The pharma SMEs in Gujarat are reaching out to global customers with 22 percent share in India’s drug exports. However, competition from big players and pricing remains a concern
The story of India’s pharmaceutical sector has been that of transformation from being an insignificant player to a major destination. There
was a time when Indian companies would wait for import of bulk drugs for processing from large pharmaceutical companies abroad. But over the last two decades, India’s pharmaceutical sector has become a force to reckon with, thanks to the growth of number of indigenous companies that have invested heavily in research and development of original formulations. The domestic formulations industry has grown at a compound annual growth rate (CAGR) of 13 percent between 2002-2007. The introduction of product patent regime has seen a spurt in R&D activity. Globally, the pharmaceutical industry has been growing at a CAGR of six to seven percent over the last few years. The US still continues to rule the roost along with Japan and other developed countries in Europe as the major drug manufacturer. According to the industry sources, the global pharmaceutical market is in a state of churn with branded products seeing a decline due to the expiry of a large number of patents, inflow of generic drugs and launch of several new brands. In all this, Indian companies have only gained with the industry turnover pegged at Rs 250 billion.
| Growth of Gujarat’s Pharma Turnover vis-à -vis India |
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| The NPPA considers data provided by large players in the pharmaceutical business to decide the price of the medicines. This is detrimental for small manufacturers for whom the cost of manufacturing can be much higher compared to the big companies.
Dr R S Joshi |
It is an uphill task for SMEs to win the marketing battle with giants and survive.
Dhiren Vyas |
Gujarat in the Pharmaceutical Sector: Being home to around 3,500 drug manufacturing units, Gujarat is one of the country’s most enterprising states in the pharmaceutical sector. It boasts of 42 percent share of India’s pharmaceutical turnover and 22 percent share of exports. A major challenge for small pharma manufacturers is pricing, which is decided by the National Pharmaceutical Pricing Authority (NPPA) every 15 days. "Large manufacturers are making five to ten crore tablets while a small manufacturer can make only five to ten lakh tablets. Those who are making tablets in crores can go in for bulk purchase of ingredients and avail discounts. Therefore the cost of manufacturing a tablet for them is much less compared to that of small manufacturers," say Dr R S Joshi, Executive Secretary, Indian Drug Manufacturers' Association (IDMA) Gujarat Board. The government fixes price based on the data provided by large companies, thus small companies stand to lose. To tide over the situation, the IDMA has asked the government to collect the price-related data from small manufacturers and then decide on the price of the end product but to no avail.
| Quick Points |
| Gujarat’s Share in India’s Pharma Turnover: 42 per cent |
| Share in India’s Drug Exports: 22 per cent |
| People employed in Gujarat’s pharma units: 52,000 |
| Alembic, one of the oldest pharma companies, was set up in Vadodara in 1907 |
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| Growth drivers for SMEs |
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But Gujarat’s position in the pharma sector dwindled when Baddi in the Solan district of Himachal Pradesh emerged as a major investment destination due to a number of tax holidays that were being offered. Among the incentives on offer were 100 percent excise duty exemption for a period of ten years, full income tax exemption for the initial period of five years and then 30 percent for the next five years. Also on offer were capital investment subsidy of 15 percent on plant and machinery. "This led to several units being closed down in Gujarat as many companies moved to Baddi," says Joshi. "As the incentives of selling to domestic consumers declined, many of the units in Gujarat started to focus on exports, which has now grown in a big way," he adds. To stop its companies from fleeing to Himachal Pradesh, the Gujarat government started offering incentives by reducing excise duty from eight percent to four percent. This has led to companies again considering Gujarat as a lucrative destination for pharma manufacturing. With the WTO patent protection coming to India, new products have gone up considerably. "By this time most of the molecules, which were not available in India were launched by a number of companies. This has created more number of me-too brands in the market," says Dhiren Vyas, General Manager – Marketing, Mann Pharmaceuticals. This brought in new challenges on the marketing front and resulted in a virtual price war while causing erosion in the profitability of the company, he adds. The medium and small size companies suffered due to lack of marketing and financial power.
| Growth of Gujarat’s Pharma Exports vis-à -vis India |
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Among other challenges faced by pharma SMEs, not enough exposure to international environment and standards of developed market, low capital base and difficulties in raising funds to upgrade their facilities, slackness on R&D activities, and growing competition from other countries are also a cause of concern.
| Dhiren Vyas, GM – Marketing, Mann Pharmaceuticals |
| Vyas has 35 years of experience in the pharmaceutical sector with specialization in marketing, having worked with Novartis for 28 years in the past.
How has the pharmaceutical sector in Gujarat changed over the years? What are the challenges with respect to the manufacturing norms? With incentives coming from other states, how is Gujarat holding on to its position in the pharmaceutical sector? What are the marketing challenges that pharma SMEs are facing? |
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written by celestine, December 10, 2010
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