The Hindu Business Line : Global oil price rise may add to drug industry input costs

CONSUMERS may be spared with just a "marginal" increase in medicine prices, as a fall-out of global oil prices pushing at $ 53 per barrel. But the domestic drug industry is most certainly set to take the squeeze due to the hike in input costs. In fact, pharma representatives caution that the next three months will see "less healthy bottom lines".

Just about a month ago, the Indian Pharmaceutical Alliance (IPA) had announced a freeze on prices till March 31, 2005. "When we announced the price freeze, we told the Government that there is a lag time between oil prices going up and how it impacts all raw materials. The reality is that prices are going up. For the first time we are seeing in the last few years that prices are going up. Even with products coming from China, prices are firming up considerably. Industry will take a hit because of the decision we have taken to freeze prices," the IPA Chairman, Mr Habil Khorakiwala, told Business Line.

While the price freeze was taken to help control inflation, he admits that the industry is set to take a hit. "It would have an impact of at least 7 to 10 per cent on the input materials," he observes. Pharma companies could soften the adverse impact on its profits by changing the product mix or having export revenues carry the burden of dull domestic revenues, said Mr Khorakiwala, who is also the Chairman of Wockhardt.

"The price of oil at $ 53 per barrel may not directly impact the pharma industry as some of them get their products from West Asia where oil prices rule at between $ 30 and $ 36. Besides, medicines in their finished form come lower down in the chemical chain that are impacted by oil prices. Active pharmaceutical ingredients or bulk drugs are directly hit. Finished drug makers, however, may be in a position to absorb the hike in bulk drug costs. Only a marginal cost will be passed on to consumers," said an analyst tracking the pharma industry.

Mr Yogin Majmudar, President of the Indian Drug Manufacturers' Association, admits that profits of companies will look "less healthy" in the next three months. "Some bulk drug costs have gone up by about 15 per cent. And bulk accounts for about 25 per cent of the retail price on a finished drug. But competition will keep companies from passing on the hike to the consumer. Also there are too many companies making the same products in the country, so the consumer may be saved with just a marginal price increase."

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