Pharma contract manufacturers hit as IPM slows down

Contract manufacturers claim that at least 40-60% of pharmaceutical manufacturing in the country is outsourced by big pharma

The ban on fixed-dose combination drugs along with the new cap on medicine prices has significantly hit the business of pharma contract manufacturers, who now have idle manufacturing capacity.

Industry estimates suggest that in the last six months or so there has been a production cut to the tune of 25-30 per cent as many popular drugs are out of the market, and for the remaining the production volumes have come down as the pricing makes them unattractive.

Contract manufacturers claim that at least 40-60 per cent of the pharmaceutical manufacturing in the country is outsourced by big pharma. Players like Yash Medicare, a leading contract manufacturer based out of Gujarat, said that many contract manufacturers were heavily dependent on some of the products that have now been banned.

“These companies are mostly affected, and their production volumes have come down significantly. The process of switching to a new drug is a bit time-consuming, hence we need to wait for at least the next quarter to see some recovery,” said Chirag Doshi, owner of Yash Medicare, who felt that at least 25-30 per cent production is down.

Some, however, point out that outsourcing is not as high as 40-60 per cent of big pharma turnover. “The overall domestic pharmaceutical turnover is around Rs 1 lakh crore, and there are around 5,000 contract manufacturing units across the country. While these units are definitely hit, the extent of outsourcing is much less than 40-60 per cent,” said D G Shah, secretary general of the Indian Pharmaceutical Alliance (IPA), an umbrella body of domestic drug makers.

Shah argued this is because for some drugs that have been brought under the ban like corex, sourcing of an ingredient such as codine needs an approval from the narcotics department of the government. The manufacturing of such drugs is thus usually kept in-house and not many contract manufacturers would have the licence to buy codine.

Industry players including big pharma, however, also point out that the National List of Essential Medicines (NLEM) 2015, which brought over 800 drugs under price control, has also meant that the production of these drugs have been cut down. The Drug Price Control Order (DPCO) of 2013, notified in the wake of the NLEM of 2011, had covered 628 formulations. Market research firm AIOCD-AWACS feels that the impact of the NLEM 2015 on the turnover of pharma companies would be to the tune of Rs 877 crore. Big pharma players said on condition of anonymity that while no one could stop manufacturing the DPCO drugs, if these drugs were no longer profitable, one did cut down on the marketing spend, or rather they stopped marketing it altogether. This, in turn, reduced sales.

This has hit the contract manufacturers as well, and they have lost volumes.

The slowdown in the market as such is expected to continue for at least two more quarters. As a Torrent Pharma spokesperson put it, “The slowdown of the market is expected to continue for two quarters due to FDC and NLEM issues. Overall for this fiscal, the growth should be in low double digit.”

He added that the latest regulatory and technological requirements of the industry mandates considerable investments in building critical capabilities which may lead to market consolidation and higher headroom for large organised participants.