Indian pharmaceutical companies are well positioned to generate good quality and high value products for global pharma players by taking on contract manufacture work. The pharma sector has started taking advantage of this situation by going in for additional investments in infrastructure and hiring qualified personnel to maintain its lead in production and to narrow the gap in maintaining time lines for deliveries. Considerable efforts are being made to refine entrepreneurial and management skills, ease systemic inefficiencies such as administrative red tape and regulatory uncertainties to achieve improvement.
It is not just economies-of-scale that global pharma majors can capitalize from India but the availability of state-of-the-art infrastructure and access to skilled personnel which makes the country a one-stop shop for all kinds of production from bulk drugs to packed formulations. These factors allow international companies to decide on India because of the combination of production plants and personnel that make an excellent choice for contract manufacture. Another attraction for international pharma majors to look at India for outsourcing is the flexibility of companies here to be able to customize orders.
It is important to note that in the last few years, low cost is no longer or a prime reason for opting for the service. It is a fact that global companies still consider it far more economical get products manufactured in India however quality of plants and people out-beat the reasons for India as choice of contract manufacture.
Contract manufacturers in India
Companies vying for a share of the contract manufacture business pie in India are in the large, medium and small scale segments. There are totally around 29,000 pharma units in the country. Out of the top 200 companies, around 30 of these are dedicated to contract manufacture. From the balance 170 companies, around 120 units offer both contract manufacture and are engaged in the production of their own range of branded generics. Therefore a total of about 150 companies in contract manufacture contribute 60 percent of this business in India. The rest of the companies in 200-odd top units are not in the contract manufacture business.
Contract manufacture business generates earnings to the tune of around Rs.12,000 crore annually. These earnings have come about from the business which is shifting from own manufacture to contract manufacture that is contributing to the growth. Today when the total pharma market is growing at 9 percent, contract manufacture is registering about 15-18 percent growth annually.
India is a quality conscious manufacturer and not just an economical manufacturer. The ideal mix of top quality skilled workforce and world class units is an irresistible option for global customers who are scouting for viable and valuable outsourcing options.
This is the competitive advantage which any global customer can get on a platter. Indian companies are making substantial investments in seekingapproval of regulatory authorities. The country's pharma units are also known to have largest USFDA approvals outside US. Regulatory authorities not only from US but Europe, South Africa, Japan are frequently coming to India to inspect the facilities.
Contract manufacture for local customers
A year ago, contract manufacture was a lucrative option for Schedule M compliant medium-small units in the country The reality is that from January 8, 2005, the Indian pharmaceutical sector was hit by a Union government announcement for an excise duty levy on MRP. There was a huge hue and cry in the industry. The Union government provided an option of setting base in the Excise Free Zones at Baddi in Himachal Pradesh, Uttaranchal and Jammu & Kashmir. Following the excise duty regime, until now 60 percent of the 150 companies which constitute the national market have not moved out of contract manufacture but the market polarization has changed. The business continues but it has undergone a geographical shift. The manufacturers have invested in facilities in the Excise Free Zones to take advantage of the incentives.
Going by the logistics of the location of the Excise Free Zones which are located in north India, the southern states of the country: Andhra Pradesh, Karnataka, Tamil Nadu and Kerala pharma companies large-medium-small have lost around 40 percent of the business of contract manufacture. These states are only doing around 60 percent of job works they were previously doing.
(The author is executive vice president- Technical, Medreich Limitedand president, Indian Pharmaceutical Association, Karnataka State branch.)