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					DRUGS & PHARMACEUTICAL
 CLUSTER OF AHMEDABAD


END OF PROJECT REPORT
                          Table of Contents



1. Executive Summary…………………………………………………………………………2

2. Evolution, Turning Point and Current Status……………………………………………3-4

3. Choice of Cluster…………………………………………………………………………….4

4. Key Cluster Actors and their Linkages…………………………………………………..5-6

5. Major Problems…………………………………………………………………………….7-8

6. Vision of the Cluster…………………………………………………………………………8

7. Implementation Strategy…………………………………………………………………….8

8. Major Activities……………………………………………………………………………….8

  8.1 Quality up-gradation…………………………………………………………………8-11

  8.2 Human resource development……………………………………………………11-13

  8.3 Business Development…………………………………………………………….13-15

  8.4 Strengthening of linkages…………………………………………………………15-17

9. Results…………………………………………………………………………………….…18

10. Sustainability…………………………………………………………………………….19-20

11. Future Directions………………………………………………………………………..20-21

Annex 1: Diagnostic Study…………………………………………………………………21-69

Annex 2: List of Acronyms……………………………………………………………………..70

Annex 3: List of Important Activities undertaken………………………………………...71-73

Annex 4: Cluster Map after Intervention……………………………………………………..74




                                 1
   DRUGS & PHARMACEUTICAL CLUSTER OF AHMEDABAD – END OF PROJECT
                             REPORT
1. Executive Summary
The SME units of the drugs and pharmaceutical cluster of Ahmedabad/Vadodara face a
major challenge in achieving the stricter quality norms increasingly demanded by the Indian
regulatory authority as well as by large-scale units, which can be their potential clients. This
is because, in order to attain quality certifications the small firms often lack the required
information, appropriate technical training, knowledge of desired plant layout/machinery
requirements and are not able to locate affordable BDS providers to organize such activities.
The programme addressed these challenges in a step-by-step approach by building
awareness among firms, sustaining a group approach to purchase of business development
service (BDS), creating institutional linkages and finally building the capacity of existing and
newly created associations to ensure the sustainability of the process.
In these interventions associations played a special role in disseminating a new vision for the
cluster, which initially contributed significantly to ice-breaking and later triggered
multiplication of initiatives; technical institutions provided training inputs; private BDS
providers propped up confidence by securing business orders; and financial institutions
provided financial support to the various activities. All these initiative where coordinated by
the UNIDO methodology that triggered a proactive mentality and a growing dialogue among
the various cluster actors.
As a result of these initiatives 60 firms have embarked on quality up-gradation, 41 of which
have made an estimated joint investment to the tune of Rs 76.6 million (USD 1.5 million).
Twenty firms have gained export linkages or were exposed to new export destinations,
generating an increase in export estimated at Rs 74.5 million (USD 1.5 million). Twenty-one
firms have generated additional domestic business worth Rs 103.3 million (USD 2 million).
Moreover, IDMA-GSB is setting up a sub-contracting exchange that will help in contract
manufacturing. 70 firms made savings worth Rs 5 million (USD 100,000). An NTC in the
name of Gujarat Pharma Techno Park has been formed to create a production facility for
quality products. Ten new training programmes were introduced and a video film to train
workers was created by IDMA-GSB. Ten new BDS providers have been introduced in the
areas of quality, factory level training, contract business, export market and other support
services. Associations have created or strengthened linkages with technical/developmental
institutions like PERD, LMCP, MSU, SIDBI, GITCO, SIDBI, SISI, etc. International networking
has been undertaken with development agencies like CBI and NMCP.
In the future, the associations should continue to play a proactive role towards the training
programmes that have been launched in the cluster. Newly formed association such as CHI
will need support before they can reach a more stable position. The first steps have been
taken on a Pharma Techno Park: this will need to be followed up meticulously and rapidly.
Awareness on a range of emerging issues, especially related to patents, MIS, etc. needs to
be further investment. The finalisation of Government of Gujarat‟s initiative for a Cluster
Programme for the pharmaceutical clusters of Gujarat will be of immense use on all these
fronts.



                                               2
2. Evolution, Turning Point and Current Status
The evolution of the drugs and pharmaceutical cluster at Ahmedabad1 started off with the
establishment of the first unit – Alembic Chemical Works Ltd. at Vadodara way back in 1907.
The first surge in demand was associated with the First World War (1914-18), which reduced
imports, on which the medicinal supply line of the country was highly dependent. The growth
of the textile industry at Ahmedabad that brought about a large labour inflow also sparked a
strong local demand for medicines.
A series of regulatory driven quality enhancement measures followed. In 1931 the Drugs
Enquiry Committee (DEC) recommended (a) the formulation of a central legislation on drugs,
(b) the creation of an advisory board, (c) the establishment of a central testing laboratory and
(d) the compilation of Indian pharmacopoeias (IP)2. Subsequently, in 1940, the Drugs and
Cosmetics Act regulated import, manufacture, sales and distribution of drugs. The Central
Drugs Laboratory was established in 1947 in Kolkata3 to carry out statutory testing. Good
Manufacturing Practices (GMP) were included as a special schedule „M” in the Act in 1986.
This drive towards quality production at the National level had its effect at the State and
cluster level too. The LM College of Pharmacy (LMCP), Ahmedabad was thus established in
1947 and rapidly became a constant source for creating pharmaceutical experts and many
of LMCP graduates contributed significantly to the creation of a thriving SME pharma cluster
at Ahmedabad and Vadodara. Labour uprisings in Maharashtra in 1970s also saw a
significant shift of investment to Gujarat4. The new entrepreneurs drew tremendous
confidence from the leadership of a proactive Commissioner5 of Food and Drug control
Administration (FDCA). Finally, the establishment of a local machinery manufacturer
(CADMACH, Ahmedabad) ensured a steady supply of machinery and spare parts.
With the ground conditions well in place for growth, the cluster experienced another
structural shift with the enactment of the Indian Patents Act 1970. The Act provided the
domestic industry scope for further growth by allowing process patents, which allowed any
firm in India to supply products developed anywhere in the world provided it followed a
different process than the one indicated in the patent. A phenomenal growth of small firms
took place during the 1970s and 1980s. This phase of euphoria was further strengthened as
a result of growing exports to Russian and African countries. During this growth process a
few first generation entrepreneurs graduated from small to medium/large firms and some
later entrants became sizable medium enterprises. This growth phase in turn saw further
entry of new entrepreneur in the small scale sector.




1
  The programme was implemented both at Ahmedabad and Vadodara (2 cities situated at a distance of 100
    kms) as there was license based manufacturing linkages between the firms and more importantly they shared
    a common support structure. This issue has been dealt in section 4.
2
   Indian Pharmacopeia is a book that spells out the ideal conditions of production of a drug/medicine as per
  Indian Laws.
3
  Previously Calcutta
4
  Gujarat was created as a new State from Maharashtra in May 1960.
5
  Mr. B V Patel, the first Commissioner of FDCA, Gujarat


                                                     3
With the industry on a growth path, there was a growing need for a Technical Training
Centre. Thus the B.V Patel Pharmaceutical Education and Research Development (PERD)
Centre at Ahmedabad was born in 1989 as a result of a private sector initiative. Meanwhile a
few more pharmacy colleges came up and the pharmacy divisions of the Vadodara and
Gujarat Universities also joined hand in feeding the rising need for experts to these growing
clusters.
At present, the pharma industry is undergoing a new phase of internationalisation. The
process patent regime is being replaced by a product patent regime. This has injected
uncertainty and is likely to impact the growth pattern of the cluster.
The major products manufactured in the cluster include (a) pharmaceuticals both allopathic
and ayurvedic formulation, in different dosage forms (including tablets, liquid, capsules - also
called orals; externals and injectables) and (b) medical disposable products like IV sets.
There are around 450 drugs and pharmaceutical manufacturing units in Ahmedabad,
Vadodara and nearby areas. Around 50 manufacturing units produce medical disposables
and the rest are in formulations including ayurvedic products. Seven firms in the clusters are
big, around 20-25 medium-sized and the rest are small. The total turnover of the cluster is
estimated at Rs 40,000 million (approximately USD 800 million) as on 1999.


3. Choice of Cluster
The reasons behind choosing the pharmaceutical cluster of Ahmedabad were:
a) A critical sector: During the last 100 years, India has shifted from import to indigenous
   production of medicines. The heart of such production lies in Gujarat (around 50 % in
   1997-98), within which the cluster of Ahmedabad and Vadodara house the bulk of
   formulation units. With this sector facing a major threat with the advent of the new
   product patent regime and a all round demand for „quality‟ product from the market there
   was an urgent need to support quality focussed growth and to ensure a smooth transition
   from the old to the new regime.
b) Presence of similar clusters: A number of drugs and pharmaceutical clusters exist not
   only in India (eg. Hyderabad, Pune, Chennai, Mumbai, etc.), but also in various parts of
   Gujarat (e.g. at Ankaleshwar, Vapi, Surendranagar, etc.). It was felt that the lessons
   learnt could be useful for these clusters too.




                                               4
4. Key Cluster stakeholders and their Linkages
Firms producing allopathic and ayurvedic formulation and medical disposable products lie at
the core of the cluster. Process-related backward linkages are absent in this industry as per
regulations, with each manufacturer obtaining a license from the FDCA.
Outsourcing is however contemplated either through a loan license (manufacturing a product
on behalf of the principal license holder which thereafter markets that product) or through
contracts manufacturing (whereby a firm manufacturers a product through its own license
and markets it though another firm). Some firms at Ahmedabad and Vadodara presented
such linkages at the beginning of the intervention.
Moreover, the two clusters share a common support infrastructure in the form of various
technical institutions like PERD Centre, LMCP, CIPET, MSU, SIDBI; regulatory bodies like
FDCA, and industry interest promoting bodies like IDMA-GSB, etc. Hence the clusters of
Ahmedabad and Vadodara were jointly chosen for intervention6.
Formulation units are members of the Indian Drug Manufacturers‟ Association - Gujarat
State Board (IDMA-GSB). At the beginning of the intervention IDMA-GSB was mostly
focused on regulatory role and on the provision of generic quality-related services to the
industry.
The Ayurvedic Drug Manufacturers Association (ADMA) was mainly involved in regulatory
issues. The Medical Disposable Manufacturers‟ Association (MDMA) was largely non-
functional. Institutions like PERD Center, Central Institute of Plastics Engineering and
Technology (CIPET), L M College of Pharmacy (LMCP), Dept. of Botony, M S University of
Baroda (MSU) used to have limited interaction with small units.




6
    For further details see Diagnostic Study Annex 1.


                                                        5
Map 1: Cluster Map prior to intervention



                                 PERD              FDCA       SISI


                                   IDMA (140)

   Exports                              L.F. (8)
    Sales
                                                                       RM (Pharma)
                                     M.F. (30)
Institutional
   Sales                                                               Packaging
                                                                     material supplier

                                                           ADMA       RM (Ayur)
                                    S.F. (350)
Prescription      AIOCD
   Sales                             MDMA (36)

                                        S.D. (50)                    RM (Disp.)




   L.F: Large Formulation Units
   M.F: Medium Formulation Units
   S.F: Small Formulation Units
   S.D: Small Disposable Units
   R.M (Pharma): Raw Material Supplier for Pharmaceuticals Units
   R.M (Ayur): Raw Material Supplier for Ayurvedic Units
   R.M (Disp.): Raw Material Supplier for Disposable Units
   AIOCD: All India Organisation of Chemists & Druggists




                                              6
5. Major Problems
The major problems faced by the cluster at the beginning of the intervention were:

i. Need for quality up-gradation
Right from the inception of this industry, quality up-gradation has been driven by the
regulatory authorities. The revised Schedule M of FDCA Gujarat, which is going to be
enacted from “2004-05” lays down stricter norms and it is almost equivalent to WHO-GMP7
standards. This will become mandatory for any manufacturer in Gujarat. Similar stricter
norms (Revised Schedule T) are also going to be applicable for ayurvedic units. Many small
units had little idea on these norms, let alone the capacity of achieving such certification.
Certifications like ISO, CE Mark, WHO-GMP had been made mandatory by importing
nations and institutional buyers. Lack of such certification thus kept SMEs away from
institutional sales and exports. A clear consensus emerged in the cluster that small firms that
at that time posses a large number of (process) licenses, would soon need to specialize and
become quality contract manufacturers of large/medium units on a „win-win‟ basis.
However, to attain these higher quality certifications, small firms lacked information,
appropriately trained workers, plant layout and machinery and were not able to locate
affordable (economic and dependable) BDS providers to organize such activities.


ii. Need of manpower training
Small firms used to manage production with little qualified manpower. Better-qualified
workers would leave small firms because of low salary and job insecurity. However, more
stringent quality norms demanded constant updating on technical issues. Such training was
at the time almost entirely missing in the cluster.


iii. Business linkage through new channels
Manpower training and quality up-gradation require large investment. Small firms involved in
multi-product prescription sale through own marketing were unable to generate the capital
for such investments through their existing marketing practices. In the absence of new
market channels, the small firms were not confident to invest large amounts for quality up-
gradation. Moreover, they also lacked the manpower to explore new areas of business.


iv. Strengthening of institutional linkages
IDMA-GSB was the only functional8 association at the start of intervention. ADMA was
involved mainly in regulatory issues like handling the implications of revised schedule T9.

7
  These are good manufacturing practice (GMP) standards laid down by the World Health Organisation (WHO)
8
  With respect to business development issues
9
  Revised Schedule T was a higher statutory quality standard for ayurvedic manufacturers of Gujarat and was
  conditioned by FDCA, Gujarat


                                                    7
MDMA was non-functional. The interaction of these associations with some technical
institutions was at best weak and none of these associations were involved in any direct
business development issue for the firms.


6. Vision of the Cluster
The long-run vision for the cluster was therefore agreed as: “To Attain specialization in
quality manufacturing for production of formulations, ayurvedic and medical disposal
products by 2005”.


7. Implementation Strategy
The above problems were addressed in a step-by-step approach by creating awareness
among firms, building consensus on group approach, organizing institutional linkages and
building capacity of existing and newly created associations.
Activities in 2000 focused mostly on awareness and consensus building among cluster
stakeholders to realize the cluster vision through proactive networking. The year 2001 saw
the launch of the first informal network-based activities in the field of quality up-gradation and
marketing. As success was tested, more such activities picked up in 2002, while
strengthening of the institutional framework of the cluster was ensured for continuation of
such activities in the future. Activities in the year 2003 (Jan-June) concentrated on
institutional networking to facilitate such growth, strengthening local institutional framework
and BDS providing capacity and facilitating policy interventions for wider replication.
In these interventions associations played a special role in disseminating a new vision for the
cluster, which initially contributed significantly to ice-breaking and later triggered
multiplication of initiatives; technical institutions provided training inputs; private BDS
providers propped up confidence by securing business orders; and financial institutions
provided financial support to the various activities. All these initiative where coordinated
through UNIDO methodology that triggered a proactive mentality and a growing dialogue
among various cluster stakeholders.


8. Major Activities
8.1 Quality Up-gradation
8.1.1 Objective
The objective of this intervention was to enhance the quality standards of firms and to
promote them towards product specialisation.
8.1.2 Steps involved
The realization of such an objective was planned through awareness generation,
identification of appropriate BDS providers, making BDS affordable through network
formation, spreading the message of success across the cluster and thereby ensuring
replication of similar efforts. Necessary infrastructure support was also created.




                                                8
8.1.3 Implementation
Quality up-gradation was a critical issue for the cluster. The immediate nature of the
challenges to be faced was spread through several workshops on GMP, WHO-GMP, ISO
and CE certification. The sources of this message were chosen not only from the regulatory
bodies but also among successful and most forward-looking firms of the cluster. Potential
technical BDS providers outlined possible solutions at those Workshops. Interestingly, such
workshops continued throughout the life of the programme to reiterate such needs and
involve more and more firms. A list of such activities is presented below in table 1.


                             Table 1: Workshops on Quality up-gradation

 March 2000               Workshop on “Preparing SMEs for WHO-GMP and Pharmaceutical
                          Globalisation”
 April 2000               Workshop on cluster development and GMP for medical disposable
                         firms
 April 2001               Workshop on GMP issues for ayurvedic units
 August 2001              Workshop on Healthcare in India
 September 2001           Workshop on GMP issues for ayurvedic units
 September 2001           Workshop on legal and mandatory issues for disposable units
 February 2002            Workshop on transition from ISO 9002 to ISO 9001: 2001
 September 2002           Workshop on CE Mark

However, the firms that participated in such workshops were at different levels of maturity
and readiness. The allopathic formulation units were the first to agree on the need to
address such challenges. Their association (IDMA-GSB) took lead, established a list of
qualified consultants and introduced a new service called „factory audit‟ to assess the level of
preparedness by firms. Among the firms that underwent such factory audit, six joined hands
in a network and chose a common BDS provider from the list prepared by IDMA-GSB. The
BDS provider took a step-by-step approach towards quality up-gradation, which consisted of
group training of quality and production staff, guidance on documentation and actual
implementation of quality standards at the factory level. Firms first went for ISO/GMP
certification and thereafter for WHO-GMP/CE Mark Certification. A few more BDS providers
soon adopted the same group approach. They followed a similar methodology of group
formation and joint quality up-gradation. In the process the members of the group benefited
through (a) discounted rates for BDS, (b) negotiated discounted charges by certification
authorities and (c) joint learning benefits of staff.
Meanwhile the more hesitant disposable manufacturers first went through a confidence
building exercise organized by EDII10. They restarted association activities by organising
basic training programmes11. However the association did not gather enough momentum to
introduce value added services. At that time, even some of the disposable manufacturers
were not members of MDMA. Thus, direct group formation under the BDS provider was


10
     Growth Programme organized in December 2000.
11
     See Sections 8.2 and 8.4 for further details.


                                                     9
organized to increase reach in terms of firms. Once again a step-by-step approach was
followed. The various training and quality up-gradation process introduced helped firms
attain GMP and ISO. Some of them also went for further quality up-gradation such as the CE
Mark.
ADMA took lead for ayurvedic units. The members were first sensitised, went for factory
audit, then training and finally for quality certification as a group. The success achieved by
the first group of six ayurvedic units led to the formation of the second group of such firms.


                                  Box 1: ISO for Ayurvedic Units
It all started off with the organisation of two Workshops on GMP for Ayurvedic units in April and
September 2001. Thereafter, at a training programme on Pharmacognosy and Phytochemistry of
Medicinal plants by the MSU in association with ADMA, the issue of quality up-gradation was again
discussed by 15 participating firms.
 While participants from FDCA highlighted the need for quality up-gradation, a BDS provider apprised
the firms on the newly created model of group up-gradation. Here the firms also got to know a number
of BDS providers who could help them in this regard.
Soon ADMA decided to launch a quality up-gradation initiative and a number of firms expressed their
interest. Ultimately, only six firms came together to form the first group. These included Prashant
Pharmaceuticals, Mehta Herbal, UAP, Mehta Unani, Vasu and Vital Care. They decided to go for joint
quality upgradation. These firms knew each other well and there was a strong leader among them
who took charge of converting the dream into reality. They chose the same BDS provider that had
delivered good results for the allopathic firms.
The firms first undertook a factory audit and subsequently regular joint training programmes including
training of internal auditors. The joint training programmes were organised at the premises of the
group leader. Within eight months all the firms achieved ISO 9001:2000 certification.
These being the first SME ayurvedic units to get ISO, the firms prepared a joint brochure and a CD:
“Ayurveda – Glorious Past and Promising Future” that helped them in exports as well as institutional
sales.


8.1.4 Outcome
As a result of these initiatives, 32 firms have received higher quality certification and another
28 are also at different levels in the process of obtaining the same certification. The latter
include firms who have already qualified for one certification process earlier. All together 60
firms have benefited through this process. Five BDS providers were introduced to the SMEs.
Of them, one BDS provider now has 6 technical support staff.


8.1.5 Conclusion
Success on quality interventions clearly resulted from the very immediate challenge faced by
the cluster. Despite this, not all firms were equally sensitive to such requirements.
Associations proved capable in building initial confidence among firms, but the process of
quality certification could only be hastened by establishing direct linkage between private




                                                 10
BDS providers and groups of firms. Group approach12 helps via cross learning, confidence
building and cost savings on common buying of services.


8.2 Human resource development
8.2.1 Objective
The objective of this intervention was to enhance knowledge and provide hands-on training
to technicians and workers of small firms so that they could address the needs for strict
product quality that will be the key issue for the survival of small firms.
8.2.2 Steps Involved
The steps involved for the realization of such an objective included identification of training
needs, sensitisation of appropriate partners to organize training, linking up firms with
technical institutions/BDS providers, identification of sources of financial support and
creation of a sustainable mechanisms to provide such training on a continuous basis.
8.2.3 Implementation
Preliminary interactions with the association in the cluster suggested that training would be
an ideal platforms to enhance interaction between intermediaries13 and local firms if it
involved the following: (i) general awareness workshops of owners and technocrats (ii)
technical training of technocrats and (iii) technical training of shop-floor workers. When
confronted with such intervention, once again different associations displayed different levels
of maturity. Since the organizational strength of MDMA was relatively low14, one consultant
had to be specifically involved to trigger the necessary momentum among the disposable
units.
Several technical institutions were identified to impart training programmes. The availability
of trained technicians as well as workshop facilities led to the identification of PERD Centre
for (a) awareness workshops and (b) training of technicians for allopathic formulations and
disposables. Moreover, since medical disposables are essentially plastic products, linkages
were established with CIPET to provide training in plastics and moulds for disposable unit
staff. MSU was linked to the Ayurvedic units for training in product and raw material testing.
While these technical training were under way, BDS providers were introduced to give
detailed factory level training to technicians as well as workers in order to consolidate the
classroom training at the factory level. Generally, the shop-floor training was undertaken
while quality up-gradation initiatives were under way at the firms. In the case of disposable
manufacturers, a specialized BDS provider was involved to provide training on biological
aspects of disposable production. This is because certification training was premature given



12
   The groups that went for quality up-gradation were temporary in nature due to the nature of objective, i.e. one
   time quality up-gradation.
13
   BDS providers/institutions/associations
14
   As it was non-functional at the time of intervention initiation


                                                       11
the level of preparedness of the firms in terms of finance and vision. This BDS provider has
now established independent relationship with many firms.
In the process, the local associations came to know of the various norms and areas of
support by ready introduced supporting financial institutions and linkages were established
between associations and institutions like SIDBI, SISI, NSIC, etc. IDMA-GSB, which already
had a formal structure, generated the greatest benefits in terms of institutional support. In
general, the financial institutions preferred to support conventional training work with more
established associations and focussed on milestones such as number of people trained.
On the other hand, there seems to be little support available for preparatory activities
required by the associations as well as for firms to consolidate their classroom learning with
technical up-gradation.
                Box 2: Industrial Pharmaceutical Analyst Training At Ahmedabad
The quest for quality up-gradation requires small firms to upgrade their machinery and human
resources. While equipment was available with the cluster at relatively easy terms, the small firms
were struggling to cope up with a shortage of skilled manpower at all levels. Generally, such firms
were unable to hire highly qualified technicians on a long-term basis and wherever it happened, there
was a high turnover of such qualified manpower. Thus they needed to spend a lot of time in training
fresh and less qualified chemists to the emerging needs of industrial production. These issues were
raised by IDMA-GSB on many occasions and ultimately led to the launch of a tailor-made training
programme.

