Pharmabiz
 

As Goliaths grow bigger, Davids gasp for breath

Joseph Alexander, New DelhiThursday, February 10, 2011, 08:00 Hrs  [IST]

As the small  players continue to run out of steam in the battle for survival, big players are growing from strength to strength. While the biggies call it as a phase of consolidation and standardisation of the industry for the better, especially for  competing with the best in the world, small units term it as degeneration of pharma industry and detrimental not for just the entrepreneurs, but for the entire population of India, as it would lead to drastic  hike  in drug prices.

Forget about the debate on the nomenclature, the current scenario in North Indian pharma sector warrants attention of  the authorities for the sake of the end users of the drugs. The situation in  National Capital and the North Indian regions  may soon spread to other regions too.

Majority of small-scale pharmaceutical units have lost the plot in the fight for survival against the big players who are steadily consolidating the ground through acquisitions, mergers and expansions. The small players are missing the overall excitement sweeping the pharma sector in the country.

With little support in concrete terms from the authorities and burdened by increasing regulatory burdens, the small players are on the path of extinction in the northern region and the trend has already hit more regions elsewhere. And it is going to  impact  the affordability and accessibility of drugs in future, as small scale industry has been playing a pivotal role in controlling  prices , according to the public interest groups.

 The gap between the biggies and the small players continue to widen with the large firms  fortifying the base to seize the growing opportunities while the shrinking small scale sector is  left wayside, looking for support from the government for survival.

However, hundreds of units in the tax holiday states like Himachal Pradesh and Uttarkhand got some respite after the Centre extended tax benefit for manufacturing new formulations, after prolonged anxiety. They can add new plant machineries too while enjoying the benefits.

In a big relief, the Union Finance Ministry has come out with a clarification allowing the units to avail of  tax benefits for these facilities, even though the tax holiday regime has come to an end in these states on March 31 this year. The Central Board of Excise and Customs has clarified that the pharma units in these states can manufacture new formulations and can take tax benefits on it.

When the tax holiday scheme came to an end in these states on March 31, 2010, the industry had sought clarification from the government on issues of availability of tax benefits under the situations such as: where a units starts producing new products after the cut-off date using the plant and machinery installed before the said cut-off date and without any further addition to the plant and machinery; where the installed capacity in a particular unit is upgraded after the cut-off date so as to increase the efficiency of the machinery by installing ancillary machines or replacement of some parts, etc but in such a way that it does not lead to increase in capacity of production; where new dosage forms are manufactured after the cut off date on the same line of production with the same machinery; and where a unit manufactures a new product by installing fresh plant, machinery or capital goods after the cut-off date.

The ministry said that the provisions of the notification on tax holiday scheme issued by the central government in 2003 do not place a bar or restriction on any addition/ modification in the plant or machinery or on the production of new products by an eligible unit after the cut off date and during the exemption period or 10  years as per the notification. “Therefore, it is clarified that in all the above situations, the benefit of the excise duty exemption under the notification would continue to be available to eligible industrial units”, the ministry said.

Haridwar, Roorkee, Dehradun and Rudrapur are the main hubs of pharma production in Uttarakhand having  around 200 units while Baddi and some other pockets in Himachal has over 300 units. Alembic, Dr. Reddy Lab, Alkem, Mankind, Torrent, Lupin, Cadila, Indswift Lab, Unichem, Morepen, Klitch, Ranbaxy, Nector, Surya, Cachet, Indchemie, Galpha are some of the major companies who have set up their units.   About 100 companies have invested Rs 4000 crore in the recent years and the list included many big names. The industry has claimed that it gave jobs to at least 25,000 in the past.

However, the story remains grim for those outside the excise free zones. The shrinking sector continues to grapple with multiple challenges and still sit waiting for some concrete measures from the government to save them, though many schemes are being proposed.

 Around 5000 SMEs produce 40 per cent of medicines manufactured in the country. But the North India, compared to other regions, is not a major force to reckon with. Over the years, many have migrated to the excise free zones while those outside the zones bowed out due to growing pressure.

`` Because of its competitive nature, the multinational pharma companies want to get rid of small pharma. There have been concerted efforts to wipe out entire small pharma. Policies, regulations and legislations are being amended to wreak havoc on  the  existence of small pharma. Changes in the policies should be seen in this context of this ‘politics of elimination.’ Amendment of Schedule M of the Drugs and cosmetic Act is one of the major changes that have affected small pharma on a considerably large scale. Multinationals have played an important role in bringing in Schedule M/GMP standards in Indian pharma sector. They have also spread the paranoia of quality among policy- makers and common people using various channels, while not sufficiently and scientifically justifying their contentions and consequent actions,’’ a senior leader of the SME sector claimed.

With the introduction of Schedule M, hundreds of SMEs had to be closed down. The government has been completely indifferent in tackling the issues of small pharma. The Pharma Technological Upgradation Fund (PTUF) which was supposed to provide financial support for SMEs to make their units Schedule M complaint is still stuck up in the pipeline. It is a well accepted fact that making pharma units GMP/Schedule M compliant require a lot of  investment. However the Indian government has not been pro -active in rendering any financial support to SMEs in this regard. Najma Heptulla committee which studied this issue closely is expected to submit its report very soon, according to the industry leaders.

Proposed Central Drug Authority (CDA) Bill, accumulating losses of those in the free zones, banning of FDCs, huge investment for upgradation,  increasing overhead expenditures, counter-productive MRP regime, and biased attitude by the government agencies in procurement norms for the SMEs have all contributed largely to the crisis, if they are to be believed.

 The small- scale industry wants the government to hold a comprehensive study to ascertain the current status of the industry in North India and extend some concrete steps to help out them. ``Excise duty is better deterrent for price control. Taxation disparities created by TAX Holidays not to be supported. Since the government is ending up with huge loss due to CST, GST is more beneficial for the government as well as patients,’’ according to them.

However, as in many other parts of the country, the biggies led by Ranbaxy, Jubilant Organosys and Dabur consolidated their ground

Consolidated sales of Ranbaxy during the nine months ended on September 300 stood at  USD 1,405 Mn (Rs 64,803 Mn), registering a growth of 32 per cent. Earnings before Interest, Tax, Depreciation & Amortization (EBITDA) was at USD 349 Mn (Rs. 16,087 Mn), reflecting a margin of 25 per cent while profit after tax was at USD 349 Mn (Rs. 16,079 Mn) with a margin of 25%.

``Our key markets continued to perform well attributable in large measure to balanced sales across geographies. This has also been aided by the favourable forex movement. As we move forward, our focus will be on bettering operational performance, maximizing synergies with Daiichi Sankyo and on seeking a speedy resolution to the challenges in the USA” Ranbaxy managing director Arun Sawhney told after announcing the results.

 
[Close]