues. The windfall from copper represents about 20% of fiscal revenues and 4% ofGDP. While China has recently announced a program to speed up infrastructure and construction projects which should helpsupport copper prices, significant short-term risks remain from headlines out of Europe.The Chiles’ economy is expected to grow 4.5-5.5 percent in 2012, just above the regional average of 3.7%. In recent months, theChilean economy has witnessed increased dynamism bolstered by strong domestic demand. 2013 inflation forecast has beenlowered to 2.8 percent from an initial 2.9 percent.Chile recorded a trade surplus of 1134 USD Million in March of 2013. Chile has been recording trade surpluses since 1999, mostlydue to a rise in shipments of copper. Chile produces more than a third of the worlds copper.Other exports include: services,processed food and chemicals. Main imports are: crude and refined oil, coal, gas and lubricants (19 percent of total imports),machinery and parts (9 percent) and cars, computers, mobile phones and house equipment (8 percent). Main trading partners are:China (24 percent of total exports and 18 percent of imports), United States (12 percent of exports and 23 percent of imports) andBrazil (5 percent of exports and 7 percent of imports). Others include: Italy, Mexico, Netherlands, Colombia and Spain.Foreign investment in Chile is soaring. Foreign direct investment totaled 30.3 billion dollars last year, up 32.2 percent from theprevious year. Most of the money went to the mining sector. In 2012, Chiles top foreign investment sources were the United States,Spain, the British Virgin Islands, Caiman Islands, Canada, Japan and the Netherlands.Chile was the first country in South America to sign a trade agreement with India, in 1956. India and Chile has signed a preferentialtrading agreement in the year 2005. The products on which India has offered tariff concessions relate to meat and fish, rock salt,copper ore and concentrates, chemicals , leather products , newsprint and paper and some industrial products. Chile’s offer coverssome agriculture products, chemicals and pharmaceuticals, dyes and resins, plastic, rubber, textiles and clothing and someindustrial products.Given its credit rating and stability, the country is a core holding in regional allocations providing high risk-adjusted returns. Theoutlook for the Chilean economy is for moderate growth, outperforming Brazil and Argentina but below that of regional peersColombia, Mexico, and Peru on a risk-adjusted basis.Vital Economic Statistics of ChileanEconomyParticulars DetailsGDP (nominal) US$ 299.786 billion(43rd in rank)GDP growth rate 5.6% (2012)Currency PesoCredit Rating Aa3- Moody’sA+ - S&P and FitchFiscal Deficit 1.4% of GDP (2012estimated)Current accountdeficit3.50% of GDP (2012estimated)
  7. 7. In FocusForexSensex Nifty18,864.7518,242.565704.405528.55Gold (10 gm) Silver (1 Kg)29469282245272849449Crude Oil ($/barrel) Dollar/INR110.02102.0254.3954.44The Iron Lady-Margaret Thatcher (1925-2013)Margaret Thatcher, born on 13 October 1925 in Grantham, Lincolnshire, was Britainsfirst female prime minister and served three consecutive terms in office. She was one ofthe most dominant political figures of 20th century Britain. . The nickname "Iron Lady",originally given to her by the Soviets, became associated with her uncompromisingpolitics and leadership styleThe term "Thatcherism" came to refer to her policies as well as aspects of her ethicaloutlook and personal style, including moral absolutism, nationalism, interest in theindividual, and an uncompromising approach to achieving political goal.She was anadvocate of privatizing state-owned industries and utilities, reforming trade unions,lowering taxes and reducing social expenditure across the board. The percentage ofadults owning shares rose from 7% to 25% during her tenure, giving an increase from55 per cent to 67 per cent in owner-occupiers from 1979 to 1990. It is suggested that inconsequence personal wealth rose by 80 per cent in real terms during the 1980s.However, she had to bear a fair Share of Criticism as well .She has been criticized asbeing divisive and for promoting greed and selfishness. Secondly, Thatchers policiessucceeded in reducing inflation, but unemployment dramatically increased during heryears in power.In the 1987 general election, Conservatives again came to power andThatcher won an unprecedented third term in office. But controversial policies,including the poll tax and her opposition to any closer integration with Europe,produced divisions within the Conservative Party which led to a leadership challenge. InNovember 1990, she agreed to resign and was succeeded as party leader and primeminister by John Major.Thatchers tenure of 11 years and 209 days as Prime Minister was the longest since LordSalisbury and the longest continuous period in office since Lord Liverpool . She wasvoted the fourth-greatest British Prime Minister of the 20th century in a poll by MORI,and in 2002 was ranked number 16 in the BBC poll of the 100 Greatest Britons. In 1999,TIME named Thatcher one of the 100 Most Important People of the 20th Century.
  8. 8. About Investeurs Consulting Private LimitedFor a good business, finance is as crucial as vision, management andproduct. Intuitively then Business Finance plays a vital role in thebusiness prosperity. We, at Investeurs Consulting Pvt. Ltd understandand appreciate the vitality of this discipline and the responsibility thatcomes with it.As Business Finance Consultants we realize that finance is an enablerthat contributes significantly towards realizing your business goals.We bring to the table 18 years of vast and vivid exposure to differentbusinesses, a profound understanding of business and financialdynamics and excellent relationship with banks/ financial institutions.Domestic TradeFinance:Negotiation ofInland Letter ofCreditInternational TradeFinance:Buyers’ Credit andSuppliers’ CreditCapitalInvestment:Project Fundingand Term Loan. ***Working CapitalManagementFactoring Private EquityRating AssistanceTeamChronicleAkanksha Srivastava akanksha@investeurs.comNidhi Gogia nidhi@investeurs.comShagun Khivsara shagun@investeurs.comHarpreet Kaur harpreet@investeurs.comDisclaimer: InvesteursChronicles is prepared by Research & Analysis Team of Investeurs Consulting Private Limited to provide the recipient with relevant information pertaining to the world economy. Theinformation contained in the document is based on the releases made by various newspaper & publications; hence, we are not responsible for any inaccuracies in the information provided.Investeurs Consulting P. LimitedS-26,27,28, 3rdFloor,Veera Tower, Green Park Ext. New Delhi-110016,www.investeurs.com

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