Pharmabiz
 

Bifurcation brings a windfall for bulk drug industry

A Raju, HyderabadThursday, August 21, 2014, 08:00 Hrs  [IST]

The bifurcation of Andhra Pradesh into Telangana and Andhra Pradesh has turned out to be a blessing in disguise and has brought a windfall for the pharma and bulk drug industry in both the states. As per current indications, both Telangana and Andhra Pradesh are going to attract new investments in pharmaceuticals and biotechnology sectors in the coming days. To make the best out of the emerging scenario, both the states are drafting comprehensive industrial road maps and soon a new pharmaceutical policy is likely to be unveiled, opine industry experts.

The pharma industry in the erstwhile Andhra Pradesh state had to face many problems, particularly with regard to environment, power and water. Added to this, during the past three years, due to the political turmoil, the industrial sector generally had to face many problems. The pharma sector was badly hit due to lack of policy initiatives and a clear decision making body in the government. Because of all these factors, the pharma sector in the state could not attract any new investments.

However with the passing of the Telangana bill and with the creation of new states, things are fast changing. Now the two governments are keen on developing their states on each and every front. As a part of this, both governments are competing to attract new industrial investments and showering freebies such as land, power and water at concessional rates and providing tax exemptions to new investors.

The Telangana government is already having a well established pharma and biotechnology infrastructure. It has well built Special economic Zones (SEZ) such as biotechnology SEZ in Shamirpet, Green Industrial Pharma SEZ in Jadcherla along with hundreds of bulk drug and formulations units in industrial corridors of Katedan and Jeedimetla in RangaReddy, Kottur and Timmapur in Mahabubnagar and other clusters in Nalgonda, Medak districts of Telangana.

The new government is taking advantage of the existing infrastructure and inviting investments in the pharma sector and also encouraging expansion of the existing units. Added to it, recently the Supreme Court has also lifted the ban on expansion of pharma units in and around Hyderabad. Encouraged by this, the Telangana government has decided to build the ‘Pharmacity’ over an area of 7000 acres in the outskirts of Hyderabad, out of which 5000 acres will be allocated purely for industry and remaining 2000 acres will be allocated for residential purpose for the employees of the Pharmacity.

“With the announcement to allocate 7000 acres to build Pharmacity, Telangana government is trying to stop the migration from both pharma and biotechnology industries. Hyderabad has a moderate climate and is well suited for industrial establishments. Already representatives from Japan, Netherlands and US have met the chief Minister of Telangana, K. Chandrashakar Rao (KCR) for investments. KCR has also announced an industrial corridor in between Warangal and Hyderabad. Hyderabad is also a safer place from earthquakes and natural calamities. About 46 Research, 28 defence, 48 central government institutions are there in Telangana. By the end of August, a new industrial policy is likely to be unveiled in Telangana” opined S.V. Krishna Prasad, MD and CEO of Cito Healthcare private Ltd.

The residual Andhra Pradesh also wants to attract the bulk drug industry to potential areas in the region. The Jawaharlal Nehru Pharma city in Visakhapatnam is a well-known hub for bulk drugs and formulation units. The Sri City SEZ in Nellore district has a well built basic infrastructure for setting up formulation units. There are also budding bulk drug zones in the districts of Srikakulam and Vijayanagarm Leading companies like Dr. Reddy’s, Aurobindo and Eisai and many other national and international API and formulation units are already well established in AP.

However comparatively, the residual Andhra Pradesh is lagging far behind Hyderabad in terms of number of bulk drug and formulation units. To fill this gap, Chief Minister of Andhra Pradesh had recently announced setting up a pharma corridor in between Krishna and Guntur districts.

Another area which the bulk drug units are expected to come up in a big way in AP is Ananthapur district having surplus government land. One big advantage of AP is that it has surplus power, water and human resources, compared to Telangana. Experts are of the view that industry needs uninterrupted power and encouragement from the local government, so that in the course of time the power rich state of AP may be able to attract industries from across the country.

