Pharma leaders Ranbaxy and Dr Reddy's were striking gainers today as the U.S. adopts a policy to bring cheaper drugs to the public.

Dr Reddy's Labs (DRL), in fact, proved the biggest gainer in the 30-share BSE Sensex, up 4.18% to Rs 1,001. Ranbaxy climbed 1.22% to Rs 731.55.

A latest propposed move by the U.S. government could imply that Indian generic drugmakers would be in a position to launch their drugs more quickly in the US markets and with less protocol involved.

This will prove a boon for Ranbaxy, which is awaiting approvals for over 30 applications. Dr. Reddy's has 23 pending applications, including 10 patent challenges. If the new rule comes into effect, Indian pharma companies will be major beneficiaries as the time involving the launch will be reduced by at least 10 months.

The incidence of litigation will also come down because a lot of patents will not be accepted and therefore legal costs for the challengers will reduce.

On 12 June 2003, the Food and Drug Administration (FDA) announced new regulations and review procedures to streamline the process for making safe, effective generic drugs available to consumers. The new rule will limit a drug company to only one 30-month "stay" of a generic drug's entry into the market for resolution of a patent challenge.

The FDA is also implementing changes in its review procedures intended to help improve the speed and reduce the cost of determining that a new generic drug is safe and effective, and therefore can be made available to patients.

The changes in the regulations alone will save consumers an estimated $35 billion over 10 years through more quickly available generic alternatives to certain more costly brand-name drugs , by avoiding time-consuming legal delays. The improvements in the efficiency of review procedures, which will require changes by both FDA and generic manufacturers to improve the review process, are expected to save consumers billions more by generally reducing the time for approving new generic drugs.

In addition, there's also talk that the uniform Value Added Tax rate of 12.5%, which was expected to be implemented by 1 April 2003 has been postponed further thus helping the pharmaceutical companies.

The current rate of sales tax is around 7 to 8% on an average, across the country. However, the uniform VAT is fixed at 12.5%. In addition, considering the trade discounts and commissions, the effective rate is likely to be around 15.5%. Therefore, postponement of VAT is expected to benefit pharma companies.

In fact, both DRL and Ranbaxy as well as dealers believe strongly  that even the government is not clear about the modalities of imposition of the VAT regime. As a result, VAT imposition may take longer than expected.

For the quarter ended 31 March 2003, DRL posted a net profit of Rs 119.59 crore (Rs 101.18 crore) on a total income increase of Rs 414.35 crore (Rs 403.12 crore). Ranbaxy registered a massive 195% rise in net profit to Rs 279.8 crore (Rs 94.9 crore) on 94% increase in net sales to Rs 1,024.9 crore (Rs 528.9 crore) for the same quarter.