The Indian pharma sector has undergone some tough times in the past one year having to contend with a volatile rupee and non compliance with quality manufacturing standards landing pharma companies in trouble with the US FDA. Not only that, the global economic slowdown also played spoilsport leading to delay in receiving ANDA approvals, the usual price erosion, and declining interest from global pharma majors in research collaborations as the latter looked to prune their costs. Having said that, conditions in the market in the last few quarters for the generic companies especially have shown signs of improving.
The Union Budget 2010-11 has ensured that a higher allocation is made to public healthcare schemes which will a huge positive for domestic pharma companies having strong presence in the generics space. Higher deduction for research and development will also encourage domestic pharma companies to incur additional expenditure on in-house R&D.
Budget Measures
The provision of weighted deduction of 150% on expenditure incurred on in-house R&D has been enhanced to 200%. Further, weighted deduction on payments made to National Laboratories, research associations, colleges, universities and other institutions for scientific research has been enhanced from 125% to 175%.
Focus on healthcare to be increased. Plan allocation for the Ministry of Health and Family Welfare has been increased to Rs 223 bn.
Rate of minimum alternate tax (MAT) on book profits has been increased from 15% to 18%.
Surcharge on domestic companies reduced to 7.5% from 10%.
Budget Impact
Increased weighted deduction on in-house R&D is beneficial to domestic pharma companies who are increasingly undertaking R&D activities to become research driven companies in the long term.
However, increase in MAT could neutralize the positive impact of the increase in weighted deduction.
Increased allocation towards healthcare is a positive for the entire pharma sector as a whole.
Company Impact
The increase in weighted deduction on in-house R&D will benefit domestic pharma companies such as Glenmark, Dr.Reddy's, Ranbaxy, Biocon, Piramal Healthcare, Sun Pharma and Cadila Healthcare.
Both domestic and MNC pharma companies will stand to benefit from the increased focus on healthcare.
The Indian pharma sector has undergone some tough times in the past one year having to contend with a volatile rupee and non compliance with quality manufacturing standards landing pharma companies in trouble with the US FDA. Not only that, the global economic slowdown also played spoilsport leading to delay in receiving ANDA approvals, the usual price erosion, and declining interest from global pharma majors in research collaborations as the latter looked to prune their costs. Having said that, conditions in the market in the last few quarters for the generic companies especially have shown signs of improving.