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USFDA enforcements to push up costs for Indian pharmaceutical companies

Tuesday, 8 July 2014 - 4:30pm IST | Place: Hyderabad | Agency: PTI

Stricter norms by American drugs regulator USFDA will lead to higher compliance costs for Indian pharma, although these enforcements are not country specific but more on account of "cultural differences", said a report by global credit rating agency Crisil. 

The companies have little choice but to invest in bringing compliance processes up to speed, it said, adding that the cost of not doing so (warning letters/import alerts may impact both current revenues and future pipeline) will be far higher.

In general, the cost of compliance of drug makers has doubled over the past 5 years. About 30% – or USD 4 billion worth – of India's pharma exports are to the US.

India remains a location of significant importance to the FDA as it has the largest number of FDA-approved drug- manufacturing plants with over 150 formulation facilities and is also the second-largest pharmaceutical supplier to the US market in terms of volume of generic drugs.

The enforcements by US Food and Drug Administration over Indian pharma companies, though not country specific, are mainly on account of issues such as cultural differences and attitude of employees, it said.

However, going forward, Crisil said it expects the cost of compliance to rise as drug makers adapt to a stricter regime. This will include costs of hiring personnel and consultants, apart from investments in upgrading facilities to GMP standards.

It added: "While the ratio of enforcements to manufacturing bases is lower in India compared with elsewhere, the enforcements in India have been clearly due to cultural differences, attitude of employees, inadequate interpretation/understanding, and absence of due process and systems. Most of the enforcements of the last 2 years were related to differences in interpretation or understanding." 

Five companies – Dr Reddy's, Sun Pharma, Ranbaxy, Cipla and Lupin – total up close to $3 billion of supplies to the US, while mid-sized players such as Torrent Pharma, IPCA Laboratories, Glenmark Pharma and Alembic Pharma account for the balance, according to the ratings agency.

Crisil said it believes that large Indian pharma companies have the financial flexibility to bear the increased cost of compliance and remain competitive in the US, which constitutes more than 50% of their overall revenues. The top 10 Indian pharmaceutical companies by revenues account for more than 70% of the total formulation exports to the US.

These players continue to maintain a strong financial risk profile marked by healthy cash accruals, strong networth, moderate gearing and surplus liquidity. "Nevertheless, India continues to enjoy a rising share of ANDA approvals compared to other countries. As on date, the top 10 Indian pharma companies account for more than 800 ANDA filings," the report indicated.

The credit risk profiles of the large Indian pharma companies are, therefore, expected to remain strong over the near term. Nonetheless, the risks associated with changing regulations and increasing inspections by the FDA will remain a rating sensitivity factory over the medium to long term, it further added. 


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