IDMA-GSB chose LMCP as the implementing agency. The then president of IDMA-GSB was an
alumnus of LMCP and posed lot of faith in its capabilities. A core team within the association was
constituted to chalk out the syllabus on the following issues: quality control, physico chemical testings,
instrumentation training and sophisticated instruments demonstration. To accommodate the
requirements of the working trainees, the programme was spread over 16 weeks and held on
Sundays. DST was roped in to partially support this programme. It took six months of persistent effort
to formalise the logistics.

The programme provided participants with a wealth of information concerning the value of quality
production, Good Manufacturing Practices (GMP), GMP documentation and quality assurance
mechanisms. Two such programmes were organized and 35 people have been trained. The FDCA
Commissioner was invited to inaugurate the event. The interactions that followed and the lessons
learnt helped IDMA-GSB to organize a higher-level WHO-GMP training programme with PERD
Centre within a span of three months. Four FDCA officers also participated in this programme.

8.2.4 Outcome
416 people from over 100 firms were trained though various training programmes and ten
new training modules were started. These include four one-day training modules for medical
disposable firms by PERD, a sixteen-day training module for industrial chemists by LMCP,
two one-day training module by CIPET for medical plastics, six-day training module for
testing of end products of ayurvedic units by MSU, six day Advanced Training Programme
on GMP by PERD, and two-day training module on “ISO Internal Auditor” by private
consultant. The courses initiated by BDS providers have generally become self-sustainable.
MSU has created a specialized consultancy cell to advise ayurvedic firms and has submitted
a large project for the creation of a Research and Development Centre of Medicinal to
National Medicinal Plants Board (NMPB), New Delhi.


                                                   12
The process of technical training was topped up with training related to pro-activity for the
FDCA officers. Five such training programmes were organized and 180 officers were
trained.
8.2.5 Conclusion
Human resource development is a step-by-step process involving (a) creation of interest, (b)
class room training and (c) factory level demonstration. Associations are very good at
generating interest, coordination and roping in support from development institutions.
Technical institutions have their strength in classroom training. However, it is the task of
BDS providers to provide factory-level hands-on training and to operationalise the
knowledge gained. Development institutions can support pure training. While factory-level
training can be private sector funded, there is need to support the interest creation phase led
by associations.

8.3. Business Development
8.3.1 Objective
The objective of this intervention was to promote products from certified firms through
contract manufacturing and export promotion.
8.3.2 Steps involved
Identification of potential SMEs, provision of back-end support for technical up-gradation,
identification of BDS providers and linkage with firms through appropriate intermediaries
achieved this objective.
8.3.3 Implementation
Prior to intervention, many small firms used to do business through prescription sales or
occasionally as manufacturers of large loan licensees. Business through regular contract
manufacturing, exports, or institutional sales was low as the firms lacked the required
technical qualification. Large firms used to go for production inspection to ascertain quality,
while institutional sales required GMP or ISO and at times WHO-GMP. WHO-GMP, CE Mark
and at times ISO were required for exports. To face these challenges the small firms were
provided various back-end supports15 to upgrade quality through a group approach. Some of
the groups thus created used the opportunity to undertake into joint business exploration
through the very same quality experts. This led to significant business generation.
The local associations played an important role in export promotion, where stakes were high
returns were not immediate. IDMA-GSB focused on the organization of an exporters‟
delegation to Brazil. For this purpose, it first organised a workshop on the potential of the
Brazilian market. A private export consultant specialising in the Brazilian market addressed
the participants. A technical (pharma) specialist who also did business with Brazilian firms
was also roped in by the export consultant. During the workshop, opportunities and eligibility


15
     See Section 8.1


                                              13
for participation were discussed in details. As advised by the export consultant, IDMA-GSB
also played an important role in pre-selecting firms so as to maintain an optimum product
mix of the delegation. The association hired a consultant to handle this specialized activity
and obtained financial support from developmental institution for this exploratory mission.
MDMA organized joint participation of six firms to the Hospimedica fair in Mumbai. Success
of this fair motivated the members to participate in the international Medica Fair held in
Dusseldorf (Germany). For this purpose, MDMA guaranteed a stall in the fair and paid the
necessary fees on behalf of its members. Towards the end, however, members grew
sceptical on their own capacity to provide quality products as per the standards expected in
an international fair. At that time none of the firms had made any effort in the field of quality
up-gradation as required at the international level. As a result, their confidence gave way
and participation was cancelled. However, they realized the technical implications of quality
production.
Later the newly created Council for Healthcare Industry (CHI) liaisoned with the Centre for
Promotion of Imports from Developing Countries (CBI), Netherlands to create export
possibilities for eligible CHI members towards the European market. This effort was beyond
the capacity of individual firms. CHI thus initiated dialogue with CBI on behalf of its
members. This led to two expert visits who chose a group of potential firms and advised
them on how to upgrade quality. In the next stage these firms will participate in the
specialized Medica fair for product promotion.


                             Box 3: The Riches of a Pharma Network
Activities are not always easier when undertaken in big groups. Often, the smaller the group, the
greater the chance to focus and smaller the needs for support. Moreover, specialized consultants can
best identify areas of co-operation in smaller cohesive groups.
The experience of a group of six pharmaceutical firms spearheaded by a local consultant clearly
spells out how co-operation can lead to additional sub-contracting business as a result of quality up-
gradation. In October 2000, six pharmaceutical firms including Axar Medicare, Comed Chemical,
Divine Laboratories, Harson Laboratories, Moxy Laboratories and Dolphin Laboratories jointly struck a
deal for a common consultant to support them in the critical areas of marketing, purchase pooling and
quality up gradation.

This joint effort was an offshoot of the UNIDO Cluster Development Programme and was catalysed by
a local consultant. The consultant himself was confident about the prospect of this resource-sharing
approach. Since then, Dolphin has obtained ISO 9002 certification and renewed its WHO-GMP (World
Health Organisation - Good Manufacturing Practices) certification. Harson too has received WHO-
GMP certification while three other firms received ISO certification in September 2002. One firm has
received GMP. The firms mutually defined the product range each of them would manufacture from
the orders received by the consultant.

The firms made additional business worth Rs 20 million. This entire initiative was private-sector-led,
with UNIDO support being as low as fifteen percent of total cost of the BDS provider.




                                                 14
8.3.4. Outcome
As a result of this initiative, 21 firms have generated additional business worth Rs 103.3
million (USD 2 million), twelve of which are nowadays connected to 13 large Pharma
manufactures for contract manufacturing. Twenty firms have been facilitated for export
linkages. An estimated additional export has been generated to the tune of Rs 74.5 million
(USD 1.5 million).
8.3.5 Conclusion
In order to convince firms to undertake long-term investments, it is crucial to provide a
credible prospect for new business generation, which in turn can be more readily achieved
by small and motivated groups. The involvement of BDS providers is a must in this process if
activities are to be adequately up-scaled. In relatively new areas such as business
generation, the involvement of reliable associations to play the role of the mediator is
preferable. At times, these associations can help with the initial confidence building between
the different and previously unknown business partners.
8.4. Strengthening of Linkages
8.4.1. Objective
The objective of this intervention was to create empowered institutions in the cluster, which
can plan and execute joint activities in the future on behalf of the cluster stakeholders.
8.4.2. Steps Involved
The steps involved included the creation and/or strengthening of institutions, their linkage
with support agencies, provision of hands-on advice on joint activities and capacity building
in the field of services delivery. While some of these issues have been dealt with in sections
8.1, 8.2 and 8.3, here we will mainly look into capacity-building aspect of the initiatives
undertaken.
8.4.3 Implementation
The identification of the associations in need of support was initially done on a product basis:
IDMA-GSB for the allopathic formulation manufacturers; ADMA for the ayurvedic formulation
units and MDMA for the disposable manufacturers. Through the project, IDMA-GSB was
helped to link up with SIDBI by availing of the latter‟s scheme for computer based
communication. This initial ice breaking was followed by a visit of a SIDBI official to the
IDMA-GSB office with the aim of understanding needs and presenting other support
schemes available at SIDBI. Visits by DST, EXIM, SISI, and NSIC staff were similarly
organised to facilitate interaction. Regular interactions were organised with technical
institutions like PERD Centre, LMCP, etc. As a result of these initiatives, several training
programmes were organised for the benefit of IDMA-GSB members. The first departure of
IDMA-GSB from its traditional activities occurred with the introduction of factory audit
services. The idea came from IDMA-GSB members themselves and it was operationalised
by a Cluster Development Programme Committee set up by IDMA-GSB. Later, several other
value-added services were introduced by the same committee. Over time, the complexity of


                                              15
the activities increased as the confidence level of the association matured with successful
implementations.
At the start of intervention, MDMA was largely non-functional. Hence, it was first revitalised
with the active support of its members and registered. A step-by-step approach as described
for IDMA-GSB was followed, whereby bilateral meetings were organised with various
technical and support institutions. Again, this led to organisation of training programmes and
also joint participation in trade fair described above. So far as ADMA is concerned, the
project similarly focused initially with the organisation of training programmes, which was
gradually followed by factory audit and quality up-gradation for ADMA members.
As time progressed, it clearly emerged that the awareness implementation capacity of the
smaller associations was being limited by the absence of a suitably professional secretariat.
For this reason, the idea was tested to create the Council of Healthcare Industries (CHI) as a
service provider for the associations of the cluster. To create a role clarity of this new
association, as against that existing association; the founder members agreed that CHI
would deal exclusively with the development of new activities but it would strive to get those
implemented through service providers and its member associations. The key task of CHI
was to explore new ideas through continuous interaction between industry, technical
organisations and final beneficiaries to decide on (a) the future agenda and (b) sharing of
responsibilities on its implementation for the growth of the cluster.
                               Box 4: Joint purchase of Equipment

The Medical Disposable Manufacturers Association was largely dormant before UNIDO‟s intervention.
During the implementation of the project, MDMA had started providing a number of non-conventional
services to its members. One such area was joint negotiation on behalf of its members with suppliers
of laboratory equipment. This had been the case for the purchase of spectrophotometers, which are a
necessity for disposables manufacturers. The association entered into negotiation with three different
suppliers to strike a deal on behalf of its members.
Previously, the price of each machine alone would be Rs 146,000 (USD 3,000) but the association
reached an agreement with a Vadodara-based supplier to purchase the machine and as well as a
printer for Rs 107,000- (little over USD 2,000). This resulted in a price reduction of more than 30 %.
13 firms purchased the equipment in the first lot.
Similar efforts are being made by IDMA-GSB to purchase HPLC for pharmaceuticals firms.


                                    Box 5: Pharma Techno Park
A major hindrance to quality up-gradation is factory space as many small pharma units simply lack
enough space to meet the statutory requirements. It is for this reason that IDMA-GSB first voiced the
need for a Pharma Techno Park. At the beginning of the intervention, IDMA-GSB however proved
vocal but unwilling to invest its resources on such a large-scale project. With time, it gained
confidence in its delivering capacity and, after a number of meetings among the members, it was
decided that a non-trading corporation (NTC) would be created for this purpose.
Meetings were also organised with the relevant government departments and several plots were
surveyed for this purpose. Gujarat Pharma Techno Park was then created as a Non Trading
Corporation. Thereafter the Government of Gujarat appointed a Nodal Officer for this project. 45 firms
have already deposited Rs 10,000 each as booking amount for this purpose, with another five firms
have been kept in the waiting list.




                                                 16
8.4.5 Outcome
As a result of these initiatives IDMA-GSB introduced a number of value added services
including a monthly bulletin, trade delegation to Brazil, creation of a video for training of
workers, promotion of Pharma Techno Park, and sub-contracting exchange scheme funded
by Government of India, which will enable its members to keep an online directory of
production capacity. This will be of immense use to firms, as contractual manufacturing is
becoming their principal source of business. Similarly, MDMA members have got additional
business and made savings in equipment procurement.
All the major associations – IDMA-GSB, MDMA, ADMA and technical institutions like PERD
Centre, LMCP, etc. have become members of CHI. CHI, with its office, infrastructure and a
permanent secretariat could already initiate various activities, including interaction with CBI
and possible EU business as well as up-scaling the training programmes introduced by
MDMA. CHI is taking a lead in developmental activities, which has so far meant 17 training
programmes/workshops including 8 quality up-gradation programmes and 2 trade
delegations.


8.4.6 Conclusion
In this technocrat-driven cluster, stakeholders seem to have achieves a sufficiently large
number of ideas. The speed of their implementation depends on the level of maturity of the
associations. It is therefore important to continuously monitor their proactivity. If an
association fails to respond proactively, new association may be created to support them.




                                              17
9. Results
The result of UNIDO intervention may be summarized as follows:
9.1 Firm level Impact Indicators
1. 60 firms have gone for quality up-gradation. Of these, 32 firms have received one or
    more quality certifications, 6 firms who have already received one certification are now
    pursuing higher quality certifications. 28 firms are perusing one or more quality
    certifications.
2. 41 firms that have gone for quality up-gradation made an estimated additional
    investment of Rs 76.6 million (USD 1.5 million).
3. 20 firms have got export linkages or got exposed to new export destinations. Estimated
    additional export was generated for Rs 74.5 million (USD 1.5 million).
4. 21 firms have generated additional business worth Rs 103.3 million (USD 2 million). Of
    these 12 firms have got connected to 13 large pharmaceutical manufactures for contract
    manufacturing.
5. 416 persons belonging to over 100 firms were trained though training programmes. 10
    new training programmes were introduced.
6. 70 firms made savings worth Rs 5 million (USD 100,000) through joint purchase of
    equipment, common BDS providers, common training, common brochure, joint
    participation in fairs, etc.
9.2 Cluster level impact indicators
1. A Pharma Techno Park is being created at Ahmedabad; an NTC has been formed to
    undertake this activity.
2. A video film for training of workers has been created by IDMA-GSB.
3. The Central Ministry of SSI has sanctioned a sub-contracting exchange to IDMA-GSB.
    This will help in contract manufacturing.
4. Linkages have been developed with development agencies like CBI and NMCP.
9.3. Sustainability Indicators
1. Ten new BDS providers have been introduced to the cluster in the areas of quality,
    factory level training, contract business, export market and other support services.
2. IDMA-GSB has introduced new services for the members and undertaking significant
    developmental activities.
3. CHI – an umbrella organisation of different associations and support institutions have been
    created.
4. Associations have created vibrant linkages with technical/developmental institutions like
    PERD, LMCP, MSU, SIDBI, GITCO, SIDBI, SISI, etc.
5. FDCA Gujarat is on its own promoting “Quality Circles” in Gujarat. Quality circle has
    been initiated at three places in Gujarat.
6. PERD Centre with the support of IDMA-GSB and CHI is proposing to Government of
    Gujarat for quality up-gradation of units in all pharmaceutical clusters of Gujarat.




                                             18
10. Sustainability
The sustainability index of the Ahmedabad cluster at the beginning and end of programme
implementation are given in the table below:
                                Table 2: Sustainability Index
                                             Weight          Score Weighted Score Weighted
                                                                     Score           Score
                                                            July 99 July 99 June 03 June 03
ENTERPRISES' REPRESENTATIVES (60%)
IDMA-GSB                                               35        4      8.4         7       14.7
CHI                                                    25        0        0         6          9
MDMA                                                   15        1      0.9         5        4.5
2nd Business Network of Pharma                          4        0        0         5        0.9
3rd Business Network of Pharma                          4        0        0         5        0.9
2nd Technical Network of Pharma                         3        0        0         5        0.6
1st Techno-commercial Network of Ayurveda               5        0        0         8        2.4
2nd Technical Network of Ayurveda                       3        0        0         4       0.48
1st Technical Network of disposables                    3        0        0         5        0.6
Possible future networks                                8        0        0         0          0
Sub-total (A)                                         100               9.3                34.08
BDS PROVIDERS (30%)
PERD Centre                                            20        3      1.8         7       4.20
MS University (1 department)                            5        1     0.15         7       1.05
CIPET                                                   5        3     0.45         6       0.90
LMCP                                                    5        1     0.15         6       0.90
FDCA                                                    5        2      0.3         7       1.05
3 old consultancy organizations                         9        0        0         8       2.16
3 relatively new consultancy organizations              6        0        0         8       1.44
SIDBI                                                  15        0        0       7.5       3.38
DST                                                     5        0        0         5       0.75
SISI                                                    5        3     0.15         7       1.05
EXIM                                                    5        0        0         2       0.30
CBI                                                     5        0        0         7       1.05
Potential BDS                                          10        0        0         0       0.00
Sub total (B)                                         100               3.0                18.23
BROKERING INSTITUTIONS (10%)
CHI                                                    50        0        0         6          3
IDMA-GSB                                               25        5     1.25         8          2
MDMA                                                   15        0        0         5       0.75
NBES                                                   10        0        0         6        0.6
Sub total (C)                                         100              1.25                 6.35
Grand total (A+B+C)                                                   13.55                58.66


The overall sustainability index of the cluster has improved from 13.55 in October 1999 to 58.66
in June 2003. This was made possible due to the growth of activities by the IDMA-GSB and the
formation of small networks as well as the creation of CHI. The range of activities by the




                                              19
networks and the associations have also undergone a shift from mainly regulatory negotiations
to purely developmental as well as business development activities.
The growth of BDS providers and the range of new services initiated by the various technical
institutions also contributed to the enhanced performance.
During the last three and a half years, the cluster has moved from a situation whereby only one
association was functional but had few interactions with some technical institutions to a
situation where three associations are active, new networks are emerging, 10 BDS providers
are linked to small units and around 10 technical/financial institutions have enhanced linkages
with small units.


Chart 1: Pie Chart of Contributions to the Project

                               Pie On Investment In Programmes (2000 - 2003)

                                         Support
                                        Institution              Unido
                                           20%                   22%




                                                      Cluster
                                                       58%




Chart2: Year wise patter of Contributions

                                                 Expenditure Sheet

                              10000
   Expenditure (In Rs '000)




                              8000

                              6000

                              4000

                              2000

                                  0

                                Unido       Cluster         Support Institution   Total




                                                                    20
11. Future Directions
The shift towards quality awareness and up-gradation is fully under way in the cluster. The
local associations and BDS providers are playing proactive role. A new chapter has been
initiated in the active usage of BDS by small firms. However, movement towards this
direction needs to continue.
For that matter the associations should continue to play a proactive role towards organising
training programmes. In particular, CHI needs continued support from its promoting
organisations like PERD, IDMA, MDMA, ADMA, etc. before it reaches a stable position in the
next two to three years. IDMA needs to make optimum usage of the sub-contracting
exchange and should popularise the database for benefits of its members. A move has been
made towards the creation of a Pharma Techno Park. This needs to be followed
meticulously for fast realisation. Once created, the Pharma Techno Park can become a
brand of quality for formulation units in the cluster.
Various other dimensions, especially those related to patents, MIS, etc. needs to be further
worked upon. Here the finalisation of the Government of Gujarat‟s initiative for a Cluster
Programme for the pharmaceutical clusters of Gujarat will be of immense use.




                                            21
                                                                                                   Annex 1
                           Diagnostic Study of Ahmedabad and Badodara

1. SCOPE, OBJECTIVE AND APPROACH

The potential of small and medium enterprises (SMEs) in contributing to the development
process at local, national and global levels has received substantial recognition the world over,
during the last quarter of a century or so. Notable achievements in the spheres of technological
dynamism, market expansion and regional economic regeneration have been noted in a
number of SME clusters across the globe, particularly in the industrialised West, mainly in
Europe. As SME promotion has often been linked to the on-going process of globalisation, it
has been observed that such a strategy of industrialisation, assigning key role to SMEs, would
be largely relevant to the developing countries, where, typically, SMEs dominate the industrial
scene.

There, however, is no pre-given set of policy instruments for SME promotion that would be
applicable across either regions and/or sectors. In fact, international comparative analysis
suggests that SMEs are an extremely heterogeneous category and a predetermined relation
between size, behaviours, performances and policy needs cannot be assumed. Hence, any
intervention at a policy level needs to take into consideration the specificities of the SMEs, both
with respect to production and marketing relations. A meaningful appreciation of the pattern of
emergence and functional dynamics of SMEs is an essential prerequisite, not only for the
immediate promotion of the cluster, but also for delineating possible channels of networking.
Fostering networks is a critical requirement towards accrual of greater benefits to SMEs
through collective action. Highlighting the value of networks or resourceful linkages in cluster
promotion, Porter (1998:) argues that "Cluster boundaries should encompass all firms,
industries and institutions with strong linkages, whether vertical, horizontal or institutional; those
with weak or non-existent linkages can safely be left out."

For over four years now, the Cluster Development Programme of the UNIDO, New Delhi, has
been undertaking both exploration of potential business linkages and strategic intervention in a
few sectors across the country. The basic purpose is to experiment and exemplify cluster
promotion for the benefit of the sector chosen as also for other clusters to learn and practise in
accordance with sectoral and regional specificities. The present study on the drugs and
pharmaceutical clusters (also referred to as the pharma cluster) in Ahmedabad and Vadodara
in the West Indian state of Gujarat forms part of the aforesaid national level action programme.

The drugs and pharmaceutical industry is part of the mother healthcare industry, that
substantially contributes to the development of the economy. The industry includes, inter
alia, drugs and pharmaceuticals and medical devices – durables and disposables. The
medical durables sector is mainly import dependent. But medical disposables are largely
produced indigenously. Medical disposables play a critical role as a conduit between the
patient and parenteral dosage form16. Ahmedabad is the principal source for supply of
medical disposables through out India. Medical disposables come under the regulatory
compliance by the Food and Drug Control Administration (FDCA). Many of the problems
faced by the medical disposable industry are similar to the drugs and pharmaceutical sector,
especially those related to quality, testing, etc. Thus the scope of this study and subsequent
intervention cover both drugs and pharmaceuticals and medical disposables.

