The declining budget allocation for research and development (R&D) activities due to global economic slump as well as the exorbitant rise in the lab instrument costs have impacted the fortunes of the lab chemicals and equipment sectors.
Specifically for India, the budget allocation for R&D from the Union government has fallen from 15 per cent in 2009 to five per cent in 2013-14. The scientific community now foresees a further dip in the R&D allocation.
There is a serious erosion of confidence among the scientific community as they fear that the abysmal fund crunch would badly hit innovation. The government should understand that research will not yield immediate results and unless there is continuous funding, prospects of innovation is bleak, they point out.
The steep hike in the cost of lab instruments even within weeks is also posing a serious problem. For example Gas Chromatography-Mass Spectrometry (GCMS) instrument costing Rs. 35 lakh in mid-2013 has soared to Rs. 46 lakh at present, point a section of scientists.
All is not well from the lab chemical industry and instrumentation supplier perspective also.
“The year 2013 was better off, compared to 2012 as many of the Contract Research Organizations (CROs), contract research manufacturing services (CRAMS), or stand alone contract manufacturing organizations (CMOs) and pharma companies performed better. The year 2013 also witnessed the consolidation of the lab chemicals sector with changes at management levels. Though the market growth is close to double digit, majority of the lab chemical companies depend on pharma or related industries for business development. In 2014, we expect Indian lab chemical manufacturers to move on to production of pharmacopeial grade chemicals like USP- NF, PhEur and BP. There is some optimism that in 2014 , after country’s general elections, there could be an increase in the fund allocation for research. There are already signs of Indian pharma embarking on facility expansion to tap the regulated markets which is expected to help lab chemicals industry to register better growth as compared to 2013,” said S R Sudhakar, Chief Executive Officer, Leonid Chemicals.
Lab chemicals overview
The big names in the lab chemicals and instrumentation space globally are Sigma Aldrich (lab chemicals) Merck Millipore (lab chemicals and instrumentation) Waters Corporation (instrumentation) Thermo Fischer ( lab chemicals and instruments).
Specific to India, there are around 15 lab chemical companies. In March 2011, Rankem Fine Chemicals Ltd formerly Ranbaxy Fine Chemicals Ltd was acquired by global chemical major Avantor. In April 2013, it changed its name to Avantor Performance Materials. The unit is a leading provider of chemicals and other products to laboratory, pharmaceutical and diagnostics customers in India.
The Mumbai-based SD Fine Chemicals is an ISO certified and one of the largest lab chemical companies in Asia. The Gujarat -based Finar Chemicals too is one of the fastest growing laboratory chemicals manufacturing companies in the country. The Bengaluru- based Leonid Chemicals is fast expanding its presence not only in India but also globally.
However, the Indian lab chemicals space is largely dominated by distributors of global companies. Around 70 per cent of the market is held by the large global players and remaining 30 per cent share is by Indian companies.
“Barring a few Indian companies, most global players have registered growth. While the major players clocked single digit growth, the smaller players registered double digit growth. This includes Leonid which achieved a 35 per cent growth over the last year,” Sudhakar added.
The large global lab market including chemicals and lab-ware is estimated around US$ 25 billion in which the chemicals market is valued around US$ 15 billion. Indian research chemical market is growing but still small and around three per cent of the global market, valued between $400 million to $500 million. Clearly India, China and Latin America, the lab market is growing much faster. But the scene is not all that rosy in these regions, because budgets have come under pressure. Although in 2009-12, there was no visible recession in Asia, the financial crisis was visible in the US and EU particularly in academia and research institutions, which experienced weak funding, said Rakesh Sachdev, President and Chief Executive Officer, Sigma Aldrich Corporation in an earlier interaction with Pharmabiz.
The Bengaluru-based Sigma Aldrich Chemicals Pvt. Ltd, a subsidiary of Sigma Aldrich Corporation, is known for its comprehensive lab research chemicals. The company sees India as one of the key locations to manufacture, package and distribute the product. It is looking forward to capitalize the opportunities to manufacture and supply to the industry here.
The Indian advantage
India’s lab chemicals and equipment market is cost- effective in terms of labour and manufacturing costs with qualified personnel.
Recognizing India’s growth potential long ago , the global lab equipment major ,Waters has been investing in creating world class infrastructure and manpower to address the local requirements.
Training and education is another critical area where we have has continually invested over the years to enhance the technical base in the country, said KV Venugopalan, President, Waters India
Being attracted by the Indian talent in chemistry, global lab chemicals players are expanding into the country driven by the easy access to qualified personnel pool, noted Sachdev.
However, several Indian companies including Leonid Chemicals beg to differ on this aspect. The reality is that Indian market size is not very large for lab chemicals. Therefore, many management graduates with science background are not keen to join this field. The biggest challenge is hiring at the entry level. When it comes to qualified personnel for higher post it is another major issue as those armed with experience opt for other sectors such as CRAMS and active pharmaceutical ingredients (APIs), stated Sudhakar.
Future of lab chemicals and equipment
The leading lab chemicals in the market are the pharma grade chemicals which are getting more popular and having better realization when compared to general lab chemicals. Moreover some of the advanced chemicals are being used in nanotechnology research. Though most of these products are imported, demand in the country is growing steadily, noted the Leonid CEO.
The future will be one of consolidation in India and global markets. In fact, the consolidation has started and companies are working to adjust with the Indian business environment and therefore the transition is under progress. The scene is same even on the international front, said Sudhakar.
Another transformation underway in 2014 would be an excellent opportunity for value-addition. This is where Leonid too is slating an investment of Rs. 15 million or Rs. 1.5 crore to expand its production plant, especially distillation of solvents and new packing sections to meet good manufacturing practises. Moreover, we are looking at multi compedial or USP- NF, PhEur etc. In 2014, we are participating in few overseas trade shows and also have appointed a few distributors which will take us beyond the boundaries in the coming months. At the same time we are increasing our field strength in Indian market with more distribution points to service our major customers. All these activities are supported by expanding new product lines and manufacturing capacities,” said Sudhakar.
Further, there are also changes in the system of procurement of lab chemicals where from a wide range of products offered by varied distributors, there is a great interest to opt for one-stop solution providers and this is will give opportunities for many major players such as VWR, Cole-palmer etc. to increase their presence. Though this may take some more time, but this is going to be the future, pointed out Sudhakar.
Coming to lab equipment, cost is an important element to enhance productivity, improve quality and better asset utilization, said companies like Waters India.