Gujarat has a lion’s share in the development of both the pharma and the pharma machinery industry in India. Today both the industries are flourishing industries in Gujarat according to Rajesh Shah, President of Indian Pharma Machinery Manufacturers Association (IPMMA).
Gujarat’s pharma industry has a well-developed ecosystem with strong building blocks that have helped the industry grow at a phenomenal pace. Over the last few years, Gujarat has made a significant contribution in the growth of India’s pharmaceutical industry. Gujarat commands 42 per cent share of India’s pharmaceutical turnover and 22 per cent share of exports. Approximately 52,000 people are employed in Gujarat’s pharmaceutical sector, which has witnessed 54 per cent CAGR (Compounded Annual Growth Rate) in capital investments over the last three years. Valued at US$ 4.4billion in 2005-06, Gujarat’s pharma industry has grown at a CAGR of almost 88 per cent between 2002-03 and 2005-06, as against the 18 per cent growth registered by the pharma industry of India as a whole, in the corresponding period, he said.
Gujarat, an established manufacturing base for bulk drugs and formulations — with its inherent competitive advantages— is poised to capture emerging global opportunities to become a global pharmaceuticals hub. Emergence of SEZs is likely to create a pharma behemoth- with scale and infrastructure on par with international standards that will enable it to compete in the global market place. The availability of a well-developed chemicals industry, which has strong linkages with pharma API (active pharmaceutical ingredient)/intermediates can be utilised to boost the high growth of CRAMS (contract research and manufacturing sector). This could make Gujarat a strong sourcing base for global pharma companies, he added
Evolution of pharma machinery industry
According to him, the roots of today’s vibrant and flourishing pharma and pharma machinery industry are old and strong. Alembic Chemical Works Co. Ltd., one of the oldest pharma companies in India, was set up in Vadodara in 1907, just six years after India’s first domestic pharmaceutical unit- Bengal Chemical and Pharmaceutical Works was set up in Kolkata. Sarabhai Chemicals was started soon thereafter. Also the industry had received strong support from the academic field. In 1940, a drugs laboratory was established in Vadodara and this was followed by setting up of the LM College of Pharmacy in Ahmedabad. In the early sixties Cadmach was set up in Ahmedabad and further in 1989, the B. V. Patel Education Trust, Ahmedabad and Gujarat Branch of Indian Pharmaceutical Association (IPA) - established the B.V. Patel Pharmaceutical Education and Research Development (PERD) Centre in Ahmedabad.
Also in the last few decades, the invested capital to labour ratio has risen significantly. The employment almost doubled between 1979-80 and 1997-98. Over the years, the industry has developed strong linkages with related sectors and industries. Today there about 3,500 drug manufacturing units in Gujarat and the state houses several established companies such as Torrent Pharma, Zydus Cadila, Alembic, Sun Pharma, Claris, Intas Pharmaceuticals and Dishman Pharmaceuticals, which have operations in the world’s major pharma markets.
Pharma industry performance
In the exports segment too, Gujarat’s pharmaceutical industries’ performance has been exemplary. Exports, valued at US$ 1.1 billion in 2005-06, have grown at an impressive CAGR of nearly 78 per cent between 2002-03 and 2005-06 as against the 28 per cent growth in India’s total pharma exports during the same period. Of the state’s total exports, bulk drugs constituted for 40 per cent, while formulations accounted for the remaining 60 per cent.
Gujarat holds a dominant position in India’s pharma industry. The state has successfully captured a share of over 42 per cent of India’s total turnover in 2005-06. This is a steep increase from the mere 10 per cent market share in 2002-03. As a precursor to growth, capital investment in the pharma industry in Gujarat has also increased at an astounding CAGR of about 54 per cent between FY’03 and FY’06 – reflected in the increase of number of units (both own as well as loan ) from 1,964 in 2003 to 3,462 in 2007, he explained.
