Karnataka's small and medium scale pharmaceutical companies are getting set to offer quality outsourcing facilities for global and large Indian companies. The managements of these units are determined to stay alive and prove that with novel management strategies any unit could prove its worth during post 2003 (deadline for Schedule M compliance) and post 2005 (patent regime).

Out of the 253-pharma companies in Karnataka, 90 percent are small and medium sized. In order to stay competitive, many units are evaluating capital investments, joint ventures, strategic alliances and merger opportunities.

Large pharma companies in the country are eager to manufacture generics for the global companies. Currently, 400-500 generics are produced in the country. In the next 5 to 10 years, the global generic market is going to be worth more than Rs. 180,000 crore because 40 molecules are going off patent.

Global companies are looking at India for low cost development, sales and marketing support to meet the increasing market demand. Indian pharma majors keen to enter the global generics market plan to undertake the manufacture for international customers at their in-house facilities to monitor processes. They would propose to outsource drug production for the domestic market from quality small-medium manufacturers in the country.

In such a scenario, Karnataka's small-medium units could ideally fit into slot as third party manufacturers and serve as a major hub for pharmaceutical outsourcing. The factors in favour of the small-medium units are that the top five brands in the country from pharma majors like Pfizer and Glaxo SmithKline 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, N Jatish Seth, secretary, Karnataka Drugs and Pharmaceuticals Association (KDPMA) and director, Srushti Pharmaceuticals Pvt. Ltd., told Pharmabiz.com.

The small-medium units can provide the cost advantage, fill technical capability gaps and improve returns on investments. The units can capitalise on their strengths and do well at least for a decade. They can produce new products and enter the unregulated markets as Indian drugs are in demand here because the price difference of the products is over 20 percent even compared to Bangladesh and Pakistan, informed Jatish Seth.

Just as some units facing financial crisis due to low sales and stiff competition are wanting to either close down or diversify into lucrative non-pharma areas, their managements are now assessing the scope for outsourcing business opportunities in the generics market.

As a long-term strategic measure to be able to survive in the post 2003, these units are opting for fresh capital investments to upgrade facilities to become complaint to GMP (good manufacturing practises). In order to attract pharma units, the financial lending institutions have lowered the interest rates by three per cent (12 percent to 9 percent) for technological up gradation of plants.

Further, KDPMA has also approached the State government to provide assistance to the small-medium pharma units on similar lines of the Gujarat government's low interest financial scheme to upgrade units. The association would also organise workshops on GMP guidelines.

The main advantages of Karnataka's small-medium units are its visibility in national and international market, skilled workforce, capability to produce a wide-spectrum of drugs - from bulk drugs, formulations, parentrals, soft-gel capsules to sustained release formulations. Another added advantage for pharma units here is the State government's biotechnology initiatives that could fuel further growth.

The pharmaceutical industry in Karnataka contributes Rs.350 crore revenues to the State exchequer and provides employment for 12,000 people. Its growth rate is between 10-12 per cent as against the national pharma growth of 12-14 percent. Pharma products worth Rs. 2,000 crore are produced annually, which is 10 percent of the national production. The exports sales are Rs.850 crore which is 8 percent of Indian exports.

According to Seth, it was unlikely that small-medium units would close down as there is a renewed confidence in the manufacturers to be able to prove their mark as outsource outfits for Indian and global pharma majors.