A large number of small scale drug formulators in south India are facing the prospects of imminent closure of their units as the deadline for the implementation of Schedule M is fast approaching on the one hand and on the other the market conditions are becoming increasing unviable due to stiff competition.

Industry sources told Pharmabiz.com that more than 40 per cent sales of the SSI formulation makers in South India have gone down in the last two years, mainly because of their inability to compete with the established brands of generics drugs flooding the market. Tamil Nadu has the largest number of SSI formulation makers in South India numbering 750 to 800 units, followed by 150- 200 units in Karnataka and a few manufacturers in Kerala, besides the units in Hyderabad. More than 90 per cent of these firms make less than a dozen drugs meant for the general practitioners and a few OTC items like pain balms, accounting for at least Rs.500 crore.

"With the policy of liberalization , the situation has changed drastically, especially in the last four to five years. The established companies have large network and market all over India, which helps them to gobble up the market. Retailers always prefer them, as the margins are high when compared to what we can offer, and they have the company image and the brand image" laments a senior SSI drug manufacturer in Chennai.

"They manufacture in huge volumes, and can get raw materials at cheaper prices than the prices we pay for it. Similarly they have cost advantages in raw materials for packaging, logistics etc, and it is impossible for us to compete with them and the SSI manufacturer can't afford the 20-25 per cent margin' notes B.Sethuraman, Hon Secretary of The Pharmaceutical Manufacturers of Tamilnadu.

Further, the SSI manufacturers who had enjoyed hectic sales during the July to December period until a few years ago, are not experiencing such seasonal advantages for the last two to three years, though the industry sources are not able to exactly pinpoint the reasons for this situation.

Compounding their problems, the deadline to comply with the guidelines as per the 'Schedule M' are just a few months away. Most of these firms have not been able to set up the prescribed infrastructure and GMP norms. They note that it requires at least Rs. 10 lakhs to set up the infrastructure, but the banks and other financial institutions insist on collateral security, which force them to seek an extension of the deadline. "In the present conditions, where is the money, and who will give the money for upgrading or modernizing your company, as your company is finding it difficult to survive in the existing market," says a source.

Further, the stipulations related to the area requirements may force many units, especially those located in cities like Chennai, to either close down or relocate to viable places in the outskirts, aver the sources.