CRAMS players face cost pressure amid slowdown

Segment's growth has tapered down to 10-12% from an earlier 15-20%:Industry

Amid a general slowdown, companies in the contract research and manufacturing services (CRAMS) space are in for some cost pressure in the coming quarters as the market does not have many early stage (or new) products. Industry insiders claim that the segment growth has tapered down from an earlier compounded annual growth rate (CAGR) of 15-20 per cent to around 10-12 per cent now.

Dishman Pharmaceuticals and Chemicals Ltd, a major player in the CRAMS segment, has seen a dip of around 11 per cent in revenues from the segment during the first quarter of the current fiscal to Rs  54.6 crore on a standalone basis.

Dishman's chairman and managing director J R Vyas said, "There is a cost cutting pressure from customers given the current market situation. However, we have been able to maintain competitive prices and hence have not had to reduce prices so far."

Sarabjit K Nangra, analyst with Angel Broking explained, "The CRAMS segment has gone through tough times in the last couple of years and cost pressures would be there, especially as new products are not coming into the market. Companies, however, would try to improve margins by internally re-aligning their cost structures, and Dishman has done a good job at that."

According to Centrum Broking, one of the major risks that Dishman faces is reduction of R&D budget by multinational pharma companies in the face of global slowdown.

Pankaj Patel, chairman and managing director of Cadila Healthcare (Zydus Cadila) too admitted that the growth in the CRAMS segment has indeed tapered down in the recent years. "Contrary to expectations, the business is not growing," he said.

Patel, however, claimed that since CRAMS did not form a significant part of their revenue, despite that cost pressures, the impact on the company would not be much.

Nangra, however, pointed out that "Zydus has mainly focussed on one client for the segment, Hospira. The company is now trying to diversify by adding more clients to its portfolio." Zydus has a joint venture with Hospira Inc to make oncology injectables for the US market.

The US market recovering is a good sign, say companies. A senior official of Intas Pharma, which too has CRAMS operations, said, "The impact of cost pressure would vary from molecule to molecule in the CRAMS business. However, signs of recovery in the US market are indeed a positive."

Companies need to increase focus on early stage products, where there is not much competition, say analysts.

P Bohra, pharma analyst with Nirmal Bang said, "In the last two quarters the growth of the CRAMS segment has slowed down. It was growing at a 15-20 per cent CAGR for the last two years, but now it has slowed down to 10-12 per cent."