The Indian drug industry is likely to take a big hit consequent on the relentless rise in petroleum prices. And worse, they cant pass on the increased costs to the consumer as the Centre keeps a hawk-eye on medicine prices with the elections in mind, say pharma industry representatives.
So, consumers may be spared from forking out more to pay for their medicines, for now. But the increasing price of pharmaceutical ingredients, solvent feed-stocks and utilities will add to the bill of drug companies, Sujay Shetty, Associate Director with PricewaterhouseCoopers told P.T. Jyothi Datta of Business Line.
The impact will not be seen in the present quarter. But if the situation continues, all things taken into consideration (rising inflation, excise duty sop when it was halved to eight per cent, and the fluctuating rupee), drug companies could take an annual hit of about 5 per cent on their profits, he observed.
Cipla's CFO, Mr Radhakrishnan, agrees that companies will take a hit on their bottomline, as key raw material costs increase. Companies using petrol-based chemicals have already been feeling the pinch, says Shasun's Joint Managing Director, S. Vimal Kumar. The company has seen its costs increasing by 2 per cent on anti-inflammatory drug ibuprofen, a drug under price-control.
Costs will be reviewed by drug companies, as they face the impact of the increase in the forthcoming quarter, observes D.G. Shah of the Indian Pharmaceutical Alliance. Promotional expenditure, travel for marketing purposes etc will get reined in, say drug company representatives.
On the manufacturing front, companies are reasonably lean, observes PwC's Shetty. When companies look to review their prices, they will look at marketing expenses. Some companies have spread-out marketing operations and that can be expensive for the company, with scope to consolidate, he observed.
"Yesterday's business models will not work today and today's will not work tomorrow," says Wyeth's Managing Director, Ranga Iyer. Companies will need a relook at processes, productivity and the yield coming from them. Improving the product mix, in terms of having medicines and markets with better margins, could be another method, points out Lupin's Managing Director, Dr Kamal Sharma. Repackages and recycles are also areas that can be tightened, adds an industry representative.