16
      Dosage form is the nature of end-product of-the medicine, that a patient consumes. The principal dosage
     forms are tablets, capsules and liquids also known as oral dosage form and injectables, also known as
     parenteral dosage form.


                                                      22
The drugs and pharmaceutical cluster of Ahmedabad and Vadodara was chosen for
intervention based on a Rapid Survey. It was felt during the Rapid Survey that as a step
towards smoother and effective implementation, an R and D or technical or educational
institution could play a critical role (in the implementation phase), in this knowledge intensive
sector. Eventually, the B. V. Patel Pharmaceutical Education Research and Development
(PERD)17 Centre was chosen in concurrence with the representative industry organisation
[Indian Drug Manufacturers Association-Gujarat State Board (IDMA-GSB18)] to carry out the
“Diagnostic Study”.
This study attempts to present and analyse the current position of the industry and also to
understand its functional dynamics. The central concern of the study, however, relates to
two important issues: (a) the nature and strength of current business and organizational
linkages between the various cluster actors and (b) areas of intervention for development of
the industry.
In order to obtain a comprehensive picture of the status and dynamics of the industry in Gujarat
and also to capture the regional specificities we had to take recourse to a number of
approaches. The principal basis of information and perspectives detailed in this study derives
from primary sources, mainly, structured surveys of pharma enterprises and detailed issue
based discussions/interviews with a number of individuals directly or indirectly concerned with
the industry in the state. At various stages of the study, we had interactions with pharma
manufacturers, disposables producers, pharma machine (including for packaging)
manufacturers, loan licensees, office bearers and members of industry associations, bankers,
officials of the concerned state departments, R and D specialists, academics, policy makers
and other knowledgeable and experienced persons in the field. A selective list of persons
consulted/interviewed as part of this study appears as below:

                               Table 1: Profile of Survey Respondents
     Category                                           Persons/Organisations Interviewed
 Large pharmaceutical units                                             4
 Medium pharmaceutical units                                            2
 Small pharmaceutical units                                            12
 Medical disposables units                                             20
 R and D institutions                                                   3
 Machinery manufacturers                                                4
 Loan licensees                                                         4
 Financial institutions/ laboratories                                   3
 Persons knowledgeable about the industry                               6
 Policy making and regulatory bodies                                      4
 Industry associations                                                    6
Special mention may be made of the structured instruments of data collection, i.e., the survey
schedules for the pharma units. Two types of schedules were used for the purpose, the one
dealing with firm level basic information and the other issues and views as
expressed/underscored by the chief or any responsible functionary of the firm. Whereas the
former was meant to collect information mainly on the product range, performance and
organisational structure, the latter was so designed as to elicit opinion on and understand the
processes and factors influencing the industry in the local place. These included queries on
turning points of the industry's growth path, nature of industrial organisation, business linkages,
sources of finance, technological dynamism, problems with current policies and, especially, the
characteristics of cooperation and competition and the potential areas of joint intervention and
collective action.

17
     Details about PERD appear in Chapter 4.
18
     Details about IDMA-GSB appear in Chapter 4.


                                                   23
Besides, useful insights and directions into actual conducting of the study and 0analysing
issues were obtained through the field experiences of UNIDO's Cluster Development
Programme as being undertaken in other sectors and regions in India.

However, in addition to the aforesaid primary sources, information on the important
performance variables and policy directions of the industry, both at the regional and national
levels, was collected through detailed literature scanning, including a variety of sources of
statistical database. These included government publications and also document, papers and
research reports of industry associations, research institutions and the press.

In what follows, Chapter 2 describes the structure and performance of the industry: the
international scenario in brief and in a more comprehensive manner the national scenario.
Chapter 3 details the status of the industry in Ahmedabad and Vadodara and identifies the
turning points of the industry. Chapter 4 captures the business and organizational linkages
and outlines the cluster map. Chapter 5 highlights the problems and opportunities and
suggests an action plan for UNIDO‟s intervention.

2. PHARMACEUTICAL INDUSTRY: STRUCTURE AND PERFORMANCE

2.0     Introduction
The pharmaceutical industry is one of the critical sectors of any economy. The governments
of both developed and developing countries, hence, closely overview the production and
distribution of this industry, though the degree and nature of this mediation vary. For
instance, all countries have adopted controls over the introduction of new products. In many
countries, including India, there are measures to control drug prices too. Given the complex
nature of production, marketing and regulatory framework, a variety of actors play different
roles from the pre-production stage to the point where the products reach the final
consumer.

The industry is also substantially dependent on research and development (R&D) on a
continuous basis. Pharma industry is a typical case where R&D and profitability are closely
interrelated. Increasingly, R&D has come to “dictate profitability” and the profitability, in turn,
will govern the scale and scope of R and D expenditure. The need for firms to recoup the
huge and growing costs of research and drug development has made protection of
intellectual property rights an impending issue in the nineties. During the present decade of
the 21st century, the challenge is likely to intensify once much of the differences/ doubts
over the issue of intellectual property rights (IPRs) are ironed out or clarified. The manifold
widespread value chain and emerging possibilities in the spheres of production, marketing,
distribution and R and D are opening up opportunities for firms to become specialized and
focus on specific segments, molecules19, dosage forms and areas of operation.

2.1    International Scenario
The pharma industry the world over is fragmented given the vast array of therapeutic
groups20, spatially segmented markets, and alternative configurations of value chain for
various dosage forms21. The structure of market is oligopolistic at the level of therapeutics
and highly competitive for OTC22 and generic23 categories. The pharmaceutical industry
worldwide is expected to grow between 6 and 8 per cent per annum during this decade or

19
   Molecules are the bulk drugs, which are the active component in any pharma product.
20
   For details regarding various therapeutic groups, see, Annex 4.
21
   For an understanding of the value chain of various dosage forms of formulations see Annex 5.
22
   OTC (over the counter) products are sold without prescription
23
   Generics products are those that have run out of patent. It is an important item for firms in developing
   countries, which do not require much basic R and D related to development and patenting of new molecules.


                                                    24
so. While price increases are responsible for nearly 60 per cent of this growth, while volume
increases explain 25 per cent and sale of new drugs (sold at higher prices) result in 15 per
cent of the growth. The generic component of the world pharma market is expected to
experience a boom in the current decade, which could substantially increase the export
prospects of developing countries like India.

2.1.1 Production
The production of pharmaceuticals reached US$ 296.4 billion in 1996. Of this, the OTC
market accounted for US$ 48 billion and generics US $ 13.8 billion. The world market for
pharmaceuticals in the year 2000 is estimated at US$ 350 billion and that for bulk
pharmaceutical chemicals at US$ 3.5 billion. The dominance of the developed countries,
especially, the USA and Japan, and large multi national companies (MNCs) is quite striking
in the global pharmaceutical production and trade. The USA is the largest producer of
pharmaceuticals, accounting for nearly 28 per cent of the world pharmaceutical production.
Japan accounts for about 18 per cent, Germany 8 per cent, France 7 per cent, the UK 3 per
cent and Canada 2 per cent of the global production. India‟s share in world production is
estimated at around one per cent.

The current value of world market for generics is estimated at US$ 30 billion. Of this, the
USA accounts for US$ 12.3 billion, Western Europe US$ 7.13 billion and Japan US$ 5.1
billion. The remaining is accounted for by a large number of Asian and African countries. By
2003, the generic market is expected to reach US$ 43 billion with Japan, Europe and USA
being the major markets. Among the world‟s largest 200 odd pharma firms, 50 are Japanese
and 33 are of US origin. Further, the largest 50 companies produce 60 per cent of world
output of drugs and pharmaceuticals, as also cater to about half of the drug needs of the
developing world. Interestingly, over the past two years, mergers and acquisitions worth
more than US$ 1000 billion involving over 15 major companies have taken place worldwide.

2.1.2 Trade
The world exports of pharmaceuticals have been growing at a compound rate of about 13
per cent per annum from US $ 14.4 billion in 1983 to US $ 35 billion in 1993 and to about US
$ 50 billion currently. Developed countries account for over 90 per cent of the world exports
and 70 per cent of imports. The share of developing countries in world exports is about 5 to
7 per cent. China, Hong Kong, Singapore, Republic of Korea and India are the major
exporters among developing countries.

2.1.3 Research and Development
The pharmaceutical industry is a highly research and knowledge intensive industry mainly
because of the need to sustain a pipeline of new drugs to replace old ones. On an average,
large global companies in drugs and pharmaceuticals spend 12-15 per cent of their annual
sales turnover on R and D. In the US, the ratio of R and D cost to sales turnover is
estimated at 11.2 per cent, compared to 5 per cent for telecom, 4.2 per cent for automotive
and an all industry composite of 3.8 per cent.

There has been a phenomenal increase in the cost of developing a new drug. In 1976 a new
drug could be developed at the cost of about US$ 54 million (including capital and other
indirect costs). By the beginning of the nineties this had escalated to US$ 359 million. From
the concept to market a new drug has to go through a series of pre-clinical and clinical trials.
It has been estimated that of the 5000 to 10000 substances screened, only 250 enter pre-
clinical testing. From among these, approximately five enter the clinical testing phase and
finally one drug gets approved. In order for the whole process to complete, it takes about 10
to 15 years.



                                              25
The high investment and high risk involved in developing and commercialising a drug has
posed major challenges to the pharmaceutical manufacturers who engage in basic research.
This has led to the demand for strengthening intellectual property laws.

2.2     The National Scenario
The Indian pharmaceutical industry today is in the front rank of India‟s science-based
industries with wide ranging capabilities in the complex field of drug manufacturing and
technology. It is a front-runner in the third world in terms of technology, quality and range of
medicines manufactured. Almost all types of medicines - ranging from simple pain relieving pills
to sophisticated antibiotics and complex cardiac compounds - are now made in the country.
These have made India fairly self-sufficient in this field. A large domestic market and relatively
inexpensive trained manpower have also enabled the country to emerge as a low cost
production centre.

The Indian pharma industry has registered significant rise in capital investment over the years.
It has also been a net export earner and a major source of employment. The sector, however,
has faired poorly in attracting foreign investment following the opening up of the economy in the
early nineties. Some Indian companies have opened their offices abroad. There is also a
noticeable trend towards mergers and acquisitions in the domestic front.

2.2.1 Production
Beginning in a humble way a century ago, in 1901, and with a total sales value of only Rs.10
million in 1948, the industry has come a long way to become one of the leading sectors in
the country. It is estimated that the industry is capable of meeting about 70 per cent of the
domestic requirement of bulk drugs and almost the entire demand for formulations. The
growth in production of bulk drugs and formulations in the country has been quite
impressive. Between 1965-66 and 1997-98 the production of formulations rose from Rs.1500
million to Rs.120680 million and that of bulk drugs from Rs.180 million to Rs.26230 million
(Table 2.1).

                 Table 2.1: Production of Bulk Drugs and Formulations in India
                                     (Rs. Million)
                Year     Bulk Drugs                Formulations               Total
            1980-81              2400                 12000                  14400
            1984-85              3770                 18270                  22040
            1989-90              6400                 34200                  40600
            1990-91              7300                 38400                  45700
            1991-92              9000                 48000                  57000
            1992-93             11500                 60000                  71500
            1993-94             13200                 69000                  82200
            1994-95             15180                 79350                  94530
            1995-96             18220                 91250                  109470
            1996-97             21860                 104940                 126800
            1997-98             26230                 120680                 146910
            Source24

Significant growth in the industry can also be seen through the fact that in 1998-99 as many
as 20053 units were engaged in direct and indirect production of drugs pharmaceuticals in
1998-99 as against 5156 in 1979-80 and 2257 in 1960-70. Of this, it is estimated that there


24
     Indian Pharmaceutical Guide, 1998, New Delhi: Pamposh Publications; and Department of Chemicals and
     Petrochemicals, Ministry of Chemicals and Fertilizers, Govt. of India, Annual Report (1999-2000).


                                                   26
are around 8000 to 9000 direct manufacturers and the remaining, loan licensees25. The
Indian pharmaceutical sector is also heavily skewed in terms of its ownership structure. The
large and medium scale firms comprise well-established MNCs and the organized sector of
the Indian drug manufacturers. There are around 50 pharma MNCs operating in India.
Majority of the pharma units are located in Gujarat, Andhra Pradesh, Maharashtra, Tamil
Nadu, Punjab, Haryana and West Bengal.

2.2.2 Price and Profitability
The profitability (i.e., profit before tax as a percentage of sales) of the industry has steadily
increased form 1 per cent in 1991-92 to 8 per cent in 1997-98 (Table 2.2).

                                    Table 2.2: Trend in Profitability

                         Year                          Profitability
                         1991-92                           1.0
                         1992-93                           2.6
                         1993-94                           4.4
                         1994-95                           6.1
                         1995-96                           6.5
                         1996-97                           7.0
                         1997-98                           8.0

Source: OPPI Surveys for 1991-92 to 1994-95 and OPPI estimates for the rest of the years.

Interestingly, the increase in the Wholesale Price Index (WPI) of drugs and medicines has
been much less compared to that for all commodities or the all India Consumer Price Index
(CPI) (Table 2.3).

                       Table 2.3: Movement in Prices of Drugs and Medicines

      Year WPI for all commodities WPI for drugs and medicines                                 All India CPI
                 (1981-82=100)            (1981-82=100)                                        (1982=100)
 1991-92              209                      160                                                  219
 1992-93              229                      170                                                  240
 1993-94              248                      187                                                  258
 1994-95              275                      221                                                  279
 1995-96              296                      235                                                  313
 1996-97              315                      242                                                  342
 1997-98              330                      262                                                  366
Source: OPPI, 33rd Annual Report 1998-99.

2.2.3 Nature of the Market
India is one of the largest pharmaceutical markets in the world by volume and ranks
amongst the top 15 by value. The size of the Indian drugs and pharma products, in terms of
its value, is estimated at Rs. 142000 million (US$ 3.2 billion) in 1998-99. The Indian
pharmaceutical industry is essentially volume driven rather than value driven. Even a slight

25
     Direct manufacturers, or own licensees, manufacture products in their own units for direct distribution in their
     own brand names. Indirect manufacturers are loan licensees who get products manufactured in some other
     units and then market it under their own brand names. Both own and loan licensees need to obtain licenses
     from the FDCA.


                                                          27
variation in volume sales has a direct bearing on the overall growth of the market. For
instance, when unit sales of pharmaceutical packs rose by 10 per cent in 1998 from their
level in 1997, the corresponding increase in sales value was 14.1 per cent. In the first six
months of 1999, unit sales decreased by 4.2 per cent compared to 1998, the corresponding
growth in rupee terms dropped to 5.4 per cent. Hence, despite its large size, India‟s share in
the global market is insignificant due to low product prices. The prices are low because of
low level of affordability, fragmented market with severe price competition, and
administrative control of prices.

The Indian pharmaceutical market is very fragmented. The top 400 produce 80 per cent of
the drug requirements of the country and all other manufacturers, which include the small
and tiny scale manufacturers, meet the remaining 20 per cent of the requirement. Twenty
per cent of the drugs produced by the small and tiny scale manufacturers are supplied to 70
per cent of the population, as these manufacturers largely depend upon the supplies to the
government agencies. This is mainly due to the provision that the government purchases on
rate contract basis.

The market is dominated by low-end pharma products – antibiotics constitute 24 per cent of
the drugs sold in the country as compared to 13 per cent in the developed world.
Cardiovasculars, the largest selling therapeutic category in the developed market (16 per
cent of annual drug sales) consists only 6 per cent of the Indian market.

2.2.4 Investment
Over the period between mid-sixties and mid-nineties there was phenomenal increase in
capital investment in the sector - from Rs.1600 million in 1965 to Rs.21500 million in 1998
(Table 2.4).

                  Table 2.4: Investment in the Pharmaceutical Industry:
                                Selected Years (Rs. Million)
                 Year                           Investment
                 1965                              1600
                 1973                              2250
                 1979                              5000
                 1985                              6500
                 1988                              10600
                 1994                              12000
                 1996                              16500
                 1998                              21500
                  Source: Same as Table 2.3

There are three distinct phases discernible during this period. Between 1965 and 1973 the
growth rate (point to point) in investment (at current prices) was only 41 per cent. It grew by
188 per cent over the period 1973 to 1985. The rate of growth came down to 102 per cent in
the subsequent period from 1986 to 1998. However, foreign investment in this sector is
almost negligible. For the period August 1991 to December 1999, the total approved foreign
investment in drugs and pharmaceutical sector was a meagre Rs. 8818 million, as against
the total estimated cumulative internal investment of Rs. 92300 million for the years 1993 to
1998.

2.2.5 Trade
Over the years the drugs and pharmaceuticals sector has emerged as a net foreign
exchange earner, a status it has maintained since 1988-89. The average annual growth rate



                                              28
of exports between 1980-81 and 1998-99 was about 33 per cent as against 22 per cent in
the case of imports (Table 2.5). The ratio of exports to imports rose from 0.61 to 2.15
between the early 1980s and the end of 1990s. Finished formulations dominate the export
kitty, while bulk drugs and chemicals dominate the import basket.

            Table 2.5: Export and Import of Formulations and Bulk Drugs
                                     (Rs. Million)
                          Exports                           Imports
  Year      Formulations Bulk Drugs Total Bulk Drugs Formulations                  Total
  1980-81       351            113       464        872          96                 969
  1984-85       995            293      1288        1784        102                1886
  1989-90       3142           3505     6647        4256        551                4807
  1990-91       3714           4134     7848        3226        849                4075
  1991-92       5586           7226     12812       4585        961                5546
  1992-93       9655           4095     13750       5084        1195               6279
  1993-94      13108           5308     18416       6127        1383               7511
  1994-95      15055           7601     22656       8114        1730               9845
  1995-96      20448          11329     31777      16300        2700               19000
  1996-97      25092          15811     40903      17050        3450               20500
  1997-98      33432          17379     50811      18270        4300               22570
  1998-99      30385          23277     53662      19180        5400               24580
   Source: Same as Table 2.3.

Notably, there has been a progressive decline in the share of bulk drugs in total imports and
a corresponding increase in its share in overall exports of drugs and pharmaceuticals. The
reverse has been the case with formulations. The trend in rising relative importance of
exports in India‟s pharmaceutical trade has been more striking during the late eighties and
the early nineties than before (Table 2.6).

       Table 2.6: Share of Exports and Imports of Formulations and Bulk Drugs
  Year              Share in Total Exports           Share in Total Imports
                Formulations       Bulk Drugs    Bulk Drugs     Formulations
  1980-81            75.7             24.3          90.1              9.9
  1984-85            77.3             22.7          94.6              5.4
  1989-90            47.3             52.7          88.5              11.5
  1990-91            47.3             52.7          79.2              20.8
  1991-92            43.6             56.4          82.7              17.3
  1992-93            70.2             29.8          81.0              19.0
  1993-94            71.2             28.8          81.6              18.4
  1994-95            66.5             33.5          82.4              17.6
  1995-96            64.3             35.7          85.8              14.2
  1996-97            61.3             38.7          83.2              16.8
  1997-98            65.8             34.2          80.9              19.1
  1998-99            56.6             43.4          78.0              22.0
 Source: Same as Table 2.3.

India exported drugs and pharmaceuticals to more than 200 countries in 1998-99. The
share of Indian exports to the USA remained 11 per cent over the years 1994-95 to 1998-99.
Exports to Germany and Hong Kong increased by nearly 2 percentage points, whereas that


                                             29
to Russia came down by 7 percentage points. In 1998-99, drugs and pharmaceuticals
constituted 28 per cent of India‟s exports to Vietnam, 21 per cent to Nepal and 20 per cent to
Nigeria. As far as the major trade blocs are concerned, in 1998-99Latin American Integration
Association had the largest combined share (14.7 per cent), followed by ASEAN (8.1 per
cent), CIS (7.6 per cent) and SAARC (6.1per cent) countries in that order.

In 1998-99 India imported medicinal and pharmaceutical products worth Rs.2529 million
from China, the largest exporter of these products to India. In fact, pharma products formed
5.7 per cent of all imports from China into India. In terms of absolute value, Switzerland (Rs.
1243 million), USA (Rs. 1164 million) and Germany (Rs. 1044 million) were the major
exporters to India.

2.2.6   Employment

The pharmaceutical industry provides employment to approximately 28.6 lakh people (Table
2.7). About 84 per cent of this employment is generated in the distribution trade and
ancillary indorse, and only 16 per cent in the organised and small scale sectors (OPPI, 1998-
99).

           Table 2.7: Employment (Estimated) in the Indian Pharma Industry
            Direct:
                     Organised Sector                290,000
                     Small Scale Units               170,000
                                       Total         460,000
            Indirect
                     Distribution Trade             1,650,000
                     Ancillary Industry               750,000
                                       Total        2,400,000
                         Direct and Indirect        2,860,000
           Source: Same as Table 1.3.

2.3     Major Legislations

There are various legislations that govern the manufacture and sale of drugs and
pharmaceuticals in India. There are also rules framed under the provisions of these laws.
The following are the laws that are currently in operation in the country:

1. The Poisons Act, 1919
2. The Drugs and Cosmetics Act, 1940 (this was amended various by Drugs (Amendment)
   Acts in 1955, 1960, 1962, 1964, 1972, 1982 and 1986)
3. The Drugs and Cosmetics Rules, 1945
4. The Pharmacy Act, 1948
5. The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954
6. The Medicinal and Toilet Preparations (Excise Duties) Act, 1956
7. The Narcotic Drugs and Psychotropic Substances Act, 1985
8. The Drugs (Prices Control) Order, 1995

General legislations that have a significant bearing on pharma industry in the country.

1. The Industries (Development and Regulation) Act, 1951
2. The Trade and Merchandise Mark Act, 1958
3. The Indian Patents and Design Act, 1970.



                                              30
From among these the aforesaid legislations the following four play a critical role 26 in the
development of the industry. These are:

       (a)   Schedule „M‟ of the Drugs and Cosmetic Act 1940
       (b)   The Indian Patents and Designs Act, 1970
       (c)   Patents (Amendment) Act, 1999
       (d)   The Drugs (Price Control) order (DPCO), 1995

We shall briefly describe the major aspects of these legislations so as to appreciate their
likely impact on and response from the manufacturers and others concerned.

(a) Schedule `M’ of the Drugs and Cosmetics Act (1940)
The Schedule „M‟ classifies the various statutory requirements mandatory for all drugs,
pharmaceuticals and medical disposable industry relevant as per current good
manufacturing practices (CGMP). Schedule „M‟ was last revised in 1986, when the concept
of GMP was first introduced. The Central Government is now revising the Schedule „M‟ to
get it “harmonized with that of the various developed and developing countries and also to
the level of the well established international organizations such as the World Health
Organisation (WHO)”27.

