Until six months ago, Neeraj Kumar Singh, managing director of the Rs 10 crore (Rs 100 million) Cambridge Healthcare, was just another small-scale drug formulator in Gujarat's Mehsana district, 86 km from Ahmedabad.
Today, he is the co-ordinator of a new co-operative movement for pharmaceutical companies called Quality Circle. Its guiding principle: If small drug firms don't hang together, they'll hang separately.
The noose over their heads is in the form of the new Schedule M guidelines of the Drugs and Cosmetics Act, which require pharmaceutical companies to invest in equipment to soup up quality and hygiene standards by 2005, when a new patents regime comes into force.
This means heavy costs for re-equipping and re-modelling manufacturing facilities by installing expensive air and water-handling systems, new machinery, and upgraded quality control systems.
For small pharmaceutical companies with turnover of Rs 2 crore (Rs 20 million) or less, compliance means losses and non-compliance closure.
That's where Quality Circle -- a Gujarat government initiative to develop common facilities for small pharmaceutical companies -- has helped.
Backed by the Gujarat Food and Drug Administration, Quality Circle allows Neeraj Singh and other pharmaceutical entrepreneurs to band together and lower reinvestment costs.
At last count, Singh had roped in seven other collaborators for the circle: Dywel Pharmaceuticals, Morvel Pharmaceuticals, Jayvin Remedies, Excel Healthcare, Shree Pharmaceuticals, Theodore Pharmaceuticals and Wallable Pharma.
The essence of the arrangement is that none of these enterprises loses its identity. Quality Circle, a legal entity registered with the state government's department of co-operation, is an umbrella the drug firms can choose to stand under when they have to weather high costs.
As single purchasers of equipment, they could be fleeced by suppliers. As a collective entity, they have bargaining power.
So while they will continue to battle it out for marketshare -- they produce a range of antibiotics, analgesics, anti-oxidants, anti-infectives and anti-inflammatories -- they can present a united front to suppliers.
And it has started to pay off. Four months ago, Quality Circle placed a joint order for 20 high-performance liquid chromatography systems from Samanzu Corporation of Japan.
A single unit of this quality-control system would have set each member-firm back by Rs 10 lakh (Rs 1 million). With bulk ordering, Quality Circle brought down the price to Rs 450,000.
Now it plans to go further and buy tablet-punching machines, a single unit of which costs Rs 450,000. A common front could fetch six machines for Rs 12 lakh (Rs 1.2 million).
To be sure, the ultimate logic of Quality Circle could extend beyond sourcing equipment. It could help firms cut raw material costs and, at a later stage, help them sell finished materials for a better price.
But the firms are taking their time -- it's a tough job trying to synchronise the interests of entrepreneurs who were earlier competitors.
"It took us close to six months to convince firms about the need to upgrade facilities. They are all formulation-oriented enterprises, purchasing raw materials, producing drugs and selling them to specific purchasers," Singh of Cambridge Healthcare says.
The pressure of competition and thinning margins is already reining in centrifugal tendencies among Gujarat's 300-odd pharmaceutical units, which together account for a third of the state's Rs 12,000 crore (Rs 120 billion) annual turnover.
Kamlesh Udani, chairman of the Gujarat branch of the Indian Drug Manufacturers' Association, says: "Many of the players will find it difficult to abide by the Schedule M guidelines. Co-operative members are better placed to respond with quality products in a short time."
That's why Anil Patel, the state's industries minister, says his government will support such co-operatives in every way.
A complete convert is Rattanbhai Patel, head of Dywel Pharmaceuticals. He will spend Rs 50 lakh (Rs 5 million) to refurbish his Mehsana premises and upgrade equipment.
Patel claims funding his project is much easier now. "It is tiresome for an individual to approach the government for subsidised loans. It makes more sense to approach financing agencies as a group with the backing of the IDMA," he says. But Wallable's Kantibhai Patel is still undecided about revamping his unit.
Quality Circle has roped in financial and technical consultants to optimise synergies. While Eske Engineers has prepared an upgradation blueprint, Mahesh & Associates is providing a financial roadmap for the collective ramp-up.
And the idea appears to be shaping up fine. With quick benefits on offer, the IDMA is getting more ambitious.
Singh of Cambridge, also an IDMA member, says he would like to take the Quality Circle model to other districts of Gujarat. Co-operation is the name of the game.
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