Profitability Determinants in Indian Drugs and Pharmaceutical Industry: An Analysis of Pre and Post TRIPS Period

Abstract

This paper analyses the determinants of profitability of the Indian drug and pharmaceutical industry, which is known for historically weak innovative R&D initiatives. The change in the economic environment brought out by the TRIPS compliance, this industry was found to have fast adjusted to new working environment by substantially modifying its strategies. The study uses inflation adjusted time-series data for a period 1990-2014 and applies OLS regression model with Newey-West standard errors. It has found that export intensity, A&M intensity, and post-product patent regime have exercised positive influence on industries’ profitability. The negative and statistically significant influence of Leverage ratio and operating expenditure to total assets ratio points to the need for firms to better their efficient management of funds, and contain costs. The study suggests that firms are required to pay far more attention to optimize their operating expenditures, advertisement and marketing expenditures and improve their export orientation, as part of the long term strategy.