A Passage to India?

Benjamin Franklin once said that nothing is certain but death and taxes. These days, at least one other certainty seems to have been added to the American experience -- rising health-care costs. That seemingly preordained future may not be so inevitable, however, at least in regard to prescription drugs. For companies that are willing to take advantage of an exciting development in India, the payoff could be substantial.

It's understandable that prescription medicines have taken center stage in the health-care debate. The U.S. is the world's largest prescription drug market, and spending on medicines is growing fast. Firms like MedcoHealth Solutions (NYSE: MHS  ) , Express Scripts (Nasdaq: ESRX  ) , and Caremark Rx (NYSE: CMX  ) specialize in keeping this growth in check, but nonetheless, the spending tide rolls on. Ever larger drug bills seem inevitable.

The prescription drug story, though, could soon collide with new dynamics created by globalization. For years now, Wal-Mart, J.C. Penney, Nike, and others have tapped low-cost production in China and other developing countries to deliver cheap goods to U.S. consumers and generate hefty profits for themselves. This model may soon be employed on an unprecedented scale in the drug segment.

In many respects, India is fertile ground for both pharmaceutical and biotech investment, given the country's loads of highly educated citizens who are willing to work for far less than their American counterparts. Until recently, though, India has been a problem because of its intellectual-property regime. Indian patent law allowed companies to copy and sell other firms' drugs as long as each firm used different manufacturing processes. Thus, U.S. drugmakers investing in India ran the risk that Indian drug outfits would reverse-engineer medicines that originally required years and millions of dollars in research and development to create.

Now, though, in connection with its 1994 entrance into the World Trade Organization, India has adopted legislation to conform to the WTO's Trade-Related Aspects of Intellectual Property Rights agreement. Indian law will now enforce patent rules that will make copying far more difficult.

The change could bring huge benefits for companies willing to exploit it. Giants like Pfizer (NYSE: PFE  ) , Amgen (Nasdaq: AMGN  ) , and GlaxoSmithKline (NYSE: GSK  ) certainly have the resources. Outsourcing service providers like PPD (Nasdaq: PPDI  ) , Albany Molecular Research, and Cambrex likewise may consider more investments in India. Investors should be on the lookout for the firms that seek to leverage these new opportunities.

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.

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