Pharma MSMEs and low conversion cost for DPCO products

Further, there is limited scope for expansion and lower conversion cost for contract manufacturing, mainly for DPCO (Drug Price Control Order) products.


Last Updated on August 30, 2021 by The Health Master

Indian pharma MSMEs, which contribute at least 40 per cent of the sector’s output and provide a huge chunk of employment, now face several challenges ranging from constraints on expansions, limited cash flow and access to quality and affordable workforce.

Kaushik Desai, pharma consultant, noted that the big issues for MSMEs are skill development, sustainability, working capital management and digitization related investments.

Further, there is limited scope for expansion and lower conversion cost for contract manufacturing, mainly for DPCO (Drug Price Control Order) products.

S N Rao, CMD, Supreem Pharmaceuticals, Mysuru pointed out that with regulatory requirements getting stricter by the day, small companies have neither the financial resources nor the manpower to comply with them. 

Medicine capsule
Picture: Unsplash

For third party manufacturers, margins are wrested by large companies who pay a fraction of the DPCO products, making compliance even more difficult.

Harish K Jain, secretary, Karnataka Drugs and Pharmaceutical Manufacturers Association (KDPMA) said, “Compliance with multiple regulatory authorities, inadequate working capital and ever-increasing business entry barriers have placed MSMEs in a spot.”

Jatish N Sheth, member steering committee, KDPMA, and director Srushti Pharmaceuticals said access and retention of technical workforce are major challenges. Going by the technological advances, the sector needs trained quality personnel to handle every day issues. 

The meagre contract manufacture margins for products result in negative cash flow and lack of fixed percentage on margins, which vary for each product, make the going tough.

“Even the productivity linked incentive (PLI) scheme of the Union government is more of an eye-wash for the MSMEs and the environmental norms are gruelling. Access to funds to maintain stock of raw material which is necessary in view of the volatile rates of input raw material is another hurdle to maintain a decent margin on products,” Sheth told Pharmabiz.

According to Rao, “India has got excess formulations capacity in the MSME sector and particularly in the northern states, such units are closing down. What we really need is API (active pharmaceutical ingredient) manufacturing.

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Adding to the woes is a faulty education system which does not promote entrepreneurship. Because of this, service becomes the easiest option with talented workforce going abroad. There is too much of biochemistry and biotechnology with very little focus on synthetic chemistry.

The industry-institute cooperation is superfluous because of lethargy and delayed deliveries of partnership projects. There are rigid pollution control norms and pharma falls into the red category making the scenario even more challenging.”  

Therefore, MSMEs should also alternatively focus on expanding into herbal extraction, formulation and nutraceuticals because there is less regulation and the sector is growing at 20 per cent per annum. 

The speed at which the government responds is the key. There is need for an effective single-window clearance. There should be tax holiday like in Sikkim and road shows conducted by the government.

In APIs, India has no other option but to collaborate with China which is a leader in this space, to pursue new product development, stated the Supreem Pharma chief.

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