Indian CMOs squeezed by exchange rates, price pressures

Pharma likes India for manufacturing because of its low costs. But costs are relative, and domestic contract manufacturers there are having a hard go of late as the country's currency has fallen in the face of economic issues there and government incentives have begun to fall away.

The CMO industry in India is valued at about $7.3 billion, Revati Kasture, head of CARE Research, tells The Economic Times. The Indian CMOs do work for big players there like Dr. Reddy's, Ranbaxy, Cadila, Sun Pharma and Cipla, and many of those companies are leaning hard on their partners to cut costs so they can keep their own prices competitive. "We are finding it difficult to bluntly refuse the requests of big pharma clients--who are our bread and butter--to slash prices," Bodh Raj Sikri of the Indian Drug Manufacturers' Association tells the publication.

Utkarsh Palnitkar, KPMG India's head for pharma and life sciences, said the cost for contractors to import raw materials, mostly from China, is getting more expensive as the rupee slides in world markets. The price of ingredients for the antibiotic amoxicillin, for example, has swelled 50% over the last few months. "We have lost heavily on foreign exchange payments," Sanjeev Jain, promoter-director of Akums Drugs, said. He estimated that CMOs in India import about 65% of the intermediates needed to produce their products. The pressure also comes as 10-year tax breaks enjoyed by many of the CMOs have begun rolling off.

It also comes as the FDA has upped pressure on drugmakers there to meet higher standards to make sure drugs are safe and effective. A number of the big players, like Ranbaxy and Wockhardt, have run afoul of the FDA in recent months. Both have had import bans placed on plants that had exported to the U.S. Some observers have suggested that their problems are tied, in part, to lax standards at their own domestic suppliers.

- read the Economic Times story