The WHO guidelines on GMP for pharmaceutical products urge that:

      all manufacturing processes are clearly defined, systematically reviewed, and shown to be
       capable of consistently manufacturing pharma products of the required quality that comply
       with their specifications;
      all necessary facilities are provided including qualified trained personnel, adequate
       premises and space, suitable equipment and services, correct materials, containers and
       labels, approved procedures and instructions, suitable storage and transport and
       adequate personnel, laboratories and equipments for in process controls;
      instructions and procedures are written in clear and unambiguous language;
      operators are trained to carry out procedures correctly;
      records are made (manually and/or by recording instruments) during manufacture to
       show that all the steps required by the defined procedures and instructions have actually
       been taken and that the quantity and quality of the product are as expected and any
       significant deviation fully recorded and investigated;
      records covering manufacture and distribution are retained in a comprehensive and
       accessible form;
      a system is available to recall any batch of product from sale or supply; and
      complaints about marketed products are examined, the causes of quality defect
       investigated, and appropriate measures taken.

A special sub committee constituted by the Government of India has proposed revamping of
the Schedule M, covering specifications such as general requirements in case of buildings
and premises, personal sanitation and hygiene, training, production and operation controls,
quality control and assurance, stability and validation studies, documentation, complaints
and self-inspections; and special requirements for individual formulation categories. Among
other things, the amendment calls for the following:


26
     The criticality of these four legislations is based on the importance assigned by the interviewees.
27
     “An overview of the Proposed Revision of Schedule M to the Drugs and Cosmetics Act”, Keynote Address by
     Dr. M. Venkateshwarlu, Deputy Drugs Controller (India), West Zone, Mumbai; March 11, 2000, Seminar held at
     PERD Centre, Ahmedabad organised by IDMA and UNIDO.


                                                       31
   to maintain a ratio of 1:2 between the constructed area and surrounding premises to
    prevent environmental pollution;
   to install a validated water system to aid monitoring and control of bio-burden levels;
   to have a good disposal system, in the absence of which to have arrangements to recycle
    rejects;
   to have proper environmental control, with emphasis on buildings, till the primary packaging
    is complete;
   to ensure supply of filtered air in all production areas to prevent environmental pollution;
   to have specifically designed areas for production, quality control, storage and ancillary
    areas;
   to take adequate precautions to segregate the manufacture of highly potent drugs to avoid
    cross contamination;
   to design adequate operational and process controls to ensure reproducible quality of
    drugs;
   to ensure total quality control from raw materials procurement till the retail counter;
   to undertake detailed stability studies to establish the quality of drugs in different climatic
    and storing conditions; and
   To evolve clear and realistic documentation procedures.

(b) The Indian Patents and Designs Act, 1970
This Act aims at protecting inventions. The term of patent granted is in respect of an
invention claiming the method of process of manufacture of a substance. For a medicine or
drug the protection is given for a period of five years from the sealing of the patent or seven
years from the date of patent, whichever period is shorter. The Controller of Patents,
Designs, and Trade Marks appointed under the Trade and Merchandise Act, 1958 is the
Controller of Patents.

(c) Patents (Amendment) Act, 1999
After signing the GATT agreement, India needed to change its patent law from process
patent regime to a product patent regime. Developing countries are given time till 2005 to
change their patent legislation. Since January 1, 1995, India has begun to accept
applications for product patents, which go into a black box. This box is to be opened in 2005
to establish right of priority before granting patent. From January 1, 1995 to October 31,
1999, 2994 product patents have been filed for pharmaceutical products. Meanwhile for
each such patent application that has been accepted, exclusive marketing rights (EMR) have
to be granted for a period of five years.

The Controller of Patents examines the applications to ascertain whether there is a violation
of the relevant provisions of Patent Act. The government can not only fix the price of the
product covered under EMR, but also reserve the rights to grant compulsory license or
revocation of patent. Provision is made to ensure that EMRs are not granted for substances
based on Indian System of Medicines where the products are already in public domain.

(d) The Drugs (Prices Control) Order (DPCO), 1995
The DPCO provides for ceiling prices for medicines, the lists of which are reviewed
periodically. Over the years substantial changes have been made in the DPCO in terms of
reduction in the number of drugs under price control and simplification of application
procedures. The DPCO, 1995 allows for exemption from price control for new bulk drugs
which have not been produced elsewhere and which are developed through indigenous
R&D.




                                                32
On the recommendation of the Hathi Committee (1973), the Government of India created a
Drug Price Equalisation Account (DPEA) under the DPCO. This equalisation is done on the
basis of a weighted price average determined by the government. Any company that sells
the product at higher margins on account of cheaper sourcing of inputs is held liable to pay
up the overcharged amount to the government.

2.4. The Indian System of Medicines
In recent years, there has been a growing recognition of the importance of drugs in the
Indian System of Medicines (ISM), namely, ayurveda, unani and siddha in recent years as
substitutes for modern drugs. Also there has been a notable rise in the sales of large
volumes of ayurvedic „nutraceuticals‟ in the market as drugs to make them eligible for excise
duty concessions. Though ayurvedic products are subject to standards prescribed in
Schedule 1 of Drugs and Cosmetics Act, there is lack of clarity about the existing norms. It
calls for a revamped ayurvedic pharmacopoeia and GMP standards. The GMP norms are
radically different for the ISM due to, (1) practical difficulties to quantitatively assess plant-
based source materials; and (2) preponderance of tiny units which are unable to follow
equipment standards requiring huge investments. In the light of these concerns there is a
need to have a comprehensive legislation on the lines of the Drugs and Cosmetics Act for
exclusively regulating the manufacturing and marketing. Such a legislation is now under the
consideration of the government.

2.5.    Distribution Channel28
In a geographically diverse and extremely competitive market where sales volumes are high,
distribution plays a crucial role. Further, the common incidence of brand substitutions makes
it imperative for a company to make available its brands at all times and at various levels of
distribution.

The distribution channel for pharmaceutical products is given below:

                                   Channels of Distribution

                                     Manufacturer

                                  C & F/Depot/Super
                                       Stockist
                                        Stockist

                Hospital              Wholesaler                   Hospital

                                    Retailer/Chemist

                                        Patient

It is estimated that there are 60,000 stockists and more than 550,000 retailers in the country,
plus the population of dispensing doctors. These doctors account for roughly 10 per cent of
the pharma market. During the seventies and early eighties, there were few but large
distributors. As the pharma companies expanded their marketing operations, these
distributors faced logistic problems while attempting to cater to emerging markets. As a
result of this, many small players became stockists and wholesalers, making the sector

28
     Source: Pharma Business, Vol.1.no.2, June 2, 2000


                                               33
fragmented, and hence, more localized. According to the Retail Druggists and Chemists
Association, there were roughly 10,000 distributors and 125,000 retail chemists in India in
1978. The number of distributors has increased six-fold, and retail outlets five-fold during the
last two decades.

Distribution margins in India are fixed as per provisions of the Drug Price Control Order. For
controlled drugs, the stockists‟ margin is fixed at 8 per cent of the maximum retail price and
for decontrolled drugs DPCO allows 10 per cent. For retail chemists, the margins offered are
16 per cent in the case of controlled formulations and 20 per cent for decontrolled
formulations. Manufacturers also offer cash discounts of 5-10 per cent to stockists by issuing
free packs. Stockists, in turn, provide a two per cent cash discount to retailers.

Drug distribution in India has been undergoing changes following liberalization. The changes
have been initiated by pharma companies, which are increasingly replacing company owned
depots and warehouses with clearing and forwarding (C and F) agents. The aim is to curtail
overheads. The C & F agents operate under contract on companies‟ behalf. An agent is
paid a fee that depends on the turnover of products, and ranges from 4 per cent on a high
turnover product to 10 per cent on a low turnover product. Because of extended transit time,
companies can move seasonal product well in advance to C and F agents without incurring
ex-factory excise costs.

Usually a stockist handles the business of six to eight companies. A few of them handle
more than 50 companies. Traditionally, stockists have been non-competitive, with each
handling a select group of retailers, and vice versa. However, the recent spate of mergers
and acquisitions in the drug industry has put stockists in a quandary. When two companies
merge, the number of stockists almost doubles. This creates complications for the stockists.

Competition at the stockist level is proving to be a bonanza for retailers, at least for the time
being. But this section has also begun to have its own share of worries as the retail sector is
opened up for foreign investment and the concept of retail chain outlets is beginning to get
tested in India for the first time. The first retail pharmacy chain was started by the Subiksha
Retail Services Pvt. Ltd., which operates 19 retail outlets in Chennai. Similarly, The Medicine
Shoppe, one of the largest retail drug store in the US, opened two retail outlets in Mumbai
and has franchised three more in Mumbai, Calcutta and Vadodara. It is planning 100 such
outlets in India. The drug retail market is very competitive and crowded. Together, they
account for 80 per cent of the pharma market.

As far as public hospital supplies are concerned the tender procedures are compulsory for
contracts. These contracts have to be published in the official newspapers/periodicals. Here,
the supply is done directly without any intermediary.

2.6.     Research and Development
R and D in Indian pharmaceutical industry has mainly been in applied research for
developing process technology for production, especially of synthetic bulk drugs. This was
facilitated by the Indian Patent Act of 1970. In a number of cases there was no need to
discover a new process as the inventor might not have filed an application in India, and even
if they did, the patents would have expired in view of the short duration of validity under the
1970 Act.

It has been observed by some that countries with weak patent protection systems spend
much less on innovation. In India, for instance, the pharmaceutical industry‟s investment in
the late 1990s was about Rs. 2,200 million, i.e., approximately 2 per cent of its total turnover
of Rs. 110,000 million (Table 2.8).


                                               34
                         Table 2.8: Trend in R and D Expenditure in India
                                            (Rs. Million)
                        Year                                Expenditure
                        1976-77                                       105
                        1981-82                                       293
                        1985-86                                       480
                        1993-94                                      1250
                        1994-95                                      1400
                        1995-96                                      1600
                        1996-97                                      1850
                        1997-98                                      2200
                        1998-99                                      2600
                       Source: Same as Table 2.3.

2.7     Medical Devices and Equipments
Significant technological advances in the health care sector, during the last three decades or
so, have led to the rise of the medical devices and equipments industry. The utility of this
industry, both for diagnosis and treatment purposes, has been recognised as being on the rise.
The medical devices and equipments include both durables and disposable products.

Though the data on growth of medical devices (durables and disposables) industry are not
adequately available, it is definite that the industry will have a rapid growth. Few facts regarding
state of health and health care services in India would be interesting in this respect.

“It is understood that addition of each bed on an average in hospital need investment of Rs. 1
lakh in medical devices. Similarly for every 2½ bottles of intravenous fluid 1 IV sets is required.
Blood bags are required at the rate of 1 bag per bed. Every day 10 lakh no. of operations are
being performed in the country. The demand for diagnostic equipment is increasing at a faster
rate with increasing no. of charity hospitals and increase in paying capacity of rural areas”.29

There exists further evidence to prove the rapid growth of the industry. According to an OPPI
estimate, in India, pharmaceutical industry is growing at a rate of more than 12 per cent. The
production of intravenous (I.V.) fluids is increasing at 15 per cent per annum. The use of
diagnostic equipment has increased at 35 per cent per annum and disposables at 20 per
cent per annum during 1990s.

The medical durables industry in India has not been able to make significant progress. The
demand for durables (i.e., mainly sophisticated electronic diagnostic apparatus, dental
appliances, endoscopes, transfusion and anaesthetic apparatus and a range of surgical
instruments) is met through imports to a large extent. The major producers are Western
Europe, the USA and Japan.

Broadly, the common disposables are: (i) I.V. administration sets, (ii) blood administration sets,
(iii) scalp vein sets, (iv) urine collection bags, (v) I.V. cannulas, and (v) syringes. Further, under
the disposable catheters category, the following products are included: i) Ryle's tubes, ii) infant
feeding tubes, iii) suction catheters, and iv) urethral catheters. It is important to note that most



29
     Source: website <mediasourceasia.com>


                                                 35
of these products are manufactured in the small scale sector in India, and much of the domestic
demand is met through it30.

There are about 100 units in the organised sector as well as in small scale sector producing I.V.
sets, tubes, etc. The share of the organised sector is 60 per cent while that of small sector is 40
per cent. The total production capacity is understood to be around 300-350 million tubes per
annum. The average capacity utilisation is estimated at 60 per cent. Disposable Syringes is
also a popular item among Indian manufacturer. The cumulative production capacity is about
600 million (nos.) per annum. Disposable blood bags are essentially being produced by small
units and the total production capacity is estimated around 25 million (nos.) per annum. The
production of surgical gloves is again concentrated in the small-scale sector. The current
production is estimated at 3000 million (nos.) per annum.

In terms of value the medical disposable industry is around Rs. 8000-10000 million which is
divided among different products as presented in Table 2.9. Currently, as imports of
disposables are very small there seems to be good prospects for the industry in the domestic
market. Moreover, some exports have also been taking place; particularly to south east Asia
and African countries. This underscores the possibility for an expanding export market also.


                      Table 2.9: Four Levels of the Disposables Market
 Items                                                           Market Share           Growth
 Syringes, Scalp vein sets, Needles, Urine bags                      60%                 37%
 Stopcocks, Nebulising chambers, I.V . cannula extension tubes       15%                 37%
 Blood bags, Endotracheal tubes, Arterial catheters                  15%                 35%
 Heart valves, Dialysers                                             10%                 10%


Medical devices and medical disposables can be sold in any manner companies want, i.e., by
means of direct or indirect distribution. The sale of medical devices and medical disposables
can be effected by means of several trade channels. The manufacturers can offer their
products directly to wholesalers/regional dealers, buying co-operatives or even the end user.
Direct distribution without the intermediary service of importers/agents, however, is not very
common. The only companies able to operate this way are the subsidiaries of transitional
operating enterprises, which can afford to manage their own distribution channel. The
importers/agents, who have specific market expertise, are, therefore, in most cases the link
between the producers and buying department/unit and wholesalers/regional dealers.

2.8.      Opportunities for Indian Pharma Firms

2.8.1 Research and Development
The amended patent laws will have far reaching impact not only on the Indian
pharmaceutical industry but also on international R and D based companies, especially, in
the USA, Western Europe and Japan. The major aspects/areas those will be affected by
such changes include new product introduction, R and D, pricing policies, exports,
competition and investment decisions. It is estimated that in the area of total drug discovery
and development the existing Indian capabilities are adequate for almost 60 to 70 per cent of
activities involved. The industry is well equipped to carry out drug development including
pilot production of new drugs for clinical trials in a cost effective manner (at about one
fifteenth of the cost in the US). Usually, research constitutes one third and development two


30
     For a detailed schematic presentation of stages and process of production, see, Annex 6.


                                                36
thirds of the cost of R&D. Many international pharma firms as well as contract research
organisations (CROs) would be willing to work with partners across the R&D value chain so
that they can focus on distinct segments and minimise the risk involved. India could emerge
as a world class R&D centre given its large manufacturing base for active ingredients and
other intermediaries, in addition to a large pool of talented and inexpensive technical
manpower and low cost of research.

2.8.2 Market for Generics
Generics represent a sound business opportunity for Indian manufacturers as in any given year
their number is more than new molecules that hit the market. Another opportunity is in the field
of patent expired therapeutic equivalents of patented products. Another area where India has
a distinct comparative advantage is export of bulk drugs. This market is growing rapidly in
the US and Western Europe. A number of factors like availability of raw materials and new
plants, emerging trend of green field export oriented projects, local enterprise, strong track
record of generics etc. could act as strong facilitators.

                                                 Pharma Y2K
    The number of new drug registrations went up substantially in the early 1980s. After the mandatory
    patent period of 20-years, all of them are going off-patent now. If in 1998 drugs worth only $ 1.1
    million went the generic way, drugs worth more than $ 7.5 million will go off patent in the coming
    couple of years. In the US alone the generics market is expected to reach $ 18 billion (almost 5
    times the Indian pharma industries) by the year 2003. The US accounts for more than 40 per cent
    of the world generics market, and imports about 60 per cent of the generics sold in the country.
    Once the patented drugs go generic their prices will drop to less than 20 per cent of their patented
    prices. But, it will be profitable for Indian companies to manufacture and export them to the US or
    European markets as, their OTC prices will be 4 to 6 times their prices in India. It is also to be noted
    that according to a study conducted by Mc Kinsey & Cie the Indian drug industry‟s manufacturing
    costs are 45 per cent lower than generics market in the West, mainly due to lower labour and
    infrastructure costs.
    The three areas in which some of the biggest drugs are going off patent are infections, ulcers and
    hypertension. Indian firms have maximum research expertise in these areas. But to win the generic
    game a company has to be out in the market immediately after the drug goes off patent, as the
    prices start to nosedive after that. Of the seven front-ranking Indian firms in the race for the US
    market, six are in for formulation generics and only one for bulk drug generics. To get an entry into
    formulation generics, for every dosage and delivery mechanism, a firm has to apply for an
    Abbreviated New Drug Application (ANDA) clearance. It is called abbreviated because unlike the
    innovator, the generic player can see permission only for a fewer number of processes. It takes
    about 5 years to get ANDA and costs between US $ 300,000 to US $ 500,000 of one includes all
    expenses from research costs to the final certification from the US Food and Drug Administration. It
    is thus estimated that these 7 firms might end up paying US $ 80 million to obtain the necessary
    clearances (“Drug Rush”, Business World, April 10, 2000).


However, many other crucial bottlenecks are to be overcome before India could exploit these
opportunities. Some are mentioned below:

     Availability of finances at global rates of interest for fresh investments in production
      plants; access to international funds markets as also venture capital and equity
      financing markets;
     Creation of a „quality image‟ in international markets;
     Use of state of the art and eco-friendly technologies;
     Encouraging international firms to bring Global Clinical Practices to India and initiate
      collaborative projects with Indian companies and institutes;
     Enhanced investments in R and D; and
     Development of superior marketing strengths.


                                                     37
2.8.3 Niche Marketing
Niche products have fewer competitors and hence margins tend to be higher and product life
cycles longer. Some examples of niche products are advanced drug delivery systems,
biotechnology, complex bulk chemistry and manufacturing of difficult formulations like sterile
antibiotics and anti cancer drugs. Potential for specialising on these and many more such
products needs to be explored.

2.8.4 Alliance with Global Majors
There is an increasing trend towards alliances as the small firms are under the threat of
extinction mainly due to an increase in research and marketing costs. Western pharma
majors would be keen to partner with companies in countries like India, Poland, Italy or
China which are low cost manufacturing centres. Small companies and research institutions
can focus on drug discovery and clinical trials, which are expensive functions for global
majors. Their strength lies in distribution, marketing and development, handling the
regulatory and development procedures etc. Smaller units better handle the skill and focus
required for discovery.

3. PHARMACEUTICAL INDUSTRY IN AHMEDABAD AND VADODARA: THE TURNING
POINTS AND CURRENT STATUS

3.0     Introduction
Historical landmarks of an industry, or turning points, not only provide a road map to its
growth trajectory, but also highlight the critical points of deflection and the adjustment
mechanism that influenced the trajectory. More importantly, they provide us with valuable
insights as to which mechanisms can be adapted to suit the current requirements. In what
follows we try to identify such turning points - experienced so far31 and anticipated in the
near future - that had played or are likely to influence substantially the growth of the drugs
and pharmaceutical industry in Ahmedabad and Vadodara32. Interestingly these include local
(State level), national as well as international happenings that significantly influenced the
industry.




31
     In Gujarat or relevant for Gujarat
32
     The cities of Ahmedabad and Vadodara are situated at a distance of around 100 kms.


                                                       38
3.1        Turning Points

     Table 3.1: Major Turning Points in the Growth of Pharma and Medical Disposables
                                      Units in Gujarat

       Year         Turning Point                                             Nature of Conditions
                                                                              Influencing the
                                                                              change
       Early        1. First pharma unit, Alembic Chemicals, was              Local
       1900s           established in Vadodara, paving the way for the
                       growth of indigenous industry
1914-1918            Spurt in firms producing drugs to meet the demands      National
                       of the World War I
                     Discouraging attitude of the British government
                       towards native manufacturers
1930s                A central legislation for production and quality        National
                       control was passed following the recommendations
                       of the Drug Enquiry Committee in 1930
                     The Indian Pharmaceutical Association was founded
                       in 1939
1940s                Drugs and Cosmetics Act came into being in 1940         National
                     The LM College of Pharmacy was established              Local
                     Mr. B.V. Patel became instrumental in founding the      Local
                       Food and Drug Lab in Vadodara in 1947
1967                2. CADMACH Machinery (for pharmaceuticals) was            Local
                       set up
1971                3. The Indian Patent Act was passed in 1971               National
1986                 Schedule M of the Drugs and Cosmetics Act was           National
                       amended to include GMP33
1989                 Medical disposables units were brought under            Local
                       Schedule M
1989                 The PERD Centre was founded                             Local
1993                 The Dunkel draft proposals on Trade Related             International
                       Intellectual Property Rights led the government to
                       take steps to amend the patent laws to introduce
                       product patents
2005                 The product patent regime came into operation               International

3.1.1 Indigenous Units Provided the Lead
The history of emergence and progress of the pharmaceutical industry in Gujarat is inextricably
linked to that at the national level, and, in more than one way, reflects the responses of the local
industry to changes in market and policy signals. A century ago, in 1901, when the first
indigenous pharmaceutical unit (Bengal Chemical and Pharmaceutical Works) was established
in Calcutta, barely six years later another unit came up in Vadodara. This unit, the well known
Alembic Chemical Works Co. Ltd., and later, Sarabhai Chemicals, not only stands testimony to
the pragmatism and vision of local enterprising culture, but has continued to inspire numerous
entrepreneurs who built up a significant pharmaceutical industry base in Gujarat, especially in
Ahmedabad and Vadodara.



33
     Explained in Section 2.3


                                                39
A mention may be made here of a pioneering unit, namely, Sri Krishna Keshav Laboratory in
the much younger medical disposable manufacturing sector. In 1970, this firm formed a joint
venture with a US based Company, McGaw Private Limited. The new company was named
McGaw Ravindra Laboratories India Ltd. This firm was in the production of medical disposables
and I. V. fluids, and by now, this firm has created many entrepreneurs in the field, including the
founder of Core Parenterals, the largest firms in the sector now.