Opportunities galore
Similarly in the pharmaceutical machinery sector, there is a strong local and global opportunity for Gujarat, given its strong and well established engineering sector. Over the years with the rise of the pharma industry, the pharma machinery industry also made giant strides catering to various segments like tableting, powder processing, capsulation, R&D equipment & instrumentation, material handling, coating, bulk drug plant installation & packaging. The pharmaceutical machinery manufacturers of Gujarat have huge potential and as such many international companies have collaborated with many such companies. This has enabled Gujarat pharma industry to procure machineries at a price almost one third or one fourth of the imported technology.
The pharma machinery industry is growing 15-20 per cent annually. A basic advantage of using machineries made in the domestic market is that the foreign machines are five times more expensive than locally manufactured machines, for the same products and in the same capacity. People still look to the Gujarat market for those products because Gujarat pharmaceutical machineries provide value for money. No wonder then the Gujarat pharma machinery industry has earned the reputation of being the hub for low-cost manufacturing. The reasons behind this is the availability of cost-efficient man power, highly skilled and experienced engineers and low capital investment on plant and machinery.
Going global
Gujarat pharma machine makers and their foreign counterparts are increasingly exploring various collaborations and partnerships with each other to share new technology, to innovate and develop new technology. Together, they are targeting more price conscious developing countries. Gujarat is becoming an integral part of the global pharmaceutical value chain and many Indian companies are participating in this global growth potential through their organic as well as inorganic initiatives. Pharma companies from Gujarat have also contributed significantly to this process through acquisitions of foreign assets or by having export-led business models – reflected in Gujarat’s increasing share in India’s pharma exports as well as industry turnover.
Going forward, as India further increases its dominance in the world pharma market, Gujarat with its growth enablers and strong building blocks can become a global pharmaceutical hub. However, this would call for an enormous change in mindset and transformation to attract global capital and talent. The path to globalisation is full of opportunities but also fraught with risks. Companies which would develop the right framework that would help them capitalise on this opportunity and mitigate risks will benefit the most, he opined.
Pharma SEZs
Also we need to focus our attention on the proposed pharma SEZs which are expected to further boost India’s pharmaceutical exports segment. And Gujarat, which is witnessing a vibrant growth in this segment, will be one of the major beneficiaries of this development. SEZs are instrumental in bringing in globalization at a faster pace, due to their inherent outward looking foreign trade focus by establishing close global contacts. SEZs, therefore, offer distinct advantages to export oriented pharma companies who are present in these zones. SEZs— which have good infrastructure facilities and technology— can help these pharma companies develop a global mindset, he emphasized.
Gujarat is set to witness tremendous benefits from the development of SEZs, as it already has an established pharma ecosystem with excellent infrastructure facilities. Through these SEZs, pharma companies in Gujarat will further facilitate India's integration in the global pharma industry. Also there is a strong local and global opportunity for Gujarat in the manufacturing of pharmaceutical machinery, given its strong and well established engineering sector.
According to industry estimates, approximately 35-40 per cent of India’s pharmaceutical machinery is produced in Gujarat. The strong growth prospects of the pharmaceutical exports segment and growing demand from the domestic market, will further fuel growth in the pharmaceutical machinery sector. However, Gujarat’s engineering sector is highly fragmented, especially the pharma machinery manufacturing segment. Due to the highly fragmented nature, there is a dearth of pricing power and critical scale. This in turn restricts the ability to produce the technology-driven products required for operating in global markets. The pharma machinery manufacturing industry in Gujarat needs to consolidate and synergise the skills and complementarities available in the broader engineering sector (like the CNC machine tools industry) to be able to create world-class players with the scale and resources required, to tap the global as well as local demand. As such Gujarat’s dominant position in India’s pharmaceutical sector is well known. The next logical step is to aspire for global leadership in the pharmaceutical industry.
Need for new strategies
Pharmaceutical sales in India grew at an average annual rate of 9.6 per cent in 2000-04, faster than growth in GDP and real private consumption. As so many of India’s healthcare requirements are being met by private expenditure, rising personal incomes should push pharmaceutical sales steadily higher. This is already being reflected in rising revenue for pharmaceutical companies. In the pharmaceutical sector, comparisons are now being drawn between India’s increasingly successful drug companies—whose exports are growing rapidly—and its well-known information technology (IT) companies. Indian firms such as Ranbaxy Laboratories and Dr Reddy’s Laboratories, which derive more than 50 per cent of their revenue from international sales, should grow steadily, he informed.
