Pharma cos contain costs, improve efficiency

NEW DELHI: To maintain cost advantage in the face of intense competition and margin squeeze, Indian pharma companies are keeping a tight rein on costs and improving efficiencies. As a percentage of total sales, staff cost, manufacturing cost, raw material cost, selling costs and depreciation charges have either come down or remained stable in quarter ending March, 2007, compared to the same quarter in 2006.

Take the case of Dr Reddy’s Laboratories, India’s largest pharma company by revenue. The company’s expenses on staff cost came down from around 11% of total sales in Jan-March 2006 sales to 9% in Jan-March 2007. Similarly, ratio of ‘other expenditure’ to sales came down from around 20% to 16% of the company’s total sales.

Ranbaxy has shifted its bio-studies work to its in-house facilities from overseas, adopted new sourcing methods like e-sourcing through reverse auction and trimmed its administrative work. The result is that for the three month period of Jan-March, the company’s expenses in ‘other expenditure’ as percentage of sales came down significantly to around 22% in 2007 from 29% in 2006. The company had also attributed cost cutting as one of the key factors for the company’s good results in the quarter ended March 31, 2007.

Mumbai-based Wockhardt was able to sharply cut its expenses in raw materials. The company’s expenses on raw materials has come down from around 39% of total sales in Jan-March 2006 to 28% in the same quarter in 2007. For Nicholas Piramal, there was marginal increase in the staff cost and R&D expenses but investments in other divisions remain stable. For Lupin, expenses in all divisions such as raw materials, R&D expenses, staff cost and other expenditure all remain stable.

Says Sujay Shetty, pharma analyst with PricewaterHouseCoopers (PWC): “While the size of Indian companies have significantly grown, shrinking margins in regulated markets and price control in domestic markets have made companies adopt sustainable efforts to further increase efficiency of operations.” ChrysCapital MD Sanjiv Kaul says companies have also been a able to cut down cost by increasing production within the existing infrastructure and resources.