3.1.2 War Provided the Impetus, But There were Constraints
During the early decades of the twentieth century, there were hardly any manufacturing facilities
within India and there was near total dependence on imports. Even importation of drugs was
jeopardised as the World War I (1914-1918) broke out. The Indian entrepreneurs rose to the
occasion. They were also encouraged by the colonial government to produce drugs to meet the
eventualities caused by the War. Following the War, the Indian pharma manufacturers,
however, found the going tough. The incidence of adulteration went unchecked, as a result of
which the market was flooded with spurious drugs. The tropical climate and storage of drugs for
inordinate periods contributed further to the deterioration of drugs. The absence of adequately
qualified pharmaceutical personnel compounded the already complex situation. Moreover, the
British government was biased in favour of foreign producers in awarding licenses. There were
inadequate statutory controls, and no legal action could be taken against those involved in
unscrupulous practices.

3.1.3 A Formal Sector is Born
The persistent efforts by a few enthusiasts and also the pressure of popular demand for quality
drugs for the Indians, did effect a series of developments, especially during the momentous
decades of 1930s and 1940s, that substantially transformed the Indian pharmaceutical industry
from a state of ailing infancy. The Government of India appointed a Drugs Enquiry Committee
(DEC) in 1930 under the Chairmanship of Lt. Col. Ram Nath Chopra, the then Professor of
Pharmacology at the School of Tropical Medicine and Hygiene, Calcutta. The
recommendations in the Report of the DEC, submitted in 1931, paved the way for formulating
central legislation for production as well as quality control of drugs in India. The DEC also
recommended the creation of an advisory board to make rules to carry out the provisions in the
Act, establishment of a central laboratory and compilation of Indian Pharmacopoeia. Later, in
1937, the findings and recommendations of the DEC were corroborated by Dr. G.C. Anderson
in his report.

It was only in 1940 that the Government of India introduced a comprehensive bill regulating the
import, manufacture, distribution and sale of drugs. Thus was born the Drugs Act of 1940. The
process of drafting the Drug Rules under the Act started in 1942, and the Rules were published
in 1945. The Bio-Chemical Standardisation Laboratory established in 1937 in Calcutta was
converted into the Central Drugs Laboratory in 1947 to carry out the statutory functions under
the Drugs Act. The stage was finally set for controlling the industry, mainly, its sale, distribution
and import.

3.1.4 Supportive Local Environment
It was during these trying times for the Indian pharmaceutical industry, marked by efforts at
establishing popular confidence in the products in the face of impending competition from
abroad, that the working together of entrepreneurs, local state apparatus and committed
individuals turned out to be the most effective. Certainly, such was the case in Vadodara,
where the promoters of the industry received tremendous support from the head of the
Princely State.




                                                40
3.1.5 A Visionary Makes the Difference
Again, during the formative years of the pharmaceutical industry, a special mention needs to
be made of one individual whose contribution and commitment to the promotion of the local
industry was phenomenal. Mr. B.V. Patel, an internationally acclaimed authority on
pharmacy legislation and a Drugs Controller par excellence, was instrumental in the survival
and growth of the Drugs Laboratory in Vadodara. Soon after Independence, it was to be
decided as to the laboratory, then "a small link in a chain of State Laboratories and a one-
room one-bench-affair with two technicians", be shifted or be merged with the State of
Bombay. Mr. Patel, the then Drugs Controller of Bombay, not only favoured its existence but
also advised developing it as a nodal facility for future development of the north of Bombay
area. "This very instance shows his visionary capacity...but for the preservation of that
nucleus, the Gujarat State would not have a laboratory of the dimension it has now34." Mr.
Patel continued his support and made notable efforts in promoting a healthy atmosphere for
the industry, whereby entrepreneurs, policy makers, technicians and a host of support
service providers could interact and build up a remarkably advanced pharma industry in
Gujarat.

3.1.6 Birth of CADMACH Machinery
Another instance of the entrepreneurial farsightedness is the founding of CADMACH
Machinery, the pharma machine manufacturing unit at Vatva in Ahmedabad in 1967, by Mr.
Ramanbhai B. Patel. CADMACH started as an R and D outlet in 1966. He, along with Mr. I.
A. Modi and Mr. Khambatta, was instrumental in starting this vital link in the pharma industry
and free the growth path from import dependence of such a critical sector. CADMACH
makes about two or three new machineries every year. The unit specialises in tablet making
machinery and stated to have been instrumental in the high intensity of tablet making units in
this region. Incidentally tablet making is the least investment sector among various dosage
forms and this, eventually, facilitated the growth of small enterprises in Ahmedabad.

Further, particularly in Ahmedabad, the substantial presence and vitality of CADMACH and
other similar units encouraged diversification towards manufacturing packaging machines
also. Even the later development of the medical disposables industry, a highly related
sector, in Ahmedabad may be linked to the early emergence of a strong pharma machinery
base in the region. This also refers to the advantages of industrial clustering, whereby
setting up of related industries in the locality becomes a viable and cost effective proposition.

3.1.7 The Indian Patent Act, 1970
An important turning point in the growth of the industry can clearly be linked to the Indian
Patent Act of 1970. As explained earlier, the Act provided the domestic industry with the
much needed stimulus by opting for a process patents system and specifying a short
duration of seven years for patents. It also provided for automatic compulsory licensing
without the patent holder being heard. The innovative entrepreneurs took utmost advantage
of the process patent and there was phenomenal growth of small firms during the 1970s and
1980s. This phase of euphoria was also sustained due to heightened exports to many
countries, mainly Russia and African countries.

3.1.8. Joint Action Pays: Birth of the B. V. Patel PERD Centre
There was a strong and long standing need by both the pharma units as also other
concerned intelligentsia for having a technical cum training centre in Gujarat State. Thus, the
B. V. Patel Education Trust, Ahmedabad and the Gujarat Branch of Indian Pharmaceutical
Association (IPA) established the B. V. Patel Pharmaceutical Education and Research

34
     Source: M R Shastri (undated), “B V Patel – The Man”. (Mimeo).


                                                       41
Development (PERD) Centre in Ahmedabad in 1989. The Gujarat Institute of Chemical
Technology allocated the land. The surplus fund available following the Indian
Pharmaceutical Congress held in 1986 in Ahmedabad, was donated by the local organising
committee for construction of the building. Initial funds for infrastructure development were
provided through donation by a number of pharmaceutical enterprises across the country.
This amounted to over Rs. 20 million donated by 30 firms – large and medium. Some seed
money also came from the Government of Gujarat and B. V. Patel Education Trust. The
centre received a generous gift of laboratory instruments and books from Prof. Wegmann,
Director of the Institute of Histochimie, France. Boots Research Laboratory, Mumbai gave its
complete content at the minimum cost to the centre. The centre has also received interest
free loan from the World Bank through ICICI Bank.

3.1.9 The New Patent Regulation: An Imminent Turning Point
The pharma industry is at the threshold of another major turning point in its recent history.
Certain fundamental changes are envisaged in the Indian Patent Act 1970 if the provisions
of the World Trade Organisation (WTO) are to be met and to make it TRIPs compliant.
These are to be put in place before 2004. These changes can be summarised as follows.

          Table 3.2: Comparing the Indian Patent Law with Proposed Changes

 Indian Patent Law                              Proposed Changes
 Provides only process patents                  Provides product patents
 Duration of patents is 7 years                 Duration of 20 years of all patents
 Provides for automatic compulsory licensing    Permits compulsory licensing on the
 without the patent holder being heard          merits of each case, but the patent holder
                                                will have to be heard
 No system for protection of plant varieties in Sui generis for the protection of plant
 India                                          varieties
 Does not allow patenting of life forms         Requires micro-organisms to be patented
 Importation does not amount to working of the Does not permit discrimination between
 patent                                         imported and domestic products
 The burden of proof is on the plaintiff        The burden of proof is on the alleged
                                                infringe
Source: Gandhi, A. S, `Revision of Indian Patent Act 1970 and its Impact on Availability and Cost of New
Pharmaceuticals‟, Essay Competition, (1999), Shri B. V. Patel Education Trust, Ahmedabad

The Government of India has already taken the first step towards incorporating the proposed
changes by notifying the Patents (Amendment) Rules 1999. This would enable granting of
exclusive marketing rights (EMR) for items which qualify under the eligibility criteria set out in
the proposed Act. The operationalisation of the new patent regime in 2005 will bring in
fundamental changes in the composition of the industry. It has been estimated that for many
Indian firms more than 20 per cent sales come from products that are less than two years
old. The reintroduction of product patent would mean that companies will not be able to
manufacture drugs patented after 1995. In other words, many Indian companies will face a
serious decline in market opportunities after 2005 in this area.

The booming generic market will be a major solace for pharma companies in this situation.
But as explained earlier, the generic market game is going to be tough even for the most
accomplished of Indian pharma majors because of the complexities involved in getting
clearances and the enormous costs that are involved. Moreover, the product patents, more
often than not include additional process patents, patents for improving processes or
methods of arriving at intermediaries. In most cases these patents are filed after the product
patent and some of them exist long after the product patent expires. If an Indian company


                                                  42
wants to sell a particular molecule in the US, it will have to evolve a strategy to manufacture
it and file the necessary applications that will not infringe any of the numerous patents of the
innovator and will still be commercially viable. This can be difficult, as the innovator usually
patents the most obvious and economical ways of producing a chemical. Also setting up a
US FDA approved plant (for sale of generics in US market) costs at least five times as much
as putting up similar capacity conforming to Indian standards35

Under these circumstances, the small firms will find it difficult to survive as they lack the
financial might to deal with complex legal hurdles as also to set up facilities in conformity
with the specifications of the developed world. All these may eventually force the small
players in a difficult spot.

3.2      Growth of Pharma Industry in Gujarat: Recent Trends
Gujarat has been playing a major role not only in the sphere of production of drugs and
pharmaceuticals, thus catering to the growing domestic demand, but also in earning valuable
foreign exchange. At present, the state accounts for about 46 per cent of the total national
production and 17 per cent of exports. As explained above, the industry has grown
substantially over the last two decades deriving inspiration from the splendid performance of
units such as Alembic and Sarabhai Chemicals in the pre-Independence period, and cashing in
on the policies and facilities available. A number of young entrepreneurs of Gujarat have taken
to this industry in the subsequent years.

A major factor that helped the industry in the state is an early development of certain crucial
linkages. Thus, technical training institutions like LMCP since 1947 and the Bombay College
since 1960s groomed pharmacists with a professional approach. Machinery manufacturers like
CADMACH took care of the industry‟s need for crucial capital goods.

Apart from such specific factors, the overall industrial scenario of Gujarat continues to
provide impetus to the pharma industry. The Bombay-Ahmedabad route is well endowed
with excellent physical infrastructure. Ahmedabad and Vadodara are fairly well developed; the
two cities are connected by both state and national highways that link both Gandhinagar (the
state capital) and Mumbai. The railways passing through Ahmedabad, Vadodara, Ankleshwar,
Vapi, Valsad and Mumbai have historically been regarded as the catalyst for the urban-
industrial growth and vibrancy of the so-called `golden corridor' that extends between
Ahmedabad and Mumbai. Further, Gujarat already has a well developed chemicals and
fertiliser industry, which has partly helped the pharma industry to stabilise. The industrial
labour here is not aggressive and, hence, the wage cost is not a constraint to the producer.
After the decline of the textile mills in Ahmedabad, quite a few entrepreneurs have diversified
in to chemicals and pharma products. The state policies have been overtly pro-industry, and
SSIs, particularly, received considerable state support in the 1960s and 1970s. All these
factors have contributed to the growth of pharmaceutical industry in the state.

3.2.1 Number of Units
It is estimated that there are around 75-100 bulk drug producers and 1000 manufacturing
units mostly in formulations and other areas including excipients, disposables, homeopathic,
ISM and miscellaneous products under the purview of FDCA. Of these ten are large, 100 are
medium and the rest are small units36.


35
     Source: „Drug Rush‟, Business World, April 10, 2000.
36
      For size classification, firms with turnover of Rs. 1000 million or more have been termed large, those with
     turnover range of Rs. 100 to Rs. 500 million has been termed medium and turnover range of less than Rs. 10
     million is termed small.


                                                        43
Every pharmaceutical unit is required to hold a license from the Food and Drugs Control
Administration (FDCA), Government of Gujarat. The licensees could be actual producers
with own manufacturing facilities or loan licensees with a permit to manufacture, but not in
possession of the facility. They use the facilities available with the actual units on a rate
contract basis and produce and market drugs under their own brand name. Actual (own)
licensees too can be loan licensees for those products for which they do not have any
manufacturing facility. The distribution of units in terms of nature of license forms are given
in Table 3.3.

                                 Table 3.3: Number of Units
                                  (As on December 1999)
  Location         Total         Own Licensee      Loan Licensee           Own and Loan
 Ahmedabad        597               121                    346                   130
 Vadodara         287               108                    106                    73
 Gujarat          1792              581                    677                   534
Source: Food and Drug Control Administration, Gujarat State, Gandhinagar.

It is estimated that there are 7-8 big firms (Cadila Pharma, Zydus Cadila, Sun Pharma,
Torrent, Core, Alembic, Sarabhai, etc.), 30 medium sized units and the rest are small units in
Ahmedabad and Vadodara. The distribution of units in terms of dosage forms is given in
Table 3.4.

             Table 3.4: The Distribution of units in terms of Dosage Form
                                       (% of units)
       Location        Orals      Orals and Parenterals        Parenterals
       Ahmedabad         60                 30                     10
       Vadodara          75                 20                      5
       Source: Through interviews

3.2.2 Investment
The structural characteristics of the pharma sector in the state have undergone significant
changes over the three decades between the 1970s and 1990s. The statistics published in
the Annual Survey of Industries (hereafter ASI) relating to the organised sector pharma units
in Gujarat shows an increase in the capital output ratio by about three times between 1980-
81 and 1994-95. The ratio of invested capital to labour increased during the same period
nearly six times indicating a significant rise in capital intensity in this sector.

But a large number of units are outside the purview of ASI. According to the data provided
by the FDCA, the capital investment in the state‟s pharma sector, in real terms, went up
dramatically over the 1980s and 1990s (Table 3.5).




                                              44
                   Table 3.5: Growth of Pharma Industry in Gujarat
                                     (Rs. Million)
       Year           Investment            Production               Exports
       1979-80            1594                  1463                    25
       1980-81            1721                  3157                   243
       1981-82            2075                  3723                   187
       1982-83            2420                  4579                   188
       1983-84            3576                  5653                   249
       1984-85            4213                  7573                   528
       1985-86            4006                  9492                   449
       1986-87            4104                  10846                  662
       1987-88            4356                  11922                 1396
       1988-89            4130                  13994                 1394
       1989-90            5261                  17753                 2511
       1990-91            5810                  24820                 4673
       1992-93            6954                  27083                 3783
       1993-94           10727                  32729                 4100
       1994-95           13319                  41180                 5430
       1995-96           14067                  47008                 6851
       1996-97           14873                  63135                 7746
       1997-98           13036                  66862                 7906
       Source: Food and Drugs Control Administration, Gujarat State, Gandhinagar

3.2.3 Production, Trade and Market
There was a commensurate rise in pharma production too. During the period between 1979-
80 and 1997-98, the share of the state‟s production in that of all India has increased from
around 26 per cent to close to 46 per cent.

Despite fluctuations, there has been a secular increase in the state‟s exports. It may be
observed that exports as a proportion of turnover was much higher in the nineties as compared
to that in the previous decade. The state‟s share in all India exports was 16 per cent in 1997-
98. This clearly substantiates the relative dominance of Gujarat in the Indian market. It
commanded around 50 per cent of the total domestic market in 1997-98.

3.2.4 Employment
Over the period between 1979-80 and 1997-98, employment in the sector more than
doubled. Interestingly, it is the category of technical employees that registered a faster
growth in overall employment. This corroborates the earlier observation about rising in
capital intensity in the sector over the years.




                                              45
                Table 3.6: Employment in the Pharma Sector in Gujarat

Year         Number of Persons Employed                         Indices
            Technical Non-technical All            Technical   Non- technical      All

1979-80     6715           19405        26120         100            100          100
1980-81     8146           19349        27495         121            100          105
1981-82     8265           20766        29031         123            107          111
1982-83     8394           20969        29363         125            108          112
1983-84     8782           21705        30487         131            112          117
1984-85     9127           21981        31108         136            113          119
1985-86     11289          28281        39570         168            146          151
1986-87     11332          28987        40319         169            149          154
1987-88     12552          32350        44902         187            167          172
1988-89     12742          32656        45398         190            168          174
1989-90     15099          38260        53359         225            197          204
1990-91     16062          38843        54905         239            200          210
1992-93     17552          41561        59113         261            214          226
1993-94     19034          42197        61231         283            217          234
1994-95     20529          42948        63477         306            221          243
1995-96     21788          44081        65869         324            227          252
1996-97     22275          44367        66642         332            229          255
1997-98     22784          47825        70609         339            246          270
Source: Same as Table 3.6.

3.3     Medical Disposables in Ahmedabad
As mentioned earlier, the medical disposables industry originated in Gujarat with the
establishment of the I. V. fluid manufacturing industry in the 1970s, particularly, Shree
Krishna Keshav Laboratories (formerly Macgaw Ravindra Laboratories) followed by some
more I. V. fluid manufacturers. The growth of this industry was supported by the easy
availability of plastics raw materials and also plastics processing capacities and skills
available in Gujarat.

Till 1989, the medical disposables were not covered under the Drugs and Cosmetics Act. In
March 1989, the Ministry of Health and Family Welfare, Government of India, by a
notification made it mandatory to manufacture the following three products only after
obtaining license under the Drugs and Cosmetics Act, 1948.

1. Disposable perfusion sets
2. Disposable syringes
3. Disposable hypodermic needless

By this time, a number of units had already been installed in the small-scale sector for the
manufacture of I. V. sets and other medical disposables. However, since the units were
mostly promoted by either skilled workers or traders directly or indirectly working in the
industry with limited investments, most of the units needed improvements to meet the
requirements of Drug Control regulations. Since almost three decades, the units in Gujarat
have been contributing more than 70 per cent requirements of the country. A number of units
are exporting their products.




                                            46
4. BUSINESS LINKAGES OF PHARMA CLUSTERS IN AHMEDABAD AND VADODARA

4.0.    Introduction
In simple terms, an industrial cluster represents the spatio-sectoral concentration of
manufacturing activities and services, in similar and related spheres. The accrual of benefits of
scale and scope, even when such clusters are dominated by small firms, bears testimony to the
potential of collective action. A significant advantage of industrial clustering is its potential to
remarkably reduce the transaction costs, which directly benefits the units and, in turn the
consumers. Whereas the nature of market, i.e., the demand for products, largely determines
the growth of a certain industrial cluster, there are a number of supportive structures and policy
factors that also contribute to the process. Additionally, clusters do not function in isolation.
The growth of a cluster induces related industries and other service providers to come closer
and grow in tandem.

4.1     Mapping the Pharma Cluster: Identifying the Linkages
The pharma industry has grown over the years in Ahmedabad and Vadodara by developing
linkages along its supply and distribution chains as also with a variety of support service
providers. We will list out and describe the major elements in the pharma cluster including
agencies, institutions, and associations. The inclusion of an element does not imply that its
linkage with the industry is strong. In fact, the industry‟s linkages with many of the elements are
rather weak.

4.1.1 Pharma Manufactures: The Core of the Cluster
At the core of the cluster there are the drug manufacturers, who fall broadly under two
categories - bulk drug producers and formulators. Formulators manufacture the end product
that is finally consumed, whereas bulk drug manufacturers produce the inputs for formulators.
In Ahmedabad and Vadodara there are hardly any bulk drug manufacturer. Most of the own
and own-cum-loan licensees deal in formulations. Some of the firms are run by second
generation entrepreneurs. They have done well during the early period, i.e., mid-seventies to
early-nineties and are cushioned. The first generation units that came into existence during the
late eighties to early nineties are comparatively small and are struggling. Besides, as stated
earlier, there are also manufacturers of medical disposables.

4.1.2   Backward Industry Linkages
The suppliers of raw material and capital goods form the most prominent backward linkages. It
is important to note that the links between the industry and these suppliers spread beyond the
geographical limits of the cluster. However, the industry is in no way dependent on import of
either raw materials or machinery. The major input suppliers are as follows:
a. Bulk drugs: Bulk drugs are not generally available locally, i.e. in Ahmedabad and Vadodara.
   It is generally sourced through commission agents from Vapi and Ankaleshwar in Gujarat
   and also from other pharma units situated in Maharashtra, Tamil Nadu, Andhra Pradesh
   and North India. However, some big units in Ahmedabad and Vadodara do produce bulk
   drugs for their own consumption and also for sales to local formulation units. Bulk drugs are
   also sourced internationally through regular as well as exclusive agents.
b. Excipients: Majority of excipients are starch-based products. Production of excipients is
   covered under FDCA. Two local suppliers - Maize Products and Anil Starch cater to around
   80 per cent of total requirements of Indian firms.
c. Coating material: Ready-made coating material are available locally.
d. Empty capsules: It is also available locally. However, with mechanization of capsule filling
   techniques, two distinct levels of producers - those whose products cater to the high
   precision requirement of automatic capsule filling machines and those whose products can
   only cater to manual or semi-automatic capsule filling machines.


                                                47
e. Preservatives: Preservatives like (benzoic acid) are available locally and also sourced from
   the Hyderabad region.
f. Ampules: These are basically supplied by SSI units and are available locally.
g. Glass bials: This is a high-tech sector and has local organised sector suppliers.
h. Printing and packaging: There are specialised vendors for pharma printing and packaging.
   In view of the intricacies involved (because of regulatory requirements), many pharma
   majors have set up their own in-house printing and packaging material units. However,
   specialised vendors for printing and packaging are also available in abundance.
i. Machinery: Machinery for pharma manufacturers are available locally and are also available
   at Mumbai.
j. Human resources: This industry is basically run by technocrats. There is hardly any firm
   which is not owned and/or managed by a Pharmacy graduate or post-graduate or, a
   Chemical Engineer. This is true even for the small units. Most of the units are located in the
   industrial estates around Ahmedabad and Vadodara. Thus, the availability of technical
   personnel is ensured by the steady supply of graduates/post-graduates in Pharmacy by the
   local pharmacy college. The villages around the industrial estates ensure supply of non-
   technical labour. There is a comparatively higher presence of women labour, especially in
   the quality control and packaging sections.

4.3      Nature of Business Linkages
There is hardly any backward integration for the industry excepting for cases where the bulk
drug is produced by the same formulation unit or where the production of packaging material
and printing are done in-house. This is the case only partially for some large firms. The
production process does not involve subcontracting, excepting for certain areas related to
sustained release. Neither does there is legal permission nor does the industry feels a need
for subcontracting production. The only form of linkages between the units is through the
loan licensee phenomenon. Here some units which are both loan and own license holders
manufacture some of their products in some other units which has excess capacity. The pure
loan licenses are basically trading/marketing unit utilising the excess production capacity of
manufacturing units. The end products either pass through normal distribution channel (as
explained in Chapter 2) or are exported or go for institutional sales. In the absence of brand
names, small firms depend to a large extent also on institutional sales. Export is restricted to a
handfull of firms directly, since there are lot of costly and time consuming procedures and
stricter eligibility criterion in the importing country for exports.

