Drug makers may cut output as orders shrink

Ranbaxy, Dr Reddy’s and other Indian drug makers may cut production as overseas buyers, hurt by the credit crunch, defer export orders. The move could also lower the country’s drug exports by at least 10 per cent in the year ending March 2010, industry experts say.

"Many of our members have been intimated by their importers to stop shipments until further notice," said Venkat Jasti, chairman, Pharmaceutical Exports Promotion Council (Pharmexcil), an autonomous export promotion body under the commerce ministry. "This may lead to production cuts in the near future by some of the drug companies."

Domestic companies export about half of their production worth Rs 66,000 crore, according to industry estimates. Pharmexcil had predicted that a global recession could lower the country's drug exports to 13.89 per cent in 2008-09 compared with its earlier estimate of 23.87 per cent. "The deferred orders will not be reflected in the export figures for the next three to four months, but will definitely impact our export figures for 2009-10," said Jasti. However, he declined to name the companies. Normally, drug manufacturers and their supply chains keep an inventory of 90 days. Cash crunch is now forcing drug importers and their shipping agents to stop purchases to tide over the crisis.

"If essential medicines go out of stock at the warehouse level, the importers have the option of airlifting the consignments," Jasti said on the sidelines of a Confederation of Indian Industry (CII) national conference on clinical trial in Mumbai today.

Meanwhile, G V Prasad, VC & MD of Dr Reddy's Laboratories and chairman of CII's life science committee, said the sector was relatively insulated from the economic recession and drug sales would not be impacted by the global economic meltdown. However, fund availability has become a major concern causing companies to freeze new project plans and acquisitions.

Similarly, outsourcing dependent companies in the life sciences sector could find the going tough, as global multinational companies are trimming their production due to various reasons. The pharmaceutical business in the US and Europe are likely to be stagnated in the future and many Indian companies are shifting focus to emerging markets.

A Pharmexcil analysis had said in the absence of the financial crisis, pharmaceutical exports would have grown 31.14 per cent (in rupee terms) and 23.87 per cent (in dollar terms) by the end of 2008-09.

According to the revised estimates, exports are now expected to grow 23.87 per cent (in rupee terms) and 13.89 per cent (in dollar terms) in 2008-09.