The increasing pressure in the manufacturing outsourcing sector in the country may result in closure of many small scale pharma companies, as the large scale manufacturers opt to sign contract with the firms quoting manufacturing cost less than whatever cost approved under the Drug Price Control Order (DPCO), according to the small scale manufacturer's body.

The Federation of Small Scale Pharma Industries of India (FSSPII) alleges that a majority of large scale companies now opt to give manufacturing contracts to small scale units who offer at 80 per cent of the manufacturing cost, leaving the small scalers little option to survive in the competitive market.

“The DPCO specifies the fixed manufacturing and conversion costs for pharma companies while deciding the selling prices. However, the small scale companies which take up contract manufacturing for large scale firms are not even getting 80 per cent of the manufacturing cost. The big companies are opting for lowest quotation for contract manufacturing and we are forced to accept it due to the increased competition,” says Dr T S Malvankar, president, FSSPII.

Many of the small scale companies are facing closure due to this trend in contract manufacturing, which forces them to run their production unit at a loss. The small scale manufacturers are quoting even less than 80 per cent of the manufacturing cost while going for tenders and the large companies are exploiting the situation for their gain, he alleged.

“Its a matter of survival for the small scalers. If you are not ready to quote a lower price even by accepting a small loss, your competitor will win the tender and you are doomed. This makes the small scale company to go for the tender at any cost,” explains Malvankar.

The issue, coupled with the upcoming implementation of Good Laboratory Practices (GLP) and the revised spurious drugs law will create a serious impact in the small scale pharma segment in future, fears the federation. The small scale firms, which has nearly missed the threat of closure during implementation of revised Schedule M will have to invest another Rs 25 to 30 lakh to comply the GLP norms even though they are in loss due to the contract manufacturing business model.

The federation has decided to take up the issue with the ministry of chemicals soon. A representation in this regard will also be submitted to Gulam Nabi Azad, Minister for Health and Family Welfare. FSSPII will also request the government to table the Dr Najma Heptullah Parliamentary Committee Report on revised Schedule M norms, whichhas certain provisions for the survival of the small scale firms.