4.4       Linkages in Medical Disposables Manufacturing
In the medical disposables sub sector, currently, the incidence of subcontracting is limited.
However, there is industrial sense in specialisation whereby some units can manufacture only
I.V. fluid cannulas, others only regulators etc. A mother unit can only assemble and market the
products.

Unlike pharma, the factory owners and manager of disposable units have mostly come from a
trading background, either from plastics or from textile (after the textiles mill debacles). The
labour again is available locally from the villages around the industrial zones where these units
are settled.

Raw materials for medical disposables are also available locally. These include tubes, needles,
plastic moulds, etc. Imported needles and moulds are also used, but mostly by large
manufacturers.




                                               48
4.5     Current level of Cooperation and Competition at the firm level

4.5.1 Competitive Strategies at the Firm Level
The basis of survival and growth in a market situation crucially depends upon the nature and
level of competition. The information, as collected through the survey, on the potential
immediate competitors as perceived by the entrepreneurs, though limited, does indicate
existence of potential competitors across all scales of enterprises, namely, small, medium and
large, and across locations, i.e., local, within the state of Gujarat, in India and abroad. These
responses depended upon the nature of immediate market and the market that needed
exploring, as perceived by the individual firms. With the industry globalising, the effective base
of competition is most likely to be widened further.

                      Table 4.1: Major Issues in Inter-firm Competition
Issues                                                               Responses
Low price                                                               9 (64.3)
Extensive sales network                                                 7 (50.0)
Brand name/company's image                                              6 (42.9)
Sales promotion (publicity, packaging, concessional offers)             6 (42.9)
Product quality (reflecting technology standards)                       5 (35.7)
Cost of retaining skilled personnel                                     4 (28.6)
Volume of output                                                        3 (21.4)
Prompt delivery                                                         2 (14.3)
Locational advantages                                                   2 (14.3)
Others                                                                   1 (7.1)
N = 14
Source: Field Survey. Notes: Multiple responses. Bracketed figures are percentages.
                              Table 4 .2 Firm Level Competitive Practices
Practices                                                                             Responses
Wooing customers (by undesirable means)                                                  6 (42.9)
Copying competitor‟s products                                                            5 (35.7)
Obtaining information on competitor's firm through its                                   5 (35.7)
employees
Misinforming customers, traders, suppliers about competitor's                            4 (28.6)
products
Imitating competitor's trade mark                                                        3 (21.4)
Others                                                                                    1 (7.1)
N = 14
Source: Field Survey. Notes: Multiple responses. Bracketed figures are percentages.

As regards the main elements of competition as are present and perceived by the
entrepreneurs, Table 4.1 lists the first two as low price and extensive sales network as
providing the competitive edge in the business. Similarly, the popularity of the brand name,
extent of publicity and technology standards were also considered important determinants of
good performance by the firms. The intensity of competition could also be reflected in inter-firm
rivalry whereby discrete tactics to out-do the immediate local competitor are followed. Table 4.2
presents a few such practices as prevailing in the local industry. Wooing customers by
undesirable means, copying competitors products and eliciting information on competitors
products and business through employees were reported to be various means of coping with
local competitive pressures.




                                                      49
4.5.2. Nature and Scope of Cooperation
Even in a situation of steep competition to capture as much market share as possible or, even
to retain the current position, firms, especially the SMEs, do attribute significant value to the
need to cooperate, both at the industry as well as local firm level. The nature of the pharma
industry is such, being knowledge based and also dependent upon dynamic regulative
environment, that there remains an increasing premise of mutual support and collective action.
At a certain level, the very existence of a symbiotic reliance of the loan licensees up on the
actual/own licensees, especially in terms of access to capital equipment, suggests the
importance of cooperation in this industry.

    Table 4.3: Membership of Pharma Manufacturers in Business Associations
                         Association                                            Membership
Indian Drug Manufacturers Association                                            13 (92.8)
Gujarat Chamber of Commerce and Industry                                          5 (35.7)
Chemexil                                                                          4 (28.6)
Indian Pharmaceutical Association                                                 3 (21.4)
Vatva Industrial Association                                                      2 (14.3)
Others                                                                            3 (28.6)
N = 14
Source: Field Survey. Notes: Multiple responses. Bracketed figures are percentages.

In all probability, as emerged through the survey, it was the case that at the firm level the
practice of either sharing input procurement or lending machinery, or even extending a
financial loan was not much in vogue. However, there remained ample interest for
cooperation in a formal manner as it found expression through membership in relevant
business associations. As may be seen in Table 4.3 a very high proportion of units surveyed
had been members of the Indian Drug Manufacturers Association. Some units also had
additional membership in other useful business bodies, including the Gujarat Chamber of
Commerce and Industry and Chemexil. In response to a query on whether the entrepreneurs
felt discussing with fellow producers in the locality regarding their problems useful, as high
as two-thirds of respondents replied in the affirmative. A higher proportion (above 70 per
cent) of respondents also held that linking business with other firms in the locality engaged in
manufacturing similar products would be mutually advantageous. An idea about the nature
of support or benefit the entrepreneurs stated to have obtained, by dint of their membership
in formal business associations, can be formed from Table 4.4. The two most important
supportive roles associations had performed concerned assisting member firms in legal
difficulties and also dealing with often cumbersome and exacting government policy
instruments and procedureal hurdles. Providing access to technological and market
information on latest products through making available trade magazines and bulletins was
also stated as an important facility members derived from business associations.

           Table 4.4: Nature of Support Received through Business Associations
Forms of Support                                                                             Responses
Assisting in legal matters                                                                     11 (78.6)
Helping in dealing with government policies and procedures                                     11 (78.6)
Providing information on products (by procuring trade magazines, bulletins, etc)               6 (42.9)
Sales promotion (by organising trade fairs, exhibitions, group publicity)                      3 (21.4)
Helping in procuring inputs and services                                                       2 (14.3)
Making available information on other related units elsewhere                                   1 (7.1)
Arranging for training workers                                                                  1 (7.1)
N = 14
Source: Field Survey. Notes: Multiple responses. Bracketed figures are percentages.



                                                      50
       Table 4.5: Entrepreneurs' Perception about Effect of Networks on Long Term
                                         Competitiveness
                           Likely Effect                                 Frequency
                                                               Important       Very
                                                                            Important
Improve management skills                                       5 (35.7)     3 (21.4)
Improve product quality                                         4 (28.6)     4 (28.6)
Induce investments in new equipments/methods of production      1 (7.1)      5 (35.7)
Improve strategic planning                                      5 (35.7)     1 (7.1)
Change organisation of production/work                          1 (7.1)      4 (28.6)
Investing in training workforce                                 2 (14.3)     1 (7.1)
Source: Field Survey. Notes: Multiple responses. Bracketed figures are percentages.

The entrepreneurs as also others directly or indirectly concerned with the industry emphasised
the critical role networking would play in the emerging eventuality of globalisation of business
and markets. In Table 4.5 a glimpse into the perception of pharma entrepreneurs regarding the
likely effects that networking would have on long term competitiveness of firms may be had.
The major responses highlight a potential improvement in both management practices and the
quality of the product; these are the crucial requirements in a highly competitive global market.
By recognising the importance of networks being catalystic in the firms' quest for acquiring
higher levels of technology and also benefiting through strategic planning, the local
manufacturers did point to the substantial scope for collective efforts.

4.6 Institutions
A number of institutions/bodies, both public and private, have been playing a major role in
the growth of the industry. These include:
      1.   Central level institutions
      2.   State level institutions
      3.   Global regulatory mechanisms
      4.   Private sector networks
      5.   Other support institutions

4.6.1 Central Level institutions
At the central level the Drug Control Authority of India under the Ministry of Health and
Family Welfare controls the area of introduction of new drugs in India. The department also
handles subjects related to GMP and its upgradation. The office of the Deputy Drug
Controller (Western Zone) controls the issuance of the WHO-GMP certification.
The Department of Chemicals and Petrochemicals under the Ministry of Chemicals and
Fertilizers also performs both regulatory as well as developmental roles. The Drug Price
Equalization Account (DPEA) of this department regulates matters related to excess drug
prices charged by firms. An export promotion cell in the pharmaceutical division of the
department has been created with the objective of boosting pharmaceutical exports and to
act as a nodal centre for consultation and providing support on various aspects concerning
pharmaceutical exports. The cell also undertakes promotional activities for accelerating
pharmaceutical exports and considers suggestions for modifications in EXIM Policy from the
industry. The cell has also been entrusted with the organisation of seminars and workshops
on standards, quality control requirements etc. of important countries so as to prepare the
domestic companies for exporting their products.




                                                       51
The National Pharmaceutical Pricing Authority (NPPA), constituted in 1997, implements the
drug policy of the government through the Drugs Prices Control Order (DPCO). The NPPA also
advises the Central Government on changes/revisions on the Drug Policy. The chairman of
NPPA, in his capacity as the member secretary to the Pharmaceutical Research and
Development Committee, Government of India, advises the Central Government regarding the
support required by Indian pharma companies to undertake domestic R and D.
4.6.2   State Level
4.6.2.1 The Commissionerate of Industries, Government of Gujarat
The Commissionerate of Industries, Government of Gujarat plays the key role for the
development of Industries in Gujarat. The Industrial Extension Bureau (iNDEXTb) is a
specially designed cell under the Commissionerate of Industries for the promotion of
industries in Gujarat. The office of the Commissionerate of Industries also through its District
Industries Centre plays a very important role for the development of industries in Gujarat.
Moreover the Government of Gujarat through its recently announced Industrial Policy has
also given substantial importance on the development of clusters and also technical
upgradation. Some relevant sections as given in the “Gujarat Industrial Policy 2000” is given
in the box below:

   Interest Subsidy to Small Scale Industry: The State Government has accorded priority for
    development of small-scale industries. A new scheme has been introduced to provide interest
    subsidy at the rate of 5% per annum for 5 years period upto a maximum of Rs. 25 lakhs to all
    industrial units coming up in the State. Existing units carrying out expansion, diversification will be
    offered interest subsidy at a rate of 3% per annum upto a maximum of Rs. 10 lakhs.
   Cluster Approach: The State Government intends to strengthen the industrial clusters developed
    at different locations with the involvement of Industries Associations of the area and R&D
    institutions. Assistance will be provided for establishing common facilities covering quality
    improvement, technology upgradation, market promotion and technical skill. Financial assistance
    upto Rs. 5 crores will be considered per cluster.
   Assistance for Quality Certification: The State Government accords high priority for quality
    improvement. Assistance will be provided to industrial units obtaining Quality Certification from
    approved institutions/research laboratories, at the rate of 50% of the expenditure upto a maximum
    of Rs. 2 lakhs.
   Market Promotion: Market promotion activities like Buyer Seller Meets, Trade Fair etc. will be
    encouraged. Common purchase policy will be introduced for purchase of items manufactured by
    small-scale units of the State. A booklet incorporating items required by State Government
    Corporations/Boards and large companies will be published for the benefit of small-scale
    industries.
   Technology Upgradation: The State Government has accorded high priority for upgradation of
    technology and modernisation by industrial units. The Research and Development Institutions set
    up in the State will be strengthened and will be encouraged for taking up technology upgradation
    programme in specific industrial clusters. Encouragement will be given to get accreditation with
    International Quality Testing Agencies in order to make them internationally reputed. Innovations
    from small enterprises and individuals will be encouraged. The institutions set up in this regard
    will be supported. The Technology Cell (TBIIP) set up in iNDEXTb with the help of UNIDO will be
    strengthened.
   Assistance for Patent Registration: A Facilitation Cell will be opened to assist entrepreneurs for
    Patent and Intellectual Property Right (IPR) provisions. The industries as well as R&D institutions
    will be encouraged for filing patent on their research. Assistance will be provided at the rate of
    50% of expenses in this regard upto a maximum of Rs. 5 lakhs.
   Promotion of Specific Industrial Sectors: The State Government will encourage development of
    specific industrial sectors like agro and food processing industries, mineral based industries,
    electronics and information technology, engineering ancillary industries, textile including
    garments, gems and jewellery, pharmaceuticals and petrochemical downstream and plastic
    processing industries. Assistance will be provided for creating necessary infrastructure facilities
    as well as research and development activities.


                                                   52
4.6.2.2. Gujarat Industrial Development cooperation
Gujarat Industrial Development Corporation (GIDC)                 was established in 1962, to
encourage rapid and systematic development of industries         in Gujarat. GIDC has played a
crucial role of being the Growth Catalyst in the phase of        transition from dependence on
agriculture and textiles to an industry leader in the             field of chemicals, fertilizers,
pharmaceuticals, engineering, petrochemicals, etc.

GIDC has been dedicated to develop the industrial infrastructure in the state of Gujarat.
Over 168 industrial estates have been developed and sustained by GIDC, which are spread
all over Gujarat. These industrial estates house more then 17,000 large, medium and small-
scale industries. Mega industrial estates are under development at Vilayat (Vagra),
Jhagadia, and Dahej in Bharuch district for chemical industries and Savli in Vadodara district
for non-polluting units.

Over a span of 35 years, GIDC has been the growth catalyst in developing industrial
infrastructure, offering entrepreneurs a solid base to prosper and stimulating industrialisation
in backward areas of the Gujarat State. The pharmaceutical industry in mostly set up in
these industrial estate.

4.6.2.3. Gujarat Cleaner Production Centre (GCPC)
Gujarat Cleaner Production Centre (GCPC) has been established since August 1998 at
GIDC to create an awarness for Cleaner Production among industries in Gujarat. Technical
support for GCPC is provided by the National Cleaner Production Centre (NCPC) and
UNIDO, while the financial support is provided by GIDC. GCPC conducts orientation
programmes, workshops and demonstrations at industrial estates and engineering institutes
to promote Cleaner Production.

4.6.2.4 The Food and Drugs Control Administration (FDCA)
The Food and Drugs Control Administration (FDCA) under the Ministry of Health and Family
Welfare, Government of Gujarat based in the state capital, Gandhinagar also plays a critical
and pivoted role for this cluster. This body issues drug licenses, monitors quality control, issues
State GMP certificate, undertakes periodic inspection of units, and, overall, keeps a close watch
over the industry, especially with respect to quality. The FDCA has a wide network of activities
all over the state. At the level of officers, it has a commissioner, two joint commissioners, 20
assistant commissioners, 16 senior drug inspectors and 24 drug inspectors. The Gujarat FDCA
office also plays a promotional role. Its major strength is that it can convince and motivate both
the government and the industry leaders to dialogue. This office is also taking the lead to create
an optimum proactive workforce to champion the cause of Gujarat as a leader in the Indian
pharma industry.

4.6.3 Global Regulatory Mechanisms
In the emerging business scenario that would result from the complete operationalisation of
WTO norms and conditions, the regulatory environment and institutional mechanisms will
undergo dramatic changes. Though the domestic administrative set up may continue to be the
same, the industry will have to face a greater degree of trade regulation when it is exposed to
the possibility of being subjected to the imposition of non-tariff and technical barriers to trade.
In short, the hub of the regulatory measures is slowly being shifted from local institutional set up
towards global bodies. This shift will have significant impact on the conduct and performance of
pharma industry in the coming years. How capable are the indigenous units in understanding
and coping with the changes in the business environment and establishing and maintaining
effective linkages with the changed institutional forms is what would determine the future course
of growth of the industry.



                                                53
4.6.4   Linkages with Technical and Business Support Providers
Pharmaceutical production being a knowledge intensive industry, it needs to have organic links
with educational institutions and R and D centres for the supply of up-to-date and viable
processes and trained manpower. This is all the more true for the units in the small and
medium category, as they lack the financial capability to do basic research activities in-house. It
may also be noted that educational and research institutions serve as major sources of supply
of pharma entrepreneurs for the local industry. Another crucial linkage is the one with testing
laboratories due to regulatory requirements.

LM College of Pharmacy (LMCP)
The oldest and the most prestigious institution in the area of pharmacy education in the
region, LMCP, was founded in 1947 by the Ahmedabad Education Society. Incidentally, it
was the first full fledged pharmacy college to have been established in India. The College
was set up with the aim to train students, encourage and direct R and D in pharma science,
and act as a catalyst for the growth of the industry. In addition to Bachelor‟s, Master‟s and
doctoral programmes in pharmacy science, it offers diploma programmes for retail
pharmacists. It has research programmes on medicinal chemistry, pharmacology, and
pharmaceutical technology. The alumni of LMCP are serving in drug industry, community
pharmacy and hospital pharmacy, regulatory agencies, R and D laboratories, government
policy making bodies and academic institutions, both within and outside the country.

PERD Centre, Ahmedabad
Among R and D centres, the B.V. Patel PERD Centre in Ahmedabad has a significant place. In
fact, it is a unique institution in that it has the government, industry and academia as its
stakeholders. The PERD Centre was established in 1989 as a trust and society. The B.V. Patel
Education Trust of Ahmedabad and the Gujarat Branch of the Indian Pharmaceutical
Association have promoted it. It is the first and only private multi-disciplinary postgraduate
research and service institution in India to promote advanced research, services and training in
the pharmaceutical sciences and industry.

There are four major divisions in PERD: (1) Contract and consultation on all aspects of basic
and applied industrial research projects; (2) drug discovery research centre; (3) drug quality
testing facilities; and (4) advanced training, research and educational centre. It has well
equipped labs and trained technical staff. Research facilities are available in analytical
instrumentation, cellular and molecular biology, clinical testing, biostatistics, formulations,
pharma technology, pharmacokinetics and biopharmaceutics, pharmacology and toxicology,
phytochemistry and pharmacognosy, radiation and radioisotope, synthetic and medical
chemistry etc. The centre also has an array of analytical equipments and machineries. The
PERD Centre has so far developed about 15 formulations for commercialisation. It offers a
range of services to the industry including toxicological evaluation, development of animal
models for evaluation of pharmacological evaluation of drugs, phyto-chemical evaluation and
standardisation of medicinal plants used in traditional medicines, development of synthetic
process for bulk drugs and intermediates etc.

The Food and Drug Control Laboratory (FDCL), Vadodara
The FDCL was established as early as in 1947 in the erstwhile princely state of Baroda. When
Gujarat became a separate state in 1959, the FDCL became the testing laboratory for Gujarat
State Drug Control Administration. The FDCL is capable of analysing all categories of drugs
(except sera and vaccines) with a capacity to test 8000 drug samples. There are divisional
laboratories in pharmaceutical chemistry, immunology, pharmacology, pharmacognosy and
ayurveda. The staff is drawn from various disciplines like pharmacy, chemistry, microbiology
and botany.


                                                54
Private Laboratories
There are 11 approved testing laboratories in the state approved by the office of FDCA,
Gujarat. These do various statutory tests for bulk drugs and formulations as per law. Only one
firm does bio-equivalence and bio-availability test. The industry has direct commercial linkages
with these laboratories.

Central Institute of Plastic Engineering and Technology (CIPET)
The CIPET is a Government of India organisation working under Ministry of Chemicals and
Fertilizers. CIPET is having diversified activities in the field of plastics like mould design,
product testing, plastic processing and mould manufacturing. In Ahmedabad, CIPET is also
having a plastic testing equipment fabrication cell where various types of testing equipments
to control the quality of plastic materials and products are being developed. These
equipments are as per various national and international standards. The price of the
equipments has been kept very competitive in comparison to the many global suppliers of
testing equipments so that the plastic units, which are in small sector, can afford to procure
these equipments.

The equipments have already been supplied to reputed industries, training institutes, various
central and state government organisations and some of the equipments have been
exported also. CIPET does manpower training (managerial and supervisory) through
structured as well as tailor-made courses. It also provides technical services in the following
areas:

   Consultancy and advisory services to plastic industries
   Testing and standardisation
   Application development
   Design and development of moulds and dies
   Material selection for new product substitution
   Machinery and equipment selection
   Setting up of testing laboratories

4.6.5 Linkages with Industry and Business Networks
Peer networks like business associations are an important part of the industry environment.
In the pharma sector there are three prominent entrepreneurial networks – Indian Drug
Manufacturers Association, Indian Pharmaceutical Association and the organisation of
Pharmaceutical Producers of India (OPPI), Bulk Drug Manufacturers Association (BDMA),
besides there is a separate organisation of medical disposable units called the Medical
Disposable Manufacturers Association (MDMA). Besides there are also small local
associations of pharma manufacturers like Rakanpur Santhej Pharma Manufacturers
Association. A new lobby of large firms has also been formed. There is also very powerful
lobby of chemists and druggists that control the prescription distribution channel - All India
Organisation for Chemists and Druggists (AIOCD). Being a technocrat dominated industry
there is also an association of technocrats called Indian Pharmaceutical Association (IPA).

Indian Drug Manufacturers Association (IDMA)
Founded in 1961, IDMA describes itself as the voice of the national sector of the pharma
industry as its members represent the Indian manufacturers only. It has 513 members (as in
1998) - 90 per cent of them being small firms. IDMA has been in the forefront analysing and
disseminating the likely impact of a product patent system on domestic industry.




                                              55
IDMA organises and takes part in national and international seminars/ workshops relating to
key issues of the pharma and health care industries. It plays a very active role in policy
consultations and dissemination of information to its members. It brings out two publications -
one general and the other technical.

IDMA has three state level bodies in Tamil Nadu, West Bengal and Ahmedabad. The Gujarat
chapter called the IDMA-Gujarat State Board (IDMA-GSB) has 150 member firms, 80 per cent
of whom are in the small scale sector. IDMA-GSB plays a crucial role with respect to
government liaison and enhancing the industry‟s knowledge base. Among the 17 major
workshops/seminars/consultations organised by the IDMA-GSB during the last four years,
issues concerning quality, information technology and fiscal issues has received prominence.

Organisation of Pharmaceutical Producers of India (OPPI)
OPPI is an organisation of pharma manufacturers established in 1965, four years after IDMA
was launched. Currently, it has a membership of about 67. This includes 59 members from the
drugs and pharmaceutical sector. Around 66 per cent of them are companies of foreign origin.
Only a couple of Ahmedabad and Vadodara based firms are members of both OPPI and IDMA.

The Organisation takes initiative in organising seminars and workshops to discuss the key
issues in the area. It brings out technical publications including Quality Assurance Guide and
Safety, Health and Environmental Guide. OPPI is an active member of International Federation
of Pharmaceutical Manufacturers (IFPMA) and has developed operational guidelines for
interpretation and implementation of IFPMA code of Ethical Marketing Practices.

