Drug cos and SEZs - a healthy mix?

P.T.Jyothi Datta

Concern over whether drug companies should also play the role of
infrastructure developer

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Business formula
Drug companies could be foraying into SEZs to leverage benefits of the
proposed Pharma Policy that has plans for Pharma Parks.
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Mumbai , Sept. 25

Should drug companies focus their energies on making better medicines,
rather than get involved with developing infrastructure, in the popular
avatar of a Special Economic Zone (SEZ)?

Consultants who advise drug companies on strategy are raising this
concern, as more companies rush into the SEZ zone.

Last week, Wockhardt signed along the dotted linefor an estimated Rs
700-crore investment towards a 250-acre SEZ in Aurangabad, Maharashtra.
Other drug companies that have walked the SEZ path include Zydus
Cadila's Pharmez, said to be Gujarat's first pharma SEZ, Dishman
Pharma's SEZs in Ahmedabad, Sterling Biotech and Biocon.

Other unconfirmed names among companies harbouring SEZ plans include
Lupin, Hetero and Ranbaxy.

Playing developer

Mr Hitesh Gajaria, KPMG's head of pharmaceuticals in India, told
Business Line that the concern over SEZs was one of the issues raised by
a recent KPMG study on pharmaceuticals. "Do pharma companies need to get
into the shoes of the developer themselves or would it be better to
leave infrastructure to the developer," he posed. It was difficult to
generalise whether the SEZ foray would work, as it depended on the
company going in for it, the resources it had, etc, he elaborated. The
issue that KPMG wants to put on the table is: "Has the pharma company
thought it through or is it doing it because the next person down the
road is doing it?"

Giving drug companies the benefit of doubt, he said drug companies could
be foraying into SEZs to leverage benefits of the proposed Pharma Policy
that has plans for pharma parks. And then, there is the obvious fiscal
benefit that the Centre offers SEZs.

A Wockhardt official defended the SEZ foray saying that it would be
dedicated to Wockhardt's different businesses. Going to it on one's own
(rather than depending on a developer), helps keep control on what the
company requires, besides leveraging fiscal benefits, the official said.

However, another top official with a consultant company admits there is
a "herd-mentality" in the way companies, across sectors, were flocking
to set-up SEZs.

Speaking on condition of anonymity, as his firm advises several drug
majors, he said drug companies were under tremendous pricing pressure in
domestic and export markets.

http://www.thehindubusinessline.com/2006/09/26/stories/2006092602440300.htm