The recent Pharmabiz study of financial performances of 100 listed pharmaceutical companies in the country shows a disturbing trend. Profitability is declining steadily despite a steady rise in their sales turnover. These companies reported only a marginal growth of 6 per cent in consolidated net profit at Rs.16,946 crore during the year ended 2013-14 as against a net profit of Rs.16,049 crore in the previous year. Whereas the net sales of these 100 companies including 10 multinationals improved by 15.6 per cent to Rs 1,61,724 crore from Rs 1,39,955 crore in 2012-13. Of these 100 corporates, 19 companies showed a much higher sales growth of above 25 per cent and 37 companies reported a growth between 10 to 25 per cent. Among all the companies, Sun Pharmaceuticals stands at No 1 position in the country by registering a 42.4 per cent sales growth clocking a sales turnover of Rs 16,004 crore during 2013-14 overtaking Ranbaxy and Dr Reddy's Labs. Ranbaxy sales is not included in Sun Pharma’s turnover as the merger process is not yet completed. With the acquisition of  Rambaxy last year, the sales of Sun Pharma in the current year is expected to be much higher. One of the highlights of last year’s performance of Indian pharmaceutical industry is that 33 entities registered net sales of above Rs 1,000 crore as against 28 in the previous year. Ajanta Pharma, Granules India, Sharon Bio-Medicine, Pfizer and J B Chemicals posted net sales of above Rs 1,000 crore during 2013-14.

What is surprising in the performances of pharmaceutical companies during 2013-14, is that most of the multinational companies like GSK, Novartis, Pfizer, Abbott India, Merck, Wyeth and AstraZeneca reported disappointing results with sharp drop in their net profits despite many of them marketing highly expensive patented drugs in the country with no price control. Even some of the top Indian companies like Ranbaxy, Cipla, Jubilant Life Sciences, Wockhardt, Orchid Chemicals, etc. also reported lower profits during 2013-14. High interest burden, rising staff costs and stiff competition in international as well as domestic markets seems to be main reasons for the fall in profits of these companies. The interest cost alone went up by over 30 per cent to Rs 5,738 crore during 2013-14 as against Rs 4,406 crore in the previous year. Cipla, Ranbaxy, Piramal Enterprises, Torrent Pharmaceuticals, and a few other companies  reported a sharp rise in their interest costs. Among them, interest burden of Piramal Enterprises was quite heavy at Rs 1,050 crore during 2013-14 as against just Rs 575 crore in the previous year. The staff costs of 100 companies have also gone up by 22 per cent at Rs.25,192 crore during 2013-14 from Rs 20,643 in the previous year.  Probably one other reason for lower profitability of major Indian pharma companies is their steadily rising expenditure on research and development without getting any new  molecule. Companies like Sun Pharma and Dr. Reddy’s Labs spent more than Rs.1000 crore each on R&D during 2013-14 while Lupin’s R&D expenditure was  Rs.929 crore. Other companies like Glenmark, Biocon, Jubilant Life Sciences, Wockhardt, Strides, Cadila Healthcare had also stepped up their R&D expenditure during 2013-14. Rising marketing and promotional costs due to tough competition is yet another reason pushing down the profitability of some of the large and medium scale companies. Now, with these adverse factors in the domestic front and exports to the US and European markets becoming extremely difficult owing to tougher  regulatory conditions there, managements of Indian companies will have to seriously think how to survive in the tough times ahead.