USFDA Enforcements To Push Up Costs For Indian Pharma

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 U.S., 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 U.S., which constitutes more than 50 percent of their overall revenues.

The top 10 Indian pharmaceutical companies by revenues account for more than 70 percent of the total formulation exports to the U.S. 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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