There is a great opportunity that awaits India in the area of contract manufacturing in the pharmaceutical industry. Already, there has been lot of developments in this area and Indian companies are increasingly looking at export markets by equipping themselves for attracting contract-manufacturing business, which is likely to get a big boost post 2005.

Globally, contract manufacturing in the pharmaceutical industry has been aided by the fact that companies across the world don't want to build expensive manufacturing facilities and thereby risk getting stuck with expensive capacity that they might not use all the time.

In a paper, Erica L. Plambeck, Assistant Professor of Operations, Information, and Technology at the Stanford Graduate School of Business, notes that the pharmaceutical industry is characterized by long development cycles (roughly 12 years) and intense time to market pressure. Consequently, a company that wants to manufacture its own product must make a large capital investment in a plant before the drug has completed regulatory reviews. If the drug fails, the plant may have little value. Given this, it is always wise for a pharma company that has spent hundreds of millions of dollar developing a drug to outsource manufacturing to somebody else. No doubt, today contract manufacturing in pharmaceuticals is worth billions of dollars.

Several factors have been working to India's advantage in contract manufacturing. India has got an excellent pool of highly qualified and trained pharmacists/scientists and other pharma workers, and its track record of innovation has been excellent. India's technical talent can match the best available in the world in this knowledge based industry. Also, Indian companies' focus on quality has made them attractive partners for MNC pharma companies.

There are many US FDA approved manufacturing facilities in India that enable local players to offer significant benefits in the drug development process. To top it all, cost savings is the major advantage that global companies can get in India by outsourcing manufacturing. This cost savings comes without any compromise on quality.

However, only those Indian companies that have modern manufacturing facilities conforming to the international standards could make some progress in roping in international clients. One has to appreciate that contract manufacturing is a high volume and low margin business, therefore, the manufacturer needs to have sufficient critical mass and sustaining powers for survival and growth in the cut throat competitive global markets.

The international regulatory requirements of various countries are highly demanding and never ending. The global pharma industry, therefore, is continuously under tremendous pressure from governments, national regulatory bodies etc. for high tech, international standards manufacturing facilities. It is not easy to continuously upgrade facilities to meet these never ending demands and keep on producing quality products to feed the markets. Therefore for long-term growth and survival, the contract manufacturing has to build up a reputation for absolute quality and reliability at lowest cost.

The problem gets further compounded due to DPCO (Drugs Price Control Order). It is becoming increasingly difficult at the national level to cope up with the rising costs and when it comes to international level negotiations the DPCO norms which are available to the markets being the benchmark and the contract manufactures are pushed on the defensive by the prospective outsourcing companies as they readily have the base figures under DPCO with them. This makes negotiations meaningless. The spiraling input costs and the margins being not commensurate it becomes difficult to survive in this volatile business as the quality requirements and technology updation expected by the international regulatory bodies and the customers keep on adding to the costs.

There is no doubt that the future will see the international pharma community increasingly relying on India and Indian companies for contract research and contract manufacturing activities.

- The author is general manager, Unichem Laboratories Limited, Mumbai