OPPI has been lobbying vigorously for the amendment of the Indian Patent Law to make it
TRIPs compliant. It has been actively advocating rationalisation of duty structure and a
revision of drug pricing policy. Efforts have been made by this body to make suppliers (of
bulk drugs, excipients, packaging materials, equipments that go in for manufacturing these
etc.) more responsive to the needs of the pharmaceutical industry in terms of quality, price
stability and delivery schedules.

Indian Pharmaceutical Alliance
The Indian Pharmaceutical Alliance represents research based national pharmaceutical
companies. It consists of the following members:
Alembic Limited                        Nicholas Piramal India Limited
Cipla Limited                          Ranbaxy Laboratories Limited
Dr. Reddy‟s Laboratories Ltd.          Sun Pharmaceutical Industries Limited
Lupin Laboratories Limited             Wockhardt Limited

These companies‟ annual R & D spend at Rs. 250 crore account for 90 per cent of total private
sector spending in pharmaceutical research & development. These companies contribute one-
fourth of the country‟s exports of drugs and pharmaceuticals and share over 23 per cent of the
domestic market.
The main aims of the Indian Pharmaceutical Alliance are:
4. Partnering the government in the evolution of a patent regime that will on the one hand
   meet the TRIPs obligations and on the other serve national interest;
5. Engaging the government in constructive dialogue to move to price management from price
   control regime for the benefit of the consumer; and
6. Working with the government in progressively upgrading regulatory provisions, procedures
   and standards for harmonisation with those of the developed markets



                                              56
The Indian Pharmaceutical Alliance, working closely with Government on policy related matters,
will seek to imbibe the experiences of the generic pharmaceutical industry internationally. It will
seek affliation with the International Generic Pharmaceutical Association (IGPA) located at
Brussels, which represents Generic Pharmaceutical Industry of Europe, Canada and US. This
association of more than 500 International Companies collectively represents a significant
cross-section of the global pharmaceutical industry. The main objective of IGPA is to promote
international pharmaceutical harmonisation and regulatory decisions in a way that will benefit
the public and strengthen the industry.

All India Organisation of Chemists and Druggists (AIOCD)
AIOCD was formed in 1975 with the aim to bring together chemists, distributors and stockists
and bring them under one association. The association has a three-tier system, with taluka,
district and state level associations. The current membership strength of AIOCD is 550,000,
that control an estimated business of Rs. 260,000 million.

About a decade back, agreements were made between the AIOCD, IDMA and OPPI, where by
the all India margins for retailers and wholesalers for non-scheduled category drugs was fixed
at 20 per cent and 10 per cent respectively, and 16 per cent and 8 per cent for scheduled
category drugs respectively. The association offers protection to the trade fraternity. In case of
breakage, leakage and expired products, cent per cent replacement of the product is
guaranteed. The change over from 50 per cent to 100 per cent replacement of defective goods
was accomplished only recently. The AIOCD has one or more offices in every state. The
AIOCD bulletins are published regularly to increase awareness. Pharma manufacturers
generally publish their formulations through AIOCD bulletins.

At least two to three times a year, workshops are held at state, district and zonal level to
increase awareness among the trade. Topics relating to new rules and regulations, introduction
of new products, new trading policy, banking, finance and various other aspects relating to the
trade and pharma industry are discussed. A convention is held every two years, where greater
exchange of information is facilitated. AIOCD does not agree with the government's move for
opening up of retail sector to foreign investment.

Indian Pharmaceutical Association (IPA)
IPA was established in 1939. It is the national professional body of pharmasists. Many
industrialists and government officers with pharmacy background are members of IPA. The
major areas of activity of IPA are training, research, publications, organisation of workshops
and changes in legislation. IPA has created specialised divisions to impart training, disseminate
information and education related to various professional aspects of pharmacy including
industrial pharmacy, education, regulatory affairs, community, hospital and clinical pharmacy.

Medical Disposables Manufacturers Association (MDMA)
MDMA was formed in 1991 with a view to work together for the emerging technical and
commercial needs of the member units. At present, there are 36 member units of the MDMA.
The annual turnover of these units ranges from Rs. 3 million to Rs. 20 million. The major
activities include:

   Exchange of information regarding changing government regulations
   Undertaking common interest development programmes
   Representing the requirements of the industry to the government and other regulatory
    bodies.




                                                57
With the globalisation and other challenges being faced by the industry, the association has
now been activated and is working for the growth of the member units, which have the state-
of-the-art technology in manufacturing of medical disposables.

4.6.6   Other Support Agencies

Manufacturers of Pharma Machinery
It needs to be noted that though there is a fairly important base of pharma machine
manufacturing in Ahmedabad, there does not exist any formal effective body of
entrepreneurs. During the interviews, some expressed keen interest to form an association
of machine manufacturers. Even if the total number of entrepreneurs is around 40-50, an
association could be of much use in a variety of ways , especially, in terms of liaison with
government, consulting on procedural matters concerning exports and sector specific
policies, and organising/ participating in state/ national level technical exhibitions. As a
number of problems faced by this industry are not the same as those encountering drugs
and pharma enterprises, the role of association was envisaged to be vital in furthering the
interests of the industry. This specific instance highlights the need for collective action.

National Productivity Council (NPC)
One prospective specialised support institution in this linkage is the National Productivity
Council (NPC). NPC is a national level organisation to promote productivity culture in India.
NPC offers consultancy and training services in various fields with a focus on shopfloor
improvement. It has Post Graduate Engineers who offer services in industrial engineering,
quality management, maintenance management, environment management and human
resource development. It has significant experience in consulting services in most industry
sectors including pharmaceuticals. NPC can offer the following specific services to the
pharma units:
 ISO 9002 Consultancy Service
 Productivity Improvement: (Waste Reduction, Good House Keeping and Manpower
   Productivity)
 Cleaner Production
 Solid Waste Management
 Energy Audits
 Training (for Workers, Supervisors and Executives)

Apart from the above, there are significant service providers like banks and financial
institutions, consultants and training institutes, who are linked to the industry all along its
supply and distribution chains. SIDBI is the major term-lending and development oriented
financial institution for the small and medium enterprises. Banks and Gujarat State Financial
Corporation help them with short-term working capital. Industrial Extension Bureau
(iNDEXTb) also plays a major promotional role. The Indian Institute of Management (IIMA)
and the Entrepreneurship Development Institute of India (EDII) are prominent training
institutes in the area of management . They conduct both general and industry-specific
training programmes periodically. They also carry out in-house tailor made programmes for
firms. Gujarat Industrial and Technical Consultancy Organisation Ltd. (GITCO) is a potential
technical consultancy service provider.

5. ISSUES OF CONCERN AND SUGGESTED ACTION PLAN

5.0     Introduction
The rapid growth in the pharma sector the world over, technologically and market wise, its
increasing integration with global market, and the strengthening of national and international



                                              58
regulatory norms have put the pharma industry, especially the small firms in Gujarat, at a
difficult juncture. They have to make definite choices in relation to quality standards, prices
production marketing and organisation - many of these being outside their current frame of
commercial reference so far. In this situation, the survival of small firms would depend on how
well and quickly they adapt to the new business scenario and evolve appropriate strategies.
Even the relatively larger firms are also not free from these compulsions. They are also
anticipating problems, especially those related to R and D. The small firms of medical
disposables also face a separate yet related set of problems. Section 5.1 describes the issues
that have been highlighted during the interviews with entrepreneurs and others connected with
the industry. Section 5.2 suggests the plausible “Action Plan” for UNIDO‟s intervention in the
cluster.

5.1    Critical Issues before the Pharma Industry
The regulatory environment of the pharma industry is being overhauled rapidly to make its
TRIPs and GMP complaint. In the highly protected, pre-liberalisation era price was the
major competitive weapon in the hands of small-scale pharma units. The production and
marketing set up has been geared towards meeting requirements within the local boundaries
or doing business with governments. Though small units in Gujarat have started selling their
products in north, east and central India, very few have gone for their own brand names. The
overemphasis on price has resulted in a total neglect of quality in these segments. Due to
the sheer smallness of the units they have not been able to plough back the profits to
upgrade quality or carry out basic research.

Further, it has been pointed out in many fora that there has been a proliferation of spurious
drugs in the market. According to OPPI estimates, 20 per cent of sales of several popular
medications are spurious or counterfeit drugs. They originate mainly from Uttar Pradesh,
Bihar, Delhi, Rajasthan and Gujarat. Given the fact that a large number of drugs go off
patent in the coming two to three years, many multinationals and large Indian companies are
likely to enter the generic markets in the hinterlands to reap profits driven by high volume
sales. Their major targets, apart from the scores of rural customers, would be the small and
medium sized hospitals, health institutions and medical practitioners. It must be remembered
that generic sales do not require massive promotional expenses, which can bring the prices
down to competitive levels.

The emerging business environment demands strict maintenance of quality standards – not
in terms of a simple analysis of the final product for compliance to their labelled claims, but in
terms of total over their procedural parameters.

5.1.1 TRIPs related issues
The TRIPs issue has received mention in the previous chapters. There, however, exists lack of
clarity and, hence, unanimity regarding the implications of TRIPs. The views and stance taken
by the industry and various industry associations have varied as much as their perception about
the actual modus operandi of implementation of the regulation.

AS for the government, it has definitely initiated a movement effected through the Patents
Amendment Act, 1999 and the foreign firms have started registering patents. The „D – day‟ is a
few years down the road. The big firms have understood its implications and so do the
government. There is already a serious more on „R & D‟ issues of both front – R & D fund and
proposed by the government for Pharma and birth of a new association of big firms with „R & D‟
as the chief agenda etc. But the small firms are practically unmoved as yet. This may be due to
lack of full information, the lesser probability of affecting their business prospects (sine most of
them operate in the generic off-patent drugs) and may be also due to the different positions
taken by the various interest groups.


                                                59
The two leading associations of phrama manufacturers, OPPI and IDMA, are divided in their
positions with respect to the implication of the proposed patent law for drug prices. IDMA has
been arguing that while TRIPs compliance is inevitable, it can be done with specific minimum
requirements. It feels that it is important that India makes full use of the positive aspects of
TRIPs like, for instance, the scope for transfer and dissemination of technology, strict
enforcement of rules to prevent misuse of IPR or imposition of barriers to trade. At the same
time, the country should proceed cautiously in phases, given its lack of experience in the area
of IPRs and its commitment to alleviate poverty and ensure social justice to all. According to
IDMA, medicines need special consideration in the absence of a national health care scheme
and the tendency of MNCs to resort to high prices. It thinks that the new law should allow
conditionally for compulsory licensing or issue of license of right.
OPPI‟s position is that a strong system of protection of intellectual property rights and
innovation is essential for the Indian pharma industry to survive and develop its scientific and
technological capabilities. It is, hence, against the demands of compulsory licensing and
reversal of the burden of proof. The Organisation argues that the apprehension that a TRIP
compliant patent law will result in a price hike or harm local entrepreneurship is not grounded in
facts. As regards prices, it argues that in a country like India the international manufacturers
base their pricing strategies on the criterion of affordability. The local industry will not be
damaged as it will be able to exploit the opportunities in the booming generic market.
Thus, IDMA, the voice of domestic firms, apprehends an onslaught of mighty MNCs and a
spiralling of drug prices once product patents are introduced. OPPI, the association of large
Indian firms and MNCs, on the other hand, think product patents are not going to affect
prices significantly as the MNCs can afford to charge lower prices in a third world market.

5.1.2 WHO-GMP and other quality and related issues
Issues relating to WHO-GMP compliance have been a relatively major area of concern for the
industry as a whole. Here the primary affected group are the small firms. The large firms and
majority of the medium firms have already graduated to the “desired” level of quality. The
emerging regulatory trend is a movement towards a more stricter quality norms as described in
previous chapter. Briefly (as given in Chapter 2), the WHO-GMP guidelines cover
comprehensively the entire process of manufacturing right from the entry of raw material till the
exit of final products into the supply chain, involving areas like documentation, personnel,
material, infrastructure and management.

In order to build up quality in the end product, adequate precautions are to be taken to
prevent contamination in mix-up. In addition to chemical purity, bio-availability and
microbiological purity of drugs are to be ensured. Two main objectives of WHO-GMP are to
prevent contamination and ensure the reproducible quality of drugs, by controlling all
variables. The WHO guidelines on Good Manufacturing Practices for pharmaceutical
products urge that
 all manufacturing processes are clearly defined, systematically reviewed, and shown to
    be capable of consistently manufacturing pharma products of the required quality that
    comply with their specifications;
 all necessary facilities are provided including qualified trained personnel, adequate
    premises and space, suitable equipment and services, correct materials, containers and
    labels, approved procedures and instructions, suitable storage and transport and
    adequate personnel, laboratories and equipments for in process controls;
 instructions and procedures are written in clear and unambiguous language;
 operators are trained to carry out procedures correctly;
 records are made (manually and /or by recording instruments) during manufacture to
    show that all the steps required by the defined procedures and instructions have actually



                                               60
    been taken and that the quantity and quality of the product are as expected and any
    significant deviation fully recorded and investigated;
   records covering manufacture and distribution are retained in a comprehensive and
    accessible form;
   a system is available to recall any batch of product from sale or supply
   complaints about marketed products are examined, the causes of quality defect
    investigated, and appropriate measures taken.

In short the GMP guidelines cover comprehensively the entire process right from
manufacturing till the product reaches the final consumer.

In the light of the above, the DCC subcommittee has proposed revamping of the Schedule
M, covering specifications such as general requirements, buildings and premises, personal
sanitation, hygiene and training, production and operation controls, quality control and
assurance, stability and validation studies, documentation, complaints and self-inspections
and special requirements for individual formulation categories. Among other things, the
amendment calls for the following: To maintain a ratio of 1:2 between the constructed area
and surrounding premises to environmental pollution;
 To install a validated water system to aid monitoring and control of bio-burden levels;
 To have a good disposal system, in the absence of which arrangements to recycle
    rejects;
 To have proper environmental control, with emphasis on buildings, till the primary
    packaging is complete.
 To ensure supply of filtered air in all production areas to prevent environmental pollution;
 To have specifically designed areas for production, quality control and storage and
    ancillary areas;
 To take adequate precautions to segregate the manufacture of highly potent drugs to
    avoid cross contamination;
 To design adequate operational and process controls to ensure reproducible quality of
    drugs;
 To ensure total quality control from raw materials procurement till the retail counter;
 To undertake detailed stability studies to establish the quality of drugs in different climatic
    and storing conditions; and
 To evolve clear and realistic documentation procedures.

Further, tighter FDA regulations and the move to global standardisation have created a need
to prove compliance with environmental standards for each production batch.

Interestingly, apart from regulatory compliance, the industry feels that this is also gradually
becoming a demand from the market. Many bulk purchasers, some State Governments and
importers are demanding such stricter quality compliance. It is also believed that there will be a
movement towards specialization: marketing (by big firms who have established brand names)
and manufacturing (by small and medium firms). Here, among others the issue of quality may
be a critical choice factor by the marketing firms.
Many multinationals and large Indian companies are likely to enter the generic markets in
the hinterlands to reap profits driven by high volume sales. Their major targets, apart from
the scores of rural customers, would be the small and medium sized hospitals, health
institutions and medical practitioners. It must be remembered that generic sales do not
require massive promotional expenses, which can bring the prices down to competitive
levels and provide further challenges not only on the price front, but also on the quality
aspect, as the large firms can have smoother entry because of their higher level of quality
certification.


                                               61
Not the least, there is an emerging trend of some of the big firms going for making their units
US-FDA equivalent in quality standards. This requires investment to the tune of millions of
dollars. The question is how for to go, what should be the goal?
But then there is another side of the story. Despite the ancitipated needs the small and medium
sized firms are finding it difficult, especially because of their unpreparedness to invest huge
amounts. WHO GMP requirement would demand an investment to the tune of Rs. 2 million to
Rs. 4 million per unit in adjusting premises or installing sophisticated quality control measures.
At present, the entrepreneurs are weighing the costs and benefits of undertaking such huge
additional investment. Most old units have plant designs unsuitable for WHO-GMP
specifications and have no alternative but to go for entirely new plants. Considering that the
profit margins of small firms have gone down over the past few years, such additional
investments may put them under tremendous pressure. Thus a significant support is
envisaged in this front in the form of subsidized loan and other management support.
Moreover, at the current level, the feeling is that there is no guarantee that as soon as a firm
qualifies for WHO-GMP, business will be guaranteed. The firms are also not in a position to
visualize a scenario where there will be relatively visible specialization in marketing and
production in pharma products.
However, there is a radical shift in thinking due to some consistent efforts by leading visionaries
and an understanding that has developed in small and medium firms by taking lead from the
current industrial scenario. It is probably being seen that attaining the highest standard is a
gradual and a step-by-step procedure. It is felt that initiation and motivation can be done
through activities like quality audits, training of workers in groups to upgrade their knowledge
base and update them with information related to quality.
The international quality norms especially those related to exports is also a major area of
concern. This has four related dimensions (a) Importing nations and bulk purchasers are
gradually demanding higher quality standards, e.g. WHO-GMP. (b) Secondly, importing nations
have different registration procedure and documenting norms for import. (c) Thirdly the quantity
of imports is not always manageable by a single small firm. (d) Fourthly, the small firms
individually cannot afford to offer a basket of different formulations and or dosage forms at
internationally competitive prices.
All these however provides good scope for co-operation within a group of firms, since:
(a) The documentation procedure through varies for countries and products, but a majority of
      it is almost a repetition for a country. Thus joining hands can reduce cost.
(b) Joint exploration of markets can reduce cost
(c) Joining hands can also help to specialize in products
(d) Jointly big orders can also be executed

5.1.3. Market Scenario
The market scenario for the pharma industry the world over is fast changing due to a variety of
reasons. In the pre-liberalization era price was the major competitive factor for the small and
medium units. Accordingly, production and marketing had been accordingly geared towards
meeting requirements within India, with the exception of big and medium firms who are
exporting directly or some small firms who are exporting indirectly through big and medium
firms. Very few small firms have established brand names. The over emphasis on price has
eaten into the profit margin and has seriously eroded the potential to plough back profit to
upgrade quality. The emerging trends in marketing are:
(a) The post-GATT environment has compelled manufacturers to place "quality" at the centre
    of all business planning and strategy formulation exercise.
(b) The generics market in the US and Europe is likely to witness a boom as large number of
    molecules are going off patent in a couple of years.


                                                62
(c) The generics market in the Indian countryside lies open to competition from MNCs and
    large Indian companies.
(d) With the amendment of the patent law, the pharma firms will have to commit massive
    investments to develop new drugs and to put in place an adequate and efficient sales force
    to successfully market them.
(e) Other developing countries, especially China, will mount tough competition for Indian
    manufacturers in the coming years through its huge production capacities and an inherent
    strength to deliver large quantities at short notice. Of late, the Chinese manufacturers have
    also been rapidly upgrading their technology base.
(f) Internationally, the pharma industry is facing sluggish growth in sales and increasing R and
    D costs. The choice in front of pharma leaders are only two: (I) make R and D more
    productive, or (ii) make each of the drug, a blockbuster. The industry forecast states that
    the pharma industry structure would change dramatically by 2005 with only few producers
    reigning the market.
The scenario described above clearly suggests the challenges that the Indian pharmaceutical
SMEs have to face in the years to come. At the same time, there are some potentially positive
aspects on the market front. These include:
(a) Expected boom in the generics market, which would open up both export opportunities and
    unexplored domestic segments for Indian firms. Generics market is a volume driven one,
    with promotion costs contained to a minimum.
(b) Export destinations like the Philippines and the CIS countries have good potential. A few
    big companies have already received sizeable export orders from the latter and are
    expecting to have at least 70 per cent appreciation annually in their trade with these
    countries.
(c) Another significant area for intervention and co-operation is in institutional sales. Small
    firms feel that they are not adequately conversant with the various formalities and working
    modalities of institutional sales. Moreover, huge orders by volume are also not possible for
    small firms to execute. A correct knowledge profile and co-operation between small firms
    are envisaged in this area.

                                        Observations of a major unit
   A major unit (a public limited company) holding own licence to produce pharmaceutical
   formulations, started with 135 formulations and now produces 282 formulations. It has a blood
   bank, a clinincal research organisation and an export house under its umbrella. Its turnover has
   risen from Rs. 25 crore in 1994-95 to over Rs. 100 crore in 1998-99. From 2000 onwards it has
   started contracting in MNCs and large firms.
   According to the principal decision maker of the firm, quality is the most important issue for
   competitiveness before the pharma firms now. The future of small pharma firms seem to be in
   generics and exports. Institutions like PERD Centre could be of great help to firms in terms of
   providing technology services, R & D, technical knowhow, testing as also equipping them to
   comply with WHO-GMP standards, especially in a cluster. In its view networks may help in
   gaining information, building economic strength, learning from others and addressing the
   environmental question collectively.




                                                63
                                     Success story of a growing unit
  A group of firm founded and managed by a professional and his wife (another professional)
  thought otherwise. A few months of training at the unit of a fellow professional friend - a dormant
  vision got rekindled: from nothingness 17 years age to a Rs. 140 million thriving presence at the
  dawn of the new century. It has a fairly diversified portfolio of products with 81 tablets, 11
  capsules, 10 liquids and six injectables. It contracts in for both large units and loan licensees.

  It has traced an illustrious growth record during the last 5 years. Investments have been made in
  the areas of capacity expansion, machinery and equipment procurement, product diversification,
  testing and quality upgradation, sales promotion, labour welfare etc. Marketing is through sales
  representatives and market executives as also franchisees. It has local, national and also
  international (export) business. Raw materials, machines and components are procured from
  nation-wide sources. Notable, services like packaging, labelling, transporting, repairs etc. are
  located within the firms.

  The decision makers of the group feel that problems and strategies are often discussed with
  other producers in the locality. The associations are particularly helpful for entrepreneurs in
  getting information on products (through magazines, bulletins, and other media). They also help
  in dealing with legal issues and government policies & procedures. As a matter of fact,
  cooperation between units has so far been limited to helping each others with ideas. They also
  feel that networks should be developed to influence long-term competitiveness of firms by
  helping them improve management skills, product quality and strategic planning. Cooperation
  between entrepreneurs as a part of a cluster is essential for this purpose.


