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Crams sees bounty in slumps

Monday, 14 July 2008 - 4:23am IST
The general industry whine may be about rising crude prices and inflation denting the margins, but the fast-growing pharmaceutical contract research

MUMBAI: The general industry whine may be about rising crude prices and inflation denting the margins, but the fast-growing pharmaceutical contract research and manufacturing services (Crams) segment is singing a very different tune.

According to Crams experts, the global economic situation could actually be a blessing in disguise for the business in India, which analysts see galloping at 39% per annum, well over the pharmaceutical industry’s annual growth rate of 9-10%.

VVS Murthy, chief financial officer of Ahmedabad-based Dishman Pharmaceuticals and Chemicals Ltd, one of the largest players in this space in the domestic market, feels the ascending international manufacturing and research costs would mean more outsourcing opportunities for India.

“Initially, there will be some small impact due to the oil crisis and price rise. But, with costs escalating internationally, global pharma companies would look towards outsourcing more and more business to India,” he says.

Outsourcing research and manufacturing of pharma products such as bulk drugs (or active pharmaceutical ingredients) and intermediates, etc to India helps pharma biggies bring down their costs by almost half.

Ranjit Kapadia, head-research, private client group at broking firm Prabhudas Lilladher, says the outsourcing balance is tilted in India’s favour since it has the second-largest number of USFDA-approved plants outside the US.

“We have over 100 plants for both bulk drugs and formulations, and superior manpower skills. Global players like Pfizer and AstraZeneca outsource manufacturing of bulk drugs completely to cheaper countries like India and China,” says Kapadia.
He sees increased outsourcing to India over the next six to twelve months.  

Dishman plans to invest over Rs 150 crore in Crams in 2008-09, mainly on a greenfield facility in Shanghai, spread over 40,000 sq m. “This facility will become operational by the end of this fiscal, and we expect it to bring in revenues of over $10 million next fiscal,” says Murthy.

“By 2010, we expect Crams to fetch over 85% of our revenues.” The Rs 803-crore currently gets about 75% of its revenues from the space.

Hyderabad-based Dr Reddy’s Laboratories (DRL) is also betting big on Crams and expects it to contribute over 25-30% of its revenues in the next 2-3 years.

Abhijit Mukherjee, president, pharmaceutical services and active ingredients, DRL says, “At present, it contributes only 10% to our revenues, which is $1.25 billion. The environment for pharmaceutical outsourcing is favourable as innovators look to reduce costs and increase the speed of research. We would also look at acquisitions in this area.”

Looking for specific inorganic growth is Wanbury Ltd, one of the newest entrants into the $1 billion Indian Crams market. The Rs 380-crore metformin (anti-diabetic drug) major, which entered the Crams space about two years ago, is targeting business of over Rs 100 crore in the next 18-24 months.

Ashok Shinkar, director - corporate finance, Wanbury says, “We will make acquisitions in the Crams space, probably in the EU, over the next year and half.”

He believes the climate for international Crams buys is quite favourable. “For brands, we would be interested in a range of $5-7 million, while companies with sales of not less than $20 million would interest us. These businesses could add at least Rs 60 crore to our bottomline.”


g_priyanka@dnaindia.net




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