Pharma contract manufacturing in Gujarat may take a hit this year

Industry insiders estimate 7-8% decline in segment during 2014-15

Pharma contract manufacturing is likely to have a slight set back this year in Gujarat, with industry insiders estimating a seven to eight per cent decline in the segment during 2014-15.

With margins shrinking increasingly on contract manufacturing orders, small and medium sized players are increasingly focussing on tapping new export markets to ensure better profitability rather than contract manufacturing for other players.

As Bhavin Patel, director of Gujarat based Mediwin Pharmaceuticals put it, "With the new Drug Price Control Order, prices of several popular drugs have been slashed. Now, big pharma companies are placing contract manufacturing orders on tight budgets. At times, it leaves almost no margin for the contract manufacturer, who then decides whether or not to take up the job depending on the volumes." Almost every manufacturer in the state engages in contract manufacturing at some point or the other, depending on spare capacity available with them, said a senior official of the Indian Drug Manufacturers' Association (IDMA), Gujarat State Board. "However, in the recent years, several pharma firms have started to develop products for the exports market, as that offers better margins. And the focus on contract manufacturing has come down," claimed R S Joshi, executive secretary of IDMA, Gujarat State Board.

According to an industry insider based in Vadodara who runs a pharma manufacturing unit said, "A lot of people had set up facilities anticipating huge orders from big drug pharms, whether domestic or international. As several big domestic companies too started taking up contract manufacturing jobs for multinational firms in order to ensure additional revenues and utilisation of spare capacity, smaller firms have come under pressure."

Chirag Doshi, chairman of the Gujarat State Board of IDMA too admitted that contract manufacturing could take a back-seat as mid-sized players start focussing on exports. His own firm Yash Medicare, which makes generic formulations, and currently supplies to countries like Mozambique, Congo, Ghana, Nigeria, Trinidad and Tobago, has registered its products in South East Asian geographies some time back.

He, however, pointed out that at times it is difficult to turn down contract manufacturing jobs from big pharma even after low margins, as volumes are significant, and ensures a steady cash flow.

On the other hand, some Gujarat based pharma firms, who have been in the process of expanding capacity, are getting their products made by other contract manufacturers in tax havens like Uttaranchal etc. One example is a mid-sized firm Troikaa Pharma, which is yet to put up its manufacturing facility at Sanand, and meanwhile, the company has been getting its drugs made at hilly states as they are comparatively cheaper.