‘Booming pharma future lies behind the hurdles in Andhra Pradesh’

‘Booming pharma future lies behind the hurdles in Andhra Pradesh’

ORS Rao, Director, Cygnus Business Consulting & Research tells Amguth Raju about the growth pains of the pharmaceutical industry in Andhra Pradesh

, Director,
Cygnus Business Consultancy

How do you view the growth of the pharma sector in Andhra Pradesh?

Andhra Pradesh has grown into a pharma hub for bulk drugs basically for two reasons. Historically, it is because of Indian Drugs & Pharmaceuticals Limited (IDPL) and entrepreneurship and availability of adequate talent pool in the State.

IDPL was set up at the behest of India’s first Prime Minister, Pandit Jawahar Lal Nehru, in the year 1961, and was India’s largest public sector drug maker in the early days. The company was set up to enable the country attain self-sufficiency in life-saving drugs. Unfortunately, IDPL is saddled with accumulated losses of Rs 5,000 crore and has a negative net worth of Rs 4,816 crore.

Had there not been IDPL, the bulk drug industry in Andhra Pradesh would not have seen the present day. Though the company was a flagship and front runner in the early days, the paradox today is that many private sector drug manufacturing companies have overtaken it and are performing on par with international standards, giving serios competition to the global drug makers. Today, Andhra Pradesh is the preferred destination for investments in pharmaceuticals for Indian, as well as MNCs. It will also be a centre for pharma healthcare education and research and will be known for innovation in these areas. The State already has a dominant position in the pharma industry with 33 percent share of bulk drugs produced in the country. In value terms, the industry is worth $1.6 billion and the State will leverage its strong position to emerge as the next global hub of pharma with a share of around $8-10 billion by 2010 and $15-20 billion by 2020. The State exports over $500 million of pharma products. It has over 2,500 pharma companies and is home to two of the top five Indian pharma companies, namely, Dr Reddy’s Laboratories (DRL) and Aurobindo Pharmaceuticals.

What are the major strengths of Andhra Pradesh?

As said earlier, Andhra Pradesh has an established pharma base starting with IDPL and a strong R&D base with reputed institutions like Indian Institute of Chemical Technology (IICT), The Centre for Cellular and Molecular Biology (CCMB), Centre for DNA Fingerprinting & Diagnostics (CDFD) and National Institute of Nutrition (NIN). After setting up the Biotech Park and the ICICI Knowledge Park near Hyderabad, the government is in the process of creating a Pharma City at Parwada near Visakhapatnam under public/private partnership. The Pharma City will have world-class infrastructure on an area covering 2,200 acres, with state-of-the-art environmental protection measures. This will facilitate the local industry to expand its manufacturing facilities.

What are the challenges faced by the pharma sector in the State and what can be the possible solutions?

In the event of private sector taking over the public sector giant, the challenge for the pharma industry is to sustain its base as a bulk drug maker and move up the value chain. Though the situation seems to look stable, but due to delayed government processes and lackadaisical attitude of officials in the government, there is a possibility that the sector may slowly be shifting its base to other states like Gujarat, Maharashtra, Himachal Pradesh, and Jammu and Kashmir, which are offering better incentives.

Moreover, merely focusing only on bulk drugs will not serve the future sustainability of the sector in the State. The industry has to move up the value chain and should focus more on formulations and generics which are in great demand.

Though firms in the State are self sufficient in bulk drugs, their over-dependence on imports of active pharmaceutical ingredients (APIs) from other countries like China, Switzerland and Australia is of serious concern as it may impair the future growth of the industry. There is a serious need for the government to look towards this front and gradually reduce the over-dependence on imports of APIs and provide adequate infrastructure facilities and financial assistance to newer firms and encourage them to develop APIs in the State. The industry should also focus more to capture the retail markets where the profit margin is more, rather than serving the wholesale market with low profits. There are approximately 600 to 650 notified small and big pharma companies in the State. Among these, only 30 to 40 of them are current Good Manufacturing Practices (cGMP) certified and concentrating on formulations. The remaining companies are involved in bulk drug production, most of which are exporting bulk drug products to other countries.

