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Pharma: Remove duties on life saving drugs

June 30, 2009 13:34 IST

The pharma sector seeks removal of excise duty on bulk drugs and formulation of anti-AIDS, anti-cancer, anti-TB and other life-saving drugs.

Indian Pharma sector has made rapid strides in both global and domestic market. But the growth pangs were severe for domestic players eyeing greater share of global pie.  The slow down in generic approvals by USFDA, the payment problems witnessed in a few developing markets since the quarter ended December 2008 and accelerated genericisation and intense competition together meant slower growth in global revenues for the domestic players.

But despite challenging environment, the domestic players continued their consolidation mode and are getting ready for increased CRAMS business from the global majors.

Attracted by enticing business model of the domestic pharma companies, some global players have acquired Indian pharma companies including Ranbaxy Laboratories, Matrix Laboratories etc.  Simultaneously, we also witnessed global majors like Pfizer entering deal with domestic players like Aurobindo Pharma and Claris Lifesciences (unlisted) for marketing their generics in the advanced markets.

Likewise, we are also witnessing increase in buy back / open offer for share holders of associates / subsidiaries of the MNC pharma companies.  So, the pharma sector is in thick of action. With availability of skilled labour at low cost, India has become favorable destination for most of Multinational companies to manufacture their products and to develop new molecules.

Industry expectations:

Indian Drugs Manufactures Association

Excise Duty

Custom duty

Organisation of Pharmaceutical Producers of India

Analysts Expectation

We expect excise duty and custom duty on bulk drugs and formulations of Anti-AIDS, Anti-Caner, Anti-TB and other life saving medicine to be exempted. Currently excise duty on formulation is at 4% and bulk drugs at 8%, which is not likely to be tinkered, except for life saving drugs.

Best Buy/Sell

Exemption in custom duty & Excise duty for life saving drugs would benefits MNC subsidiaries like GlaxoSmithKline Pharma, Pfizer, Novartis, Aventis Pharma etc and domestic companies Dr Reddy's Laboratories, Aurobindo, Cadila Healthcare, Ranbaxy and Sun Pharmaceuticals.

In particular, if excise duty on Rifampicin, a bulk drug for producing anti TB drug, is reduced / removed, it will benefit Lupin, which is a leading producer of this bulk drug.

Outlook

Indian Pharmaceuticals industry has received major relief in the Stimulus Packages announced between December 2008 and February 2009.  As a result of these stimulus packages, excise duty on formulation was cut from 8% to 4% and on bulk drugs from 14% to 8%. We don't expect any big changes in on excise duty and custom duty rates, except in life saving drugs.  By and large such changes will be more beneficial to MNC associates and to some extent to some of the frontline domestic players.

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