5.1.4 R and D Scenario
The major criticism against process patents has been that it has “harmed” India's basic
research capabilities, bred a culture of complacence, and rendered a knowledge-driven
indigenous industry like pharmaceuticals globally non-competitive, technologically and quality
wise. Also, the investment in R and D in India has been very low – only two per cent of sales.
Polemics apart, it is true that a shift-over to a product patent regime would demand that basic
capabilities of indigenous research be developed. The large firms have already begun thinking
in the direction of upgrading their R and D capabilities, or tying up with leaders in the field.
There have also been ideas to upgrade of a successful molecule developed by a firm into a
related but a chemically variant molecule. The focus of R and D by large Indian firms also
needs to be sharpened.

The small units take a detached view on R and D because of their lack of financial
resources, trained manpower, lack of affordable and accessible testing facilities etc. Co-
operation on R and D is a very common phenomenon in the international scenario, where
relatively small firm tie up with big ones to specialise in developing new molecules up to a
certain stage and then transfer it to the mother firms. The past few years have also witnessed
a spurt in number of Contract Research Organisations (CROs) in the State. Besides, there are
also opinion for boosting a much tested (for example, in Brazil and China among developing
countries) incubator practices for supporting the small firms.

5.1.5 Trained Personnel
Another related aspect is the unmet demand for trained personnel at a reasonable cost. This
problem is in fact acute for small firms since they cannot afford highly qualified persons. Even
larger units find it difficult to get people who are well trained in regulatory and technical aspects.
It is expected that job opportunities in the shop floor would be reduced with automation,
whereas those in marketing, product management, formulation development, production
planning and inventory control, quality control and quality audit will expand. The current
education policy needs to contribute more in the new environment. The pharmacy institutions,




                                                 64
especially the government funded ones desire more administrative co-operation and long term
planning for such results, especially for those related to industry- academia cooperation.

5.1.6. Access to Information
Small firms are finding it difficult to avail right information, technological as well as regulatory.
This problem is accentuated by the fact that local market pressure can dampen improvement in
the technological sphere. It is essential to make available correct and relevant information to
the small firms. Similarly, there is also a need to provide them with sources of proven
technologies.

5.1.7.Specialisation
Unlike entrepreneurs in the past who had a huge market to explore from, those of the present
generation are finding it difficult to stay in business, be it due to rising quality expectations or
shrinking profitability criterion. In their effort to maximise profit and stay in business (the profit
margin being low), many units have adopted the `me-too‟ approach in business. Rather than
developing competitive advantage through specialisation, they get into the trap of making
hundreds of products - as many types of drugs as demanded in the local market or at least as
indicated by the temporary market needs. Interestingly the product profile (hundreds of
products) changes with changing market demand. With such diverse product profile, it is not
easy to go for WHO-GMP or have a good resource management.

It is found that, unlike entrepreneurs in the past who wanted to “do something worthwhile”,
those of the present generation want to “make a quick buck” even if they have to compromise
on quality. The resultant problem is lack of regulatory compliance. The burden of
documentation, testing and preparing dossiers for a large number of diverse products turns out
to be heavy and cumbersome for the small and, often inadequately equipped, firms.

5.1.8.Management Practices
The small firms are known for their disinclination to invest in upgrading the managerial skills.
This has especially affected areas like financial management and budgeting. Often, working
capital is used for investing in capital equipment. Or, although cent per cent depreciation is
available, ETP facility is rarely used. Similar is the problem with inventory management. The
disinterest of small firms arises from both a general lack of knowledge about modern concepts
and practices of management and also due to lack of resources. But in the emerging situation
where MNCs and large domestic companies would make a significant presence, even at the
local level, the small firms need to put emphasis on strengthening management. Further, the
customer profile is also changing fast. The buyer now demands timely delivery, proper
communication, etc, and the movement of business depends crucially on meeting these.

5.1.9. Reference Standards
The pharma industry needs reference standards (RS) to ensure chemical/biological purity as
also to check for known impurity profiles. The Indian pharmacopoeia specifies 400 to 500
such reference standards. But there exists a wide disparity between the demand for and
supply of reference standards. The Central Drug Laboratory (CDL) in Calcutta is able to
meet only 30 per cent of this requirement. The Indian Foundation for Pharmaceutical
Reference Substances (IFPRS), Mumbai has been authorised to prepare and distribute RS
tested by CDL and certified by the government at subsidised prices to manufacturers. The
other option is to buy standards from the UK or US at very high prices. There is a need for
more organisation like IFPRS to overcome the shortcomings in this area.




                                                 65
5.1.10. Policy Aspects
An enabling policy framework is a necessary prerequisite for the growth of any industry. The
policy regime significantly impacts areas like pricing and taxation, quality (already discussed)
exports and imports, research and development etc.

5.1.10.1. Taxation and Pricing
The total indirect tax burden on the consumer by way of customs and excise duty, sales tax,
octroi etc. works out to be 37 per cent. The industry feels that increase in these or other
taxes (like those on export earnings) will restrict subsidisation of the domestic market.
Associations of pharmaceutical manufacturers like OPPI and IDMA have been demanding a
reduction in indirect taxes on medicines. Some of the specific demands are:

   Reduction in duty on vaccines to the lowest possible level;
   Same treatment to products that are subjected to state and central excise duties;
   Exemption of up to 50 per cent of income tax on foreign remittances received for clinical
    trials on behalf of foreign or parent company;
   Full exemption on royalties received from certain foreign enterprises on account of R&D.

5.1.10.2 Export-Import Policy
While ensuring the highest quality standards of drugs produced in India, it is also important
that the norms that govern imports into the country are strengthened and internationally
comparable so that the domestic industry is not harmed in the post –product patent era. A
set of such norms are under active consideration by the government. These include a fee
structure and a new registration system for exports in to India. The major highlights of the
proposed norms are:

   The exporting firms have to pay Rs.75000 as fees for registration with Indian licensing
    authority and an additional Rs. 5000 for each product. The maximum registration fee for
    a single firm is Rs. 100000. The registration certificate is valid for five years.
   The foreign manufacturers are required to bear the expenses for the licensing authority‟s
    inspection of manufacturing facilities as well as the testing fee to be paid to Indian
    laboratories.
   Drugs prohibited in the country of origin would not be allowed to be imported into India.
    The regulating firm has to furnish manufacturing license, lists of drugs and formulations
    approved for marketing in the country of origin, GMP certificate conforming to WHO-
    GMP pattern and a warranty certificate stating that the manufacturer would adhere to
    Indian regulatory norms.

Another important proposal is for the establishment of an export promotion council of
pharmaceuticals.

5.1.10.3 R and D
As mentioned earlier the R and D investment in the country never exceeded 2 per cent of
the sales. The industry estimates that this share has to be increased to 5 per cent by 2005.
This means that by that year the annual R and D outlay should be Rs. 15000 million as
against the current outlay of Rs. 3200 million. There should also be an increasing presence
of research while development has to be further built on. The government has recently
taken some important positive steps in the direction of promoting pharmaceutical R and D.
These include a decision to exempt R and D expenditure from tax for ten years and a
proposal to create a R and D fund of about Rs. 1500 million. The Government has invited
expert opinions and ideas from various research institutions and has set up a group to




                                              66
formulate guidelines for the proposed Drug Development Promotion Foundation. Debates
are now on regarding the modus operandi of this proposed fund.

5.1.11 Other Issues and Concerns
As in many other sectors, pharmaceutical firms, especially the smaller ones, find it an obstacle
to deal with the Government bureaucracy. It is said that “frequent trips to Gandhinagar and
Delhi” restrict them (one-man shows) from giving due attention to production and promotion
related matters. Difficulties arise among others from lack of exposure of entrepreneurs to the
rules and regulations that govern pharma production and sale and a pro-active vision of
regulators down the line.

5.1.12 A Proactive FDCA
The challenges ahead for the pharma as well as the medical disposable unit are highly
dependent on the support of the FDCA which is interwoven with the growth and
development of the industry. This requires among others a more proactive and supportive
role and superior communication by the officers of FDCA down the ladder. It also requires
updated quality related training of officials. The current dynamic leadership of FDCA has
created an optimum base for such initiatives. A professional FDCA can help the industry with
accurate information and guidance to excel in the upcoming era of enhanced competition.

5.1.13 Problems related to medical disposables
Problems related to medical disposables units, which are mostly headed by traditional
trading community of Gujarat, also have problems related to quality, training, testing of end
products, GMP, quality of raw material, mould making etc. The need for a common testing
laboratory has been strongly felt by the medical disposable manufacturers. As required under
the revised Schedule M, strict norms have to be followed in undertaking both physico-chemical
testing and also biological testing. Also, the high cost of manufacturing moulds at the unit level
is a matter of concern for this industry as the gains of economies of scale is lost in the process.
Even the use of excellent mould making facility at the CIPET by the individual units turns out to
be expensive. A survey carried out for a cross section of 20 units

5.2      Focussed Activities for Development
The cluster development programme envisages horizontal and for vertical cooperation between
related units to either solve common problems or explore common opportunities to enhance
business. It is a participatory developmental programme with varying financial management
and time contribution by the cluster actors. The programme also aims towards sustainable
development that can lead towards continuity of such business development services. Areas of
common problems and opportunities have been identified above in section 5. The prospects for
sustainable development and continuity in business development services lie necessarily in the
empowerment of organisations and strengthening linkages between the various complementary
organisational forces. The business linkages provides the clues to groupings and the necessary
trust level for joint action. Based on the above parameter this section suggests an action plan
(issue wise) that may be taken up during programme implementation.

5.2.1 Quality
 Organising workshops for macro understanding of the various dimensions of upgradation of
    facilities to WHO-GMP.
 Organising separate workshops/training programmes on each dimension of WHO-GMP.
 Introducing services such as factory audit.
 Small firms need to be trained in the use of properly designed quality audit system to
    monitor and control sub contractors, offices, departments, factories, depots, warehouses
    and service departments to verify compliance with the requirements specified in the
    documented system.


                                               67
    Support groups of firms going for quality upgradation, technical upgradation (even at a level
     lower than WHO-GMP).
    Empower organisation to facilitate cooperation of other support agencies for soft loan, hire
     purchase of equipment, etc.
    Organise sensation training programme of workers on quality aspects through seminars,
     video films.
    Enhancing capacity of established and holistic educational-cum-technical centres like
     PERD, CIPET to establish linkages with private sector to organise such programmes.
    Encourage local BDS providers for supporting joint action for enhancing business.

5.2.2 Training
Training programmes are to be conducted on a continuous basis. The specific topics for
training can be the following:

Technical Issues
      Technology upgradation
      Stability testing
      Sustained release
      Physico-chemical testing
      Mould making
      Testing of raw materials for disposables

Management
     Raw material management
     Equipment management
     Processes management
     Personnel management
     Financial management
     Time management
     Record keeping/documentation

Marketing
       Advertising and sales promotion
       Market development
       Export

5.2.3    Support collaboration in areas like:
         Joint vendor development
         Export promotion
         Testing (bio-equivalance and bio-availability) for introduction of new products37
         Preparation of dossiers for export
         Tender participation for bulk sales
         Software development for resource management

Here firms who have some business linkages through the loan licence route or those who are
having complementary products or with complementary marketing strengths can group.

37
   Whenever a new drug is introduced in India the first three firms have to go for phase II clinical trials. The next
7 firms who plan to introduce the drug have to go for bioavailability and bio-equivalence study. The next 15 firms
have to only produce the basic drug data for getting permission to introduce such products. Firms can reduce
their cost if they go for registration jointly as part of the 3 or 7 firms .




                                                        68
5.2.4    Knowledge of markets and market entry
       Institutional purchase
       DGQA registration
       Export potential
       Trade delegation
       Marketing techniques for small firms

5.2.5 Others
 Orientation programmes for pharmacy teachers, consultants and FDCA and other
    government officials need to be designed.
 There is a need for an information centre, which can provide units with right and timely
    information on all aspects of techno-commercial matters concerning markets, tenders,
    government procedures as well as technical information.
 The units may be encouraged to consider the value of specialising in dosage forms.
 Specific sectoral studies need to be carried out by industry specialist consultants
    regarding the cost benefit analysis of specialisation.
 Specific workshops on IPR and its effects on: Current and future R & D; Production of
      generics; Production of patented products.
 Availability of Reference Standards




                                           69
                                                                                  Annex 2

                                     List of Acronyms

ADMA          - Ayurvedic Drug Manufacturers Association, Gujarat Region
AIOCD         - All India Organisations of Chemists and Druggists
CBI           - Centre for Promotion of Imports from Developing Countries, Netherlands
CHI           - Council for Healthcare Industry
CIPET         - Central Institute Of Plastic Engineering And Technology
DST           - Department of Science and Technology
EXIM          - Export Import Bank of India
FDCA          - Food and Drug Control Administration, Govt. of Gujarat
GITCO         - A consultancy organisation
GMP           - Good Manufacturing Practices
IDMA          - GSB- Indian drug Manufacturers Association - Gujarat State Board
LMCP          - L.M College of Pharmacy
MDMA          - Medical Disposable Manufactures Association
Min. of SSI   - Ministry of Small Scale Industries, Govt. of India
MSU           - Department of Botany, M S University, Vadodara
NMCP          - Netherlands Management Consultant Programme
NSIC          - National Small Industries Corporation
PERD          - BV Patel Pharmaceutical Education and Research Development Centre
SIDBI         - Small Industries Bank of India
SISI          -Small Industries Service Institute
WHO           - World Health Organisation




                                             70
                                                                                                Annex 3

         List of Important Activities Undertaken (October 1999- December 2002)

        Month/                   Activity               Activity Nature             Objectives Achieved
        Year
                                           1. Cluster as a whole
   1. Oct. 1999     Seminar on cluster development                           Problem     identification,   interest
                                                      Awareness              generation and linkage creation
   2.  Aug. 2000    Diagnostic study completed          Diagnostic study     Formed the basis of the action plan
   3.  Sept. 2000   Training of FDCA officials          Capacity building    Linkage creation and orientation
   4.  Oct. 2000    Training of FDCA officials          Capacity building    Linkage creation and orientation
   5.  June 2001    Training of FDCA officials          Capacity building    Linkage creation and orientation
   6.  Oct. 2001    Training of FDCA officials          Capacity building    Linkage creation and orientation
   7.  Oct. 2001    Brainstorming on creation of CHI    Network Building     Towards sustainability of efforts
   8.  Aug 2002     Training of FDCA officials          Capacity Building    Linkage creation and orientation
   9.  Feb.-Aug.    Training of FDCA officials          Capacity Building    Linkage creation and orientation
       2002
   10. Feb 2002    Workshop on transition from ISO Training for quality      Representatives from around 50
                   9002 to ISO 9001: 2001             up gradation           firms & hospitals participated
    11. Jan 2002   Creation or Council for Healthcare Network building       Towards sustainability of efforts
                   Industry
2. Pharmaceutical firms
    12. March 2000 Workshop on “WHO-GMP and Trust building                   Interest generation and       linkage
                   Pharma Globalisation”                                     creation
    13. July 2000 Cluster Development Programme Trust building               Creation of social capital
                   Committee (CDPC)
    14. Aug. 2000 Empanelling of consultants          Trust building         Institutionalising BDS
   15. Oct. 2000    Creation of the first group of 6 Business                Business generation through quality
                    firms                            networking              up-gradation
   16. Sept. – Nov. Factory audit                    Usage of BDS            Usage of BDS providers
       2000
   17. Nov. 2000 Workshop on Marketing               Market search           Understanding    new      marketing
                                                                             channels by successful firms
   18. 2001         Factory audit of Firms              Usage of BDS         Usage of BDS providers
   19. June 2001 Training of internal auditors in       Training             Step towards quality up-gradation
                 ISO 9002
   20. May 2001 Institutional marketing                 Capacity Building New marketing channels
   21. May 2001     Coordinator for CDPC of IDMA-       Sustainability       Strengthening of network
                    GSB
   22. Sept. 2001 Workshop on “Patent and               Technical capacity   Discussion on unexplored areas
                    Trademarks”                         building
   23. Sept. – Dec. Networks for Quality up-gradation   Quality up-          Usage of BDS for quality up-
       2001                                             gradation            gradation in groups
   24. October      Training of industrial chemists     Technical Training   Training and institutional linkage
       2001




                                                        71
   25. 2002         Group marketing                   Network building   Usage of BDS linkage for business
                                                                         generation
   26. May 2002     Delegation to Latin America       International      New marketing channel through
                                                      Marketing          specialised BDS
   27. May 2002    Training for Internal Auditor for  Technical training Joint training and usage of BDS
                   ISO
    28. Feb.-Aug. Higher level training on “GMP and Technical training Quality up-gradation and
        2002       Quality Assurance                                    institutional linkage
    29. 2002       Creation of video for workers     Capacity building Quality up-gradation and
                                                                        institutional linkage
    30. Aug 2002 Training of industrial chemists     Technical training Quality up-gradation and
                                                                        institutional linkage
    31. Oct 2002   Workshop on Water and Air         Capacity building Quality up-gradation and
                   Handling System                                      institutional linkage
    32. 2003 (Jan- Quality Circles                   Network formation Creation of Quality Circles by FDCA
        June)
    33. March 2003 Workshop on Packaging             Capacity building Problem        identification, interest
                                                                        generation and linkage creation
    34. May 2003 Pharma Techno Park                  Infrastructure     Quality up-gradation and linkage
                                                     creation           generation
    35. June 2003 Video for Workers                  Capacity building Training of workers and institutional
                                                                        linkage
    36. July 2003 Vision Workshop                    Future Vision      Future Vision of Pharma Clusters
                                                                        were discussed
3. Disposable firms
   37. April 2000   Workshop on cluster development Trust building        Interest generation and       linkage
                    and GMP                                               creation
   38. Aug. 2000    MDMA revived                    Trust building        Institutional      linkage          and
                                                                          sustainability
   39. Aug. 2000    MDMA draws up action plan         Action plan         Creation of action plan
   40. Aug. 2000  Training on “Physico-Chemical Technical training        Training for quality up-gradation
                  Testing”
   41. Aug. 2000 Workshop on “Healthcare in Trust building                Market search and move towards
                  India”                                                  quality up-gradation
   42. Sept. 2000 Training on “E.T.O. Sterilization, Technical training   Training for quality up-gradation
                  Sterility Testing and Validation”
   43. Oct. 2000 Training on “Toxicity and Pyrogen Technical training     Training for quality up-gradation
                  Testing”
   44. Oct. 2000 Participation in “Hospi-Medica Marketing                 New marketing channel
                  2001”
   45. Nov. 2000 Visit of technical expert to Italy  Cluster to cluster   Linkage generation
                                                     co-operation
   46. Dec. 2000 Growth programme                    Confidence           Move towards new marketing
                                                     creation             channels and quality up-gradation
   47. Feb 2001 Workshop on medical devices at Capacity Building          New marketing channels
                  Mumbai
   48. Feb 2001 Participation in Hospi Medica        Marketing            Creation of new marketing channel
                  2001
   49. May 2001 Institutional marketing              Marketing            Creation of new marketing channel



                                                     72
   50. June-Oct.     2 trainings on testing of raw       Technical training Quality up-gradation and
       2001          materials and components                               institutional linkage
   51. September     Workshop on legal and               Capacity building Quality up-gradation and
       2001          mandatory requirements                                 institutional linkage
   52. September     Market survey                       Capacity building New marketing channels
       2001
   53. September     Training on clean room               Technical training Quality up-gradation and
       2001          requirements & hygiene                                  institutional linkage
   54. Jan 2002      Training on processing of PVC for Technical training Quality up-gradation and
                     medical devices                                         institutional linkage
   55. 2002          Networks for Quality up-gradation Quality up-           Usage of BDS for quality up-
                                                          gradation          gradation in groups
   56. 2002          Common consultant led training in Capacity building Usage of BDS for quality up-
                     laboratory practices & sterilization                    gradation
   57. Sept 2002     Workshop on international linkage Marketing             Creation of new marketing channel
                     and linkage to European market
   58. 2002          Group formation for quality up-      Capacity building Linkage of groups to BDS providers
                     gradation                                               for quality up-gradation
   59. 2002          Development of equipment             Strategic          Institutional linkage
   60. Sept 2002 Participation in Hospi Medica           Marketing         New marketing channel
                 2002 at Singapore
   61. June 2002 Training on ETO sterilisation           Technical training Quality up-gradation and
                                                                            institutional linkage
   62. Oct 2002      Training on clean room              Technical training Quality up-gradation and
                     requirements & hygiene                                 institutional linkage
4. Ayurvedic firms
     63. April &     Workshop on GMP issues for           Trust building    Interest generation and linkage
         Sept.2001   ayurvedic units                                        creation
     64. Oct 2001    Factory audit                        Usage of BDS      Usage of BDS providers
     65. October     Training of internal auditors for    Usage of BDS      Usage of BDS providers
         2001        ISO 9002
     66. Oct 2001    Network for quality upgradation      Quality           Quality up-gradation and usage of
                                                          upgradation       BDS providers
    67. 2002         Network for quality up gradation     Quality up        Quality up-gradation and usage of
                                                          gradation         BDS providers
    68. Sept.        Creation of consultancy cell at      Capacity          Sustainability and institutional
        2002         MSU                                  building          linkage
    69. Oct 2002     Factory audit                        Usage of BDS      Usage of BDS providers
    70. Oct 2002     Network for quality upgradation      Quality           Quality up-gradation and usage of
                                                          upgradation       BDS providers
    71. Oct 2002     Training of internal auditors for    Technical         Usage of BDS providers
                     ISO 9002                             training




                                                         73
                                                                                               Annex 4
     Map 2: Cluster Map After Intervention




                                   PERD         FDCA                SISI           CHI


                                 LMCP        CIPET            DST          SIDBI         MSU



                                                IDMA-GSB

     Exports
                                                  L.F. (8)
                                                                                           RM (Pharma)



                                                 M.F. (30)                                 Packaging
    Institution


                                         BDS1          BDS2         BDS3




                                          S.F. (350)                                       RM (Ayur)
                                                                    ADMA
 Prescription
                    AIOCD
                                     BDS4       BDS5          BDS6




                                                MDMA



                                             S.D. (50)                                     RM (Disp.)




L.F: Large Formulation Units M.F: Medium Formulation Units S.F: Small Formulation Units
R.M (Pharma): Raw Material Supplier for Pharmaceuticals Units    R.M (Ayur): Raw Material Supplier for
Ayurvedic Units R.M (Disp.): Raw Material Supplier for Disposable Units BDS: Business Development
Service Provider


                                                 74
United Nations Industrial Development Organisation
   Focal Point, Cluster Development Programme
     USO House, Off Shaheed Jeet Singh Marg
            6, Special Institutional Area
             New Delhi – 110 067, India
  Tel: +91-11-26602885, Fax: +91-11-51688589/90
               Email: unido@vsnl.com


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