What are the specific issues that need tackling in the State to ensure sustained growth of the industry?

Basic problems faced by all pharma companies in the State are related to infrastructure, the foremost being unavailability of reliable uninterrupted power. As most pharma firms are power intensive, they are incurring huge costs to install power back up facilities. The government should look into this matter seriously and provide round the clock power facility to the industry, which is very crucial, especially for the formulation industry. Apart from reliable power, non-availability of sufficient water and effluent treatment plants (ETPs) are among other concerns. The State government should come forward to construct common ETPs and also encourage more investors by way of announcing more liberal incentives.

Secondly, the logistics in the State are not well developed. Despite having an international airport in the State, there is no container cargo facility at Shamshabad airport to export pharma products directly to international markets. There are very few direct international flights from the State. The frequency of freight trains to destinations like Mumbai, Chennai, and Bangalore from Hyderabad are very few. The internal roads and railways are not well equipped to transport costly drugs and chemicals faster and safely to the intended destinations. The pharma industry is incurring huge cost towards transportation as is forced to go to Chennai or Mumbai, where our consignments are given second or third priority, because of which the industry is incurring losses in revenue due to unavailability of transport logistics. Thirdly, the pharma industry is lagging behind in quality awareness. The firms in Ahmadabad are far much better than Hyderabad in terms of quality awareness and many have attained GMP certification. GMP regulations require a quality approach to manufacturing, enabling companies to minimise or eliminate instances of contamination, mixups, and errors. This in turn protects the consumer from purchasing a product which is not effective or even dangerous. Failure of firms to comply with GMP regulations can result in very serious consequences including recall, seizure, fines, and jail time. Fourthly, though Hyderabad has qualified professionals, most of them are attracted towards white collar jobs in the IT industry, because of which the pharma industry is facing problems of non- availability of skilled and semi-skilled labours. The Industrial Training Institutes (ITIs) which are know for creating semi-skilled labour are not adequately equipped to produce required work force in the industry. It is high time that the government should introduce pharmacy courses in the ITI colleges in order to meet future labour force needs in the pharma sector in the State. Finally, 80 to 90 percent of the pharma industry in Andhra Pradesh is concentrated only in four districts, namely, Rangareddy, Medak, Nalgonda and Hyderabad. A lot of chemical effluents from different factories are polluting land, water and air in the State. The State government should construct a common ETP and shift pharma companies to other districts where it will not only reduce pollution but also increase local employment and reduce stress on urban areas.

How do you view the growth of SEZs in the State?

The Government of Andhra Pradesh, with the central assistance had supported pharma industry by grounding two pharma SEZs, one at Jadcherla in Mahabubnagar district and the other in Visakhapatnam district. The Pharma SEZ in Jadcherla has already started its operations since 2009. City-based Aurobindo Pharma, which was allotted 75 acres had already commenced its operations. Nine other formulation companies are setting up their units in the SEZ, which is coming up on a 250 acres plot along the Hyderabad-Bangalore highway at Polepally. On the whole, the SEZ is expected to attract investments to the tune of Rs 500 crore, the largest in the backward Mahabubnagar district in the Telangana region. Aurobindo has invested Rs 157.63 crore in the unit that would generate direct employment for about 1,500 people and indirect employment for 3,000. The company has a capacity to make 700 mn tablets and 16 mn capsules per month. Recently the State government had also allocated an area of 800 acres to build a Pharma City with an estimated cost of Rs 350 crore at Parawada in Visakhapatnam district. The pace at which these SEZs are operationalised is very slow. The State government should accelerate the land acquisition process and develop basic infrastructure facilities to enable pharma companies to establish their bases and start their operations at the earliest.