Indian pharma companies are well positioned to generate real and fast value for global pharma players by taking on contract manufacture work. India now needs to take advantage of this situation with greater investments in infrastructure and skilled personnel to maintain its lead in production and narrow the gap in time line deliveries. Also, India will have to continue refining entrepreneurial and management skills and ease systemic inefficiencies such as administrative red tape and regulatory uncertainties. In an interview, V Madhusudan, executive VP - Technical, Medreich Ltd and president, Indian Pharmaceutical Association, Karnataka State branch discusses the contract manufacture scene and other issues with Nandita Vijay. Excerpts:
Is India a value-added destination for contract manufacture?
At this point of time, international companies find it both economical and as an excellent option to look at India for contract manufacture. This is because of the skilled manpower availability and state-of-the-art infrastructure, which makes it a one stop shop for all kinds of production orders from bulk drugs to formulations. In the Indian outsourcing space, global customers require quality and timeline deliveries and low-cost of production is no longer a consideration for signing a contract.
What are the possible disadvantages?
The only possible disadvantage could be incontinent quality among the small-medium sized players, which needs to be overcome. There are occasions where Indian companies could provide the quality but to rely on consistency in quality and also supplies on time, there is a problem. There are scores of reasons for not being able to adhere to timelines because of the cumbersome bureaucratic hassles in exports and imports. This is an area where the industry at large should take a concerted effort to work hard on and surmount the problem on a war footing. Despite these hassles, Indian pharma sector is at an advantage to bag orders for manufacture from the leading global companies.
How many contract manufacturers are there in India?
There are around 29,000 units. Out of the top 200 pharma manufacturers which cater to 90% production activities, around 30 are dedicated contract manufacturers. Out of the remaining 170 units, 120 companies are into both contract manufacture and also producing their own branded generics. The balance 50 companies are non contract manufacturers. Therefore 150 units contribute 60% of the contract manufacture business in India.
Now with the scenario of excise duty on contract manufacture, how much has the sector been affected?
Sixty per cent of the 120 companies which forms the national market have not experienced fall in orders for contract manufacture but there is a definite change in market polarization. The market has shifted from all the manufacturers to special zone areas as many manufacturers opened plants at Baddi and Uttaranchal to benefit from the incentive. The four southern states have lost 50-60% of business primarily because of excise duty.
Would you be able to quantify the value of business and at what rate is this growing?
Contract manufacture in India is estimated to be between Rs 18,000 to Rs 20,000 crore. Business is shifting from own manufacture to contract manufacture resulting 15-18% annual growth.
What about trained manpower? Do we have adequate numbers to support his business?
As of now, every pharma company in the country is looking at good people. Attrition is high and is on par with the software sector, which is between 35-40% in the country and 25-30% in Karnataka. Manpower shortfall is attributed to massive movement between companies. There are expansions or new companies being set-up resulting in ample personnel poaching. The pharma industry needs to arm itself in the areas of employee retention and personnel development.
How supportive has the govt been to the pharma sector?
Govt is confused with the pharma sector. It is trying to achieve too many things at the same time. On the one hand it intends to seek higher growth rates through the excise free zones and on the other it is promising people with cheaper cost, which will have a negative impact on the industry. The issues of bilingual labels and mention of MRP inclusive of taxes on cartons have affected the industry in terms of unforeseen expenses. While orders for the former are yet to come through, the latter is in force. The govt could have combined the exercise together allowing companies to save cost and time.
What have been the IPA initiatives to save the industry?
IPA's main objective has been to address the problems to the govt and resolve it.
What is the likely impact of the Pharma Policy which is expected this year?
We are yet to see if the govt can bring it through. The industry is cynical about the way the govt has treated the pharma sector though it forms part of the knowledge industries like IT or biotech. Pharma sector should be provided with incentives on par with IT sector, instead we are met with step motherly treatment. This is the feeling that the industry is experiencing because govt does not address our issues by meeting up with the industry representatives. Despite serious problems like excise duty on MRP, drug price control order (DPCO), the pharma industry is a survivor like a cockroach. In its own way the industry has proved its mettle in terms of modern production to produce quality products and create a name for itself in the tough regulated markets
Coming to the small-scale industries which is the backbone of the pharma sector how have the units coped in the crisis?
Small-scale sector have suffered and many of them cease to exist. But the situation in Karnataka is different. Out of the 224 units in the State, only nine have wound up operations. The survivors have opted for joint ventures or massive modernisation. Units in Karnataka have always been known for their quality and therefore closure of facilities was the last option compared to industries elsewhere.