“In AP, the government apparently is carefully assessing the shortcomings in the industry’s development so far and is forming a sound policy having preventive checks. Both the governments know that pharmaceuticals is a sun rise industry and one of the most promising one both for revenue generation and employment opportunities. Thus the importance of this industry to both the governments need not be over-emphasized” added Prasad.

The glorious past and dynamic future
With the advent of economic liberalization during 1990, the pharmaceutical and biotechnology industry in erstwhile Andhra Pradesh witnessed an exponential rise. Though the industry had scaled new peaks during its initial years from 1990 to 1996, it ignored the environmental issues which earned the ire of Supreme Court leading to total ban on expansion and new establishments in and around Hyderabad.

The 17 year ban badly hit the growth of bulk drugs industry and many had to shift to other states in the north India. Despite odds, pharmaceutical industry from AP had contributed a great deal to the overall growth of Indian economy. AP which was once regarded as the bulk drugs capital of India accounted for nearly 30 per cent of the country's bulk drug production and Hyderabad is the major hub within it.

According to industry players in the region, post bifurcation of Andhra Pradesh, the one segment that might actually stand to gain is the bulk drugs industry. With Hyderabad having reached the saturation point, now there is ample opportunity for other coastal regions in the state to emerge as bulk drug manufacturing hubs, they point out. As against the traditional bulk drug hub Hyderabad, the other cities and districts that could stand to gain from the split include Vizag (under Seemandhra), Ongole, Nellore and Krishna.

"With the bifurcation, now districts like Nellore, Ongole and Krishna will have huge opportunities to grow up as bulk drug manufacturing hubs in the region. The main infrastructure required for the industry is good connectivity, water and ports to ship the raw materials and products in or out. If Hyderabad could develop as a major hub, despite being a land-locked city, areas near ports like Kakinada and Krishnapatnam will now be looked upon as potential hubs as bulk drug makers would opt to go out of traditional hubs," said, Jayant Tagore, president of the Bulk Drug Manufacturers Association (India).

Another happening city after Hyderabad is Vizag also called as Visakhapatnam. Vizag, a coastal and port city on the eastern shores, had developed as an alternative hub for making APIs or bulk drugs.

With the lifting of the ban, the bulk drug industry in the state feels that there could at least be a 25 per cent expansion in manufacturing capacity around Hyderabad and Visakhapatnam.

"After bifurcation, the Seemandhra (residual AP) region is pushing for its own hub, and it already has Visakhapatnam as an upcoming bulk drug making hub. Of the total bulk drug making units in Andhra, over 250-260 units are in and around Hyderabad, which constitutes nearly 75-80 per cent of the industry. Visakhapatnam though now has less than 25 per cent share has a strong port connectivity that could spur additional investments," said a senior official of a local bulk drug firm.”

On the whole, both Telangana and AP regions are expected to gain in a big way. In fact the united Andhra Pradesh's bulk drug production had grown from over Rs 19,000 crore in 2012-13 to over Rs 20,000 crore in 2013-14. Apart from pollution issues, the growth rate had slowed down in the wake of agitations and power issues during summer.

The pharma industry had faced rough weather during the year 2013 particularly in summer. The state government had declared power holiday for the industry because of which the industry lost around 30 per cent production.

"Last quarter the bulk drug industry in Andhra Pradesh faced a host of labour issues because of disruptions which in turn affected production and exports. In such a situation, manufacturers had to maintain higher inventory to ensure timely dispatches. This increased working capital requirements and had impacted margins. But after bifurcation the uncertainty is gone and industry is hoping for good days ahead, “says Ranjit Kapadia of Centrum Broking.

Industry is hopeful that with things settling down, the road ahead should be smoother. "While the agitation has definitely impacted the industry, especially, in the last one year, with things settling down and more opportunities opening up in the international market, the scenario is all set to improve" said a senior official of Virchow Laboratories.

 
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