Though rocked by the Rs.300 crore drugs scam early this year, the Rs 2000 crore pharmaceutical sector in the state of Karanataka has proved that its quality standards are yet to be at stake. For the last nine months signals of growth came from different indicators like product launches, production expansions and exports. The one per cent slump in the growth rate is attributed to price realisations, market forces and competition.

"The drugs scam was a bad patch for the drug manufacturers in Karnataka who are known to maintain consistent quality standards. We have informed all our global customers that our products and premises could be tested and inspected at any point of time to prove our adherence to the stringent and regulated manufacturing norms," informs Dr K N Subbaswami, president, Karnataka Drugs and Pharmaceuticals Association (KDPMA) and director, Resonance Laboratories Pvt. Ltd.

Schedule M compliance

There are altogether 240 units in Karnataka and 90 per cent of them are small scale units. The drug manufacturing units are 130 (70 formulations, and 60 bulk drugs) and out of these 70 already have GMP certification as per WHO standards. Around 5-10 per cent who have not yet applied for GMP certification are mainly bulk drug units which might not be able to go in for GMP certification because of financial crunch and small scale of operations.

According to Dr Suresh Kunhi Muhammed, drugs controller, government of Karnataka, every effort will be made to ensure units go in for GMP compliance. ``If they fail to do so, we will still have to cancel manufacturing licenses, as compliance to GMP is a government order and any violation is an offence.''

The Karnataka Drugs Control department will take action against units that have not complied with Schedule M within the stipulated deadline of December 31, 2003, he informed.

Although a large percentage of the 130 units comply with GMP, there are certain deficiencies like lack of air handling systems, ancillary areas, refreshment zones, updated documentation and validation procedures which Schedule M insists.

As a long-term strategic measure to be able to survive in the post 2003, these units have gone in for capital investments to upgrade facilities to become compliant to GMP. In order to attract pharma units, the financial lending institutions have lowered the interest rates by three per cent (12 per cent to 9 per cent) for technological upgradation of plants. The Karnataka State Financial Corporation's Technical Upgradation Scheme is also a big relief for companies.

The actual growth of pharma sector and the scene of pharma production in the state will now depend on the government of India's Gazette notification about the extended date of Schedule M by two years. The extension would help at least 85 per cent of the companies to upgrade with affordable investments, team up as suitable partners for joint ventures, take on strategic alliances and tap the merger opportunities, expresses N Jatish Seth, secretary, KDPMA and director, Srushti Pharmaceuticals Pvt. Ltd.

Jatish who is optimistic about the survival all the units in the post 2005 era asserts, "It is improbable that small-medium units would close down as there is a renewed confidence among manufacturers to prove their mark as outsource outfits for Indian and global pharma majors."

Current industrial scenario

The state's drug units contributes Rs. 2,000 crore annually to India's GDP and has generated 12,000 direct jobs and twice the number in indirect employment. Out of the total Rs. 11,000 crore exports, Rs. 850 crore is from Karnataka. Units have adhered to regulatory norms that has helped to set-up for modern plants, inform KDPMA members
Early this year, the Karnataka mega projects committee cleared proposals worth Rs. 3,620.33 crore for 12 projects, out of which two are for the pharma sector that include Himalaya Drug Company which has now planned a major investment of Rs.165crore for a manufacturing unit and a research and development centre for ayurvedic medicines and formulations located at Bidadi in Ramanagaram taluk on the Bangalore Mysore Road.

Small scale sector

The state of small scale pharmaceutical sector is that if the extension of the Schedule M comes through, they will be able to consider their survival options in post-2005. Though the general view is that small units will not be able to abide by Schedule M before December 2003 because of the high cost of modernisation and the lack of a proper price conversion cost they get from their customers which is not adequate to upgrade the facility, the general perception is that the Schedule M deadline extension comes as a breather for the industry.

Specialists in contract manufacturing

The state has made significant inroads into contract manufacturing. Of the 70 manufacturing units, more than half are engaged in contract manufacturing or in `job works'. Many multinationals in India have engaged at least one manufacturer or loan licencee from Karnataka and they include Medreich Sterilab Limited, Kemwell Pvt Ltd., Banner Pharmacaps (India) Ltd, Strides Arcolabs, Bentley Remington, Remidex Pharma and Sterling Labs.

In fact, Indian pharma's top five brands of Pfizer and GlaxoSmithKline are already outsourced from Karnataka. The units have been recognised for stringent regulatory enforcements and known to manufacture quality products. Global pharma companies have already approved some units for contract manufacture which have received several repeat orders, says Suresh Khanna, executive director Kemwell Pvt.Ltd.

Issues affecting the sector

The main problem is the Drug Price Control Order (DPCO) 1969 and its revised version of 1993. The DPCO needs updating and is not for the present scenario, state members of KDPMA.

"There is a need for a strong regulatory mechanism. We need a new legislation by the government of India to prevent counterfeit and spurious drugs that could deal with the issues in a strict manner," said V Madhusudan, executive vice-president and head of global corporate research and development India, Banner Pharmacaps.

"Redundant laws and price-cuts affect the contract manufacturers who are forced to accept low remuneration by the contract-giver which is difficult for manufacturers to plough back profits into investments," say C P Bothra, director Medreich Sterilab and Pravin Iyer, chief operating officer.

Karnataka's pharmaceutical sector are hell bent to succeed, avers KDPMA members.