Pharma companies grapple with rise in other expenses

 

Companies such as Sun Pharma, Ranbaxy, Dr Reddy's, Glenmark, GSK, Divi's, Alembic, Ipca Labs, Strides Arcolab, Dishman Pharma, Torrent and Aurobindo PharmaBSE 2.12 % have found their 'other expenses' rising at a far higher rate than their revenues.

Increased regulatory compliance, escalation in cost of filing drug applications in overseas markets and rise in marketing costs have led pharma companies to spend more under the head of other expenses.

A study of the aggregate financials of 35 pharmaceutical companies in India, part of the BSE 500 Index, shows that the other expenses of these companies rose at a much higher pace than their revenues over the last three years.

While revenues have grown at a compounded annual growth rate, or CAGR, of 20.5% since FY11, other expenses grew at a higher rate of 23.2% even as total expenditure grew at 19.5%.

Companies such as Sun Pharma, Ranbaxy, Dr Reddy's, Glenmark, GSK, Divi's, Alembic, Ipca Labs, Strides Arcolab, Dishman Pharma, Torrent and Aurobindo Pharma have found their 'other expenses' rising at a far higher rate than their revenues.

For Ranbaxy, additional expenses incurred to comply with the consent decree signed with the US health regulator, FDA, led to a 30% increase in other expenses, while revenues rose only by 19.8%.

Other expenses of Sun PharmaBSE 0.40 % surged 49% in the last three years, higher than the 40% rise in revenues or 35% rise in total expenditure. In recent years, pharma companies in India have reported an increase in costs pertaining to litigation, drug filing and marketing of products.

Legal costs related to suits challenging existing patents, patent infringement cases and settlement of existing cases also have had a bearing on the increase in other expenses of drug makers.

With inspection and compliance standards of US FDA becoming stringent, the cost of compliance with US FDA guidelines is also on the upswing. These expenses are going to rise further from this quarter as the US FDA is raising user fees for generic drug manufacturers towards costs of reviewing generic drug applications and for inspecting facilities by up to 48% from October. 

AVINASH KUMAR

PGDM 3rd sem.