India's economic meltdown pushes Biocon to build elsewhere

India, facing its worst economic crisis in two decades, has in recent years invested little in basic infrastructure like power, water and roads. These shortcomings are forcing some of its most successful drugmakers to look outside the country when they need new manufacturing sites.

That is the case with Biocon, which in 2010 began construction on a $200 million manufacturing plant in Malaysia because of infrastructure issues in India. "We don't have enough power. We don't have enough water," Kiran Mazumdar-Shaw, head of the company, told Reuters. "So some of these projects where we need water and power, I will do it in Malaysia because that's where it is abundant," said Shaw, who is ranked by Forbes at 92 in India's rich list with a net worth of $625 million.

The New York Times reports that economic growth has fallen big time in India, undercutting the value of the rupee. The rupee has lost 20% of its value against the dollar just since May. Usually that would mean demand for exports would rise since they would be cheaper. A report issued this week by HSBC, however, said Indian manufacturing contracted in August to its lowest levels in more than four years. Industries like pharma that might expand to take advantage of the cheap rupee can't, the NYT reports, because the country can't provide them with the infrastructure to do so.

"The government has to give us infrastructure--not for a day, not for 6 months--there has to be long-term infrastructure, policies that are sustainable so that we can then also plan accordingly," Yusuf Hamied, the billionaire who heads drugmaker Cipla, told Reuters. Hamied also pointed to India's bureaucracy as a significant impediment to doing business there. "In healthcare there are five ministries involved--chemicals and fertilizers, finance ministry, law ministry, health ministry, commerce ministry--there is no nodal body. Who do you go to for infrastructure or for advice or anything?"

Billionaire Ajay Piramal, chairman of Piramal Group, agrees. "We need to have clear rules of business ... unfortunately that's not happening," he told Reuters.

And so drugmakers have taken profits and built elsewhere. Cipla is expanding in Algeria and Morocco as part of a move on North Africa. Biocon's plant in Malaysia is slated to open next year. Biocon announced its plans for the $200 million facility in 2010, shortly after striking a $350 million deal with Pfizer ($PFE) to jointly market Biocon's biosimilar diabetes drugs. But that deal recently unraveled. Pfizer said it will pursue an independent diabetes strategy, while Biocon will seek new marketing partners to take its products to other emerging markets, the U.S. and Europe.

- here's the Reuters story
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