The outsourcing of drug development and manufacturing to India and China by US companies is escalating because of the high rate of patent expirations. The weak US dollar is also causing foreign investors to pull their money out of India and, in turn, weaken the rupee. India’s larger pharmaceutical companies are reaping the inadvertent benefits of this effect, as their exports, which make up a large part of their sales, sell for a lower cost. Some midsized drug makers, such as Lupin, which is also positioning for larger sales in Japan, and Pirmal Healthcare, which is a contract manufacturer for foreign companies such as Pfizer, are able to strengthen their diversification due to the weak rupee. Some analysts are concerned that if the Indian government increases interest rates to hold off inflation, the stronger rupee will cut foreign demand for Indian generics. And while other analysts believe that the real concern should be about whether generics manufacturers can transition into developers of new products, Nitin Agarwal of IDFC-SSKI Securities claims that even if Indian manufacturers stick to generics, they can grow by 11% from 2006 to 2010.

Source: The Wall Street Journal