Indian Pharma - Clouds on ...

Indian Pharmaceutical industry has been one of the high performing sectors of the Indian economy for the last some years mainly on account of its export oriented growth. Top companies like Ranbaxy, Dr. Reddy's, Cipla, Lupin, Sun Pharma, etc. have been exporting more than 50 per cent of their production to the developed countries for years with attractive margins despite competition from other generic players. Several medium and small scale pharma companies had also jumped to the export bandwagon later. A study of 75 listed Indian pharmaceutical companies during 2006-07 reported a 44.5 per cent growth in net profits and a 23.5 per cent growth in sales during 2006-07. Such excellent performance was possible for this industry because of the export oriented growth by way of acquisitions and marketing alliances in the overseas markets.

However, the generic competition in the US and European markets appeared to be growing tough for Indian exporters since last two years with a sudden drop in margins. In 2007-2008, the generic competition in the world markets has actually started hitting the Indian companies with a sharp fall in their profitability. The worst blow came when the US FDA took action against Ranbaxy, the largest Indian pharmaceutical company, for not maintaining quality norms in its two approved manufacturing facilities in India. The US FDA has imposed a ban on the import of 31 drugs of Ranbaxy in mid September. After the US action, regulatory authorities in Canada, UK and New Zealand are also contemplating stringent regulatory auditing of Ranbaxy's products.

The US action against Ranbaxy and the current financial crisis faced by the US economy are now seriously threatening the export led growth of the Indian pharmaceutical industry. India's exports of pharmaceutical products to the US account for almost 50 per cent of its total exports. With the US government putting pressure on FDA over imports of pharmaceuticals from India and China, inspections by the US FDA are going to be quite rigorous in the approved facilities of Indian companies in the months to come. There are nearly 100 US FDA approved manufacturing facilities of different companies in India at present. In the global pharmaceutical market, US FDA is held in high esteem and most countries depend largely on information from US FDA and European Medicine Evaluation Agency (EMEA) before registering or banning any medicinal products.

All the Gulf countries have US experts in their health ministries to advise them on drug imports. Now, the changed perception of India in the wake of Ranbaxy episode can tighten the regulatory watch on all Indian pharmaceutical products by the advanced countries. Large companies will take abundant caution in their manufacturing standards and practices now onwards even at extra costs. But, a good number of medium and small scale exporters are bound to falter and may lose business in coming days of extreme caution in importing Indian pharmaceuticals. Indian industry has to, therefore, rework its growth strategies in the wake of these new realities in the market place.

Pharmabiz

Uncle Sam's effect's

Even as the US economy grapples with a financial crisis, the developing Asian economies continue to be watched with growing apprehension. Last week, the Asian Development Bank (ADB) downscaled the growth expectations of many Asian economies — including India’s — in its half-yearly report, Asian Development Outlook 2008.

ADB attributes this to the worsening conditions in major industrial economies. “The myth of uncoupling has been exploded,” the report says. Among the other factors are the slowdown in Asia due to inflation; high borrowing costs; dampening investment and low consumer spending.

India’s gross domestic product (GDP) growth estimate for the current financial year (FY08-09) has been downgraded from 8 per cent to 7.4 per cent, and, for the next financial year (FY09-10), from 8.5 per cent to 7 per cent. ADB bluntly states that “Very large fiscal imbalance created by the current level of subsidisation of oil, fertiliser and food, as well as other off-budget items, sets a daunting task for economic management.”

Last month, a Citigroup research note had also revised its own estimates of India’s GDP from 7.7 per cent to 7.5 per cent for FY08-09 and from 7.9 per cent to 7.4 per cent for FY09-10.

Local economists, however, are not as pessimistic. “An 8 per cent GDP growth is possible thanks to growth in consumption (which will get a boost from the Sixth Pay Commission recommendations) as well as services and capital goods,

The debate continues.