Exports have become a major growth area for Indian drug manufacturers. Domestic pharmaceutical companies have thrived by using their low labour and research costs to export generic drugs to developed-country markets, especially the US. Exports are likely to maintain strong growth in the coming years. Opportunities in the developing world are also expanding rapidly.
But to maintain the growth momentum, the Indian pharma industry at large will have to focus on the emerging techniques and work out new strategies to overcome the dependability on obsolete technologies. The local production of copycat pharmaceuticals, patented in other countries, is widespread. Several multinational drug companies import bulk drugs from the parent company and process them for the local market. India is self-sufficient in terms of formulation technology, including those for sulpha drugs, vitamins, hormones and a number of new synthetic drugs. Also India is home to the largest number of pharmaceuticals plants approved by the USFDA outside the US.
But driven by the change to a product patent regime and the opportunities offered in the international market, the mindset of Indian companies towards research has altered. Indian companies are shifting their focus to innovative research that is, developing non-infringing processes, New Chemical Entities (NCEs), Novel Drug Delivery Systems (NDDS), Biopharmaceuticals etc. Thus Indian drug companies have started to invest more in research and development to produce their own patented products.
The Indian industry at large has developed good R&D skills through reverse engineering. But adoption of product patent regime has forced industry to acquire product development skills. While investments in R&D may be lower than global standards but now growing at 32 per cent per annum as Indian companies surge for intermediate level of technology competence or to affiliate themselves with large Western pharmaceutical companies and become outsourcing centres for some of those firms’ activities, such as clinical trials.
The better-financed companies are already attempting to develop their own drugs—to become innovators instead of just copiers. This is an expensive process, and will not yield results quickly, if ever. As an alternative, Indian firms are expanding their overseas sales of existing generic drugs. To that end, some have already established production facilities and equipment that meet regulatory standards in the US and elsewhere. Some Indian companies have also begun purchasing foreign pharmaceutical firms to improve their access to overseas markets and develop new profit streams.
Also the Indian firms have begun collaborating with Western drug companies on back-office clinical trials and other research-oriented activities, which Indian companies can often perform at a fraction of the developed-country cost, he informed.
Challenges and solutions
If one were to do a SWOT analysis of the Gujarat pharma sector then I would rate the strengths of the industry as modern infrastructure facilities, backward linkages with raw material suppliers, established pharma industry, entrepreneurial mindset, well-developed allied industries and a benign regulatory environment. As far as the weaknesses are concerned then it is definitely the low level of spend in the R&D sector, relatively inadequate technical manpower and skilled workforce and limited international exposure for most small to medium scale companies.
Amongst the opportunities are SEZ-led significant export opportunities and high growth segments such as CRAMS, R&D and generics. As far as threats are concerned for Gujarat then announcement of tax holidays from governments of other Indian states, emergence of other alternative pharma destinations abroad, inadequate emission norms and waste disposal facilities may hinder growth. Gujarat’s dominant position in India’s pharmaceutical sector is well known. The next logical step is to aspire for global leadership in the pharmaceutical industry.
However, global dominance would require continuance of current growth-oriented policies that have helped Gujarat achieve this mark, and acquisition or development of capabilities required for operating in the global market place. Many pharma companies in Gujarat have adopted the inorganic route to participate in the global markets. However, operating in the world markets is not just about acquiring global assets but also about having a global mindset. In order to benefit from the on-going integration of the world pharma markets, the pharma industry and companies have to change internal mindsets to think and compete globally, and create an environment of innovation. Companies would have to imbibe a culture that enhances its efficiency while responding to the global challenges in different geographies. Having a world-class management team, reflective of the diverse global markets in which they operate, would be a start in this direction. The use of global IT solutions is another area that needs to be addressed, he concluded.