A huge opportunity awaits Indian pharmaceutical companies- if India plays its cards right during the upcoming World Trade Organisation (WTO) negotiations.

A research report by investment bankers JM Morgan Stanley says Indian companies have opportunities in the US$15 billion generics market in the US, and can also expect to capture a part of the US$33 billion market in challenging patents for drugs that have been unduly extended by US and European companies.

Other segments where Indian companies could score are in novel drug delivery systems and subcontracting much of the research to develop new drugs. 

In a document called Vision 21, global consulting firm McKinsey & Co estimated the total market for Indian companies to be around US$25 billion by the end of the decade, up from around US$7 billion now. 

T R Gopalakrishnan, assistant secretary general of the Indian Drug Manufacturers Association, the leading industry body, said: 'Everything boils down to the patent regime that is coming. 

'If there are balanced patent laws that allow Indian companies to export freely as per the Doha Declaration (of the WTO) under conditions agreed upon under Trips (trade-related intellectual property rights), the going will be good. But non-trade barriers should not be allowed to distort trade.'

Under the 1970 Indian Patent Act, pharmaceutical companies in India used 'reverse engineering' to manufacture drugs to bypass US patent laws. This has enabled them to manufacture drugs for the Indian market at less than one-tenth the cost in the West. 

But multinational companies have vigorously opposed Indian companies' attempts to develop cheaper drugs, including anti-Aids drugs. Indian companies like Cipla could sell an anti-Aids drug in Africa for as little as US$250 for a year's treatment compared to a cost to the patient of US$15,000 a year using Western formulations. 

William Haddard, a US expert on generic drugs, commented: 'The poor nations of the world now look to India to provide them with safe, effective and affordable medicines. But it is ironic that India, with enormous problems of its own, should be the hope of the Third World.'

US and European pharmaceutical companies, meanwhile, have been furious at the enormous loss in profits, and the matter has not yet been fully settled despite the acrimony. With the rules of the game changing in 2005 - when patent laws are to be more strictly enforced - the fine print of the new rules will become more important.

Some points of contention are compulsory licensing to manufacture drugs in developing countries in times of emergency, and whether the cut-off date for allowing the manufacture of patented drugs by third countries is 1995 or 2005. 

If India handles its case at the WTO well, there could be tremendous opportunities after 2005. Drugs with an annual sale of some US$55 billion to US$65 billion are going off patent in the next five years. But the patent holders can be counted on to try all manner of stratagems to extend the patent periods.

Despite price erosion to around one-forth the original price, the market is still worth around US$15 billion, and Indian companies should be able to capture at least part of this potential. 

Indian companies could also be a subcontractor for the testing of a new drug. It costs some US$600 million to US$900 million to develop a new molecule, much of this cost in testing. A McKinsey & Co. report says Indian companies could get a chunk of this by conducting clinical trials.

Bioinformatics is also a very promising area with a market potential of US$2 billion. While India has been lax in exploiting the potential of its indigenous herbal systems of medicine, this could change in the next decade.