Bangalore, Feb 15, 2010: There are five top Government owned or public sector (PS) drug companies in India—Indian Drugs and Pharmaceuticals Limited (IDPL), Bengal Chemical and Pharmaceuticals Limited (BCPL), Rajasthan Drugs and Pharmaceuticals Limited (RDPL), Karnataka Antibiotics and Pharmaceuticals Limited (KAPL) and Hindustan Antibiotics Limited (HAL). These companies produce pharmaceuticals like tablets, injectables and other medical products and supply to various public health institutions.
An overview
Set up in 1961, IDPL is the largest central pharma public sector undertaking in India, having manufacturing plants at Rishikesh, Gurgaon, Chennai, Hyderabad and Muzaffarpur. IDPL’s birth control pills Mala-D and Mala-N are quite popular in rural India. IDPL claims to be the first pharma company in India to make vitamin B6 using its own technology.
Founded in 1901 by Dr PC Ray, BCPL manufactures drugs from indigenous materials. BCPL has four factories – two in West Bengal, one in Mumbai and one in Kanpur. It has sales outlets in 11 cities, and a wide distribution network all over India and abroad with more than 1,500 distributors.
Headquartered in Jaipur, the RDPL was incorporated in 1978 under the Indian Companies Act, 1956 as a joint venture company with Rajasthan State Industrial Development and Investment Corporation Limited and Indian Drugs and Pharmaceuticals Limited. While KAPL is a joint venture company promoted by HAL and the Karnataka Government.
HAL is the first drug manufacturing company set up in the public sector by the Government of India with active co-operation of the World Health Organization (WHO) and the United Nations Children's Fund (UNICEF). Set up in 1954, HAL is the first drug manufacturing unit in India to undertake commercial production of antibiotics like Penicillin, Streptomycin, Gentamycin, Ampicillin and Amoxycillin. HAL is the first pharma company in India to launch a recombinant DNA product, rHU-Erythropoietin (Hemax) in 1993. It has diversified formulation activity and has facility to manufacture various dosage forms – injectables, capsules, tablets – and has diversified into agro-vet products and diagnostics kits business also. HAL’s manufacturing unit is situated at Pimpri near Pune in Maharashtra.
Sickness beyond cure
Despite all these feel-good factors, these public sector drug companies have been ailing for a longer period of time. A number of PSUs have been shut down that include Maharashtra Antibiotics and Pharmaceuticals Limited (MAPL), Manipur State Drugs and Pharmaceuticals Limited (MSDPL), and Orissa Drugs and Chemicals Limited (ODCL).
Continued help from the government has not been able to fulfill their exact purpose in the long run. The Board for Industrial and Financial Reconstruction (BIFR) has declared many PSUs sick. This may be attributed to the mismanagement and lack of innovation on the part of these companies. The lack of proper set up for sales, marketing and distribution is also one of the contributing factors for their lackluster performance.
For example, it is surprising to note that IDPL has accumulated losses of Rs 5,000 crore and has a negative net worth of Rs 4,816 crore. The company has not even been able to finalize its annual accounts since 2002-03. Provisional numbers generated by the management indicate a turnover of about Rs 57 crore during 2007-08, a 310 percent increase than a year ago. IDPL has received three bailout packages from the central government but none of them have worked.
In the case of BPCL, the compelling market situation acted as deterrent to its growth in the 1960s, and the company passed into a dark phase in 1970s. Ultimately, to protect the interest of large number of employees of the company and the common people at large, the management of the company was taken over by the Government of India on December 15, 1977. Finally, the company was nationalized on December 15, 1980. The government provided support to the company from time to time. But it did not help in stabilizing the company. HAL has also been given the bailout package many times by the union government but it has slipped back into red time and again. Only RDPL and KAPL are profit-making in some sense.
In the interest of continues growth and development of the company, the government decided to delink RDPL from IDPL and transfer the shareholding of IDPL in RDPL to Government of India. The government has also invested Rs 2 crore in RDPL to enable it to upgrade, modernize and enhance capacity of its plants and to make them Schedule ‘M’ and WHO-GMP compliant. Rajasthan Industrial Development Investment Corporation (RIICO), other joint venture partner would bring in additional investment of Rs 1.9 crore to RDPL.
Government bailouts
The support provided by the union government has not been actually able to make these units fully-functional or profitable for the longer duration of time. After certain period of time these units again fall sick. From the government point of view, the revival has been on the top priority and the government has tried to rejuvenate the sick units.
Government offered voluntary retirement scheme (VRS) to the employees of IDPL. The government had also released funds to the extent of Rs 470.63 crore till the end of January 2004 towards implementation of VRS. Another Rs 1,400 crore package was given to IDPL in 2001, followed by one in 2005. The Board for Reconstruction of Public Sector Enterprises, the ‘special doctor’ for sick PSUs set up by the UPA, had examined the PSU and the revival package it mooted had been sent for the cabinet clearance in 2007.
BPCL has not been able to earn the net profit during 2008-09, yet gross margin of the company has improved and loss has been reduced substantially over last few years due to enhanced production and sales. This is made possible due to active co-operation from all corners. The company has signed s memorandum of understanding (MOU) for the Financial Year 2009-10 to achieve production and sales target of Rs 120 crore and Rs 108 crore respectively with the Department of Pharmaceuticals, Government of India.
The HAL has also been bailed out by the union government so many times but the company has not been able to do well despite that. The other government initiatives in this regard include the priority for the drugs of the PSUs whenever there is a bulk requirement. The bulk procurement program of the central government and the state government is roughly estimated to stand at Rs 21,500 crore. The PSUs comparatively have the turnover of around Rs 120-140 crore and that can be helpful to revive its growth. Also, the National Pharmaceutical Pricing Authority which is responsible for fixing the prices of around 74 bulk drugs, can also help these PSUs on that front.
But, while being hopeful on the revival strategy, one has to keep in mind that these PSUs cannot be solely dependent on cash infusions or loan waivers but the performance in sales will be vital for their survival in the long run.
The way ahead
However, there are many arguments in support of these PSUs. One of the arguments is that the need for PSUs is strategical as they are supposed to act as a buffer in times of medical emergencies. The supplies from government units can be faster than private players as it may be time-consuming. Therefore, it is highly imperative to the countries like India to have a healthy and strong public sector drug makers that can play an active role in providing the healthcare to the general masses at lower prices.
But, the future of these companies still hangs on as they rely heavily on government support. The steps taken by the government, although seem to be enough, the lack of proper management of funds and the absence of full-fledged marketing of products, at par with private sector, have been major hurdles to growth.
The R&D activities need to be prioritized and the promotion activities have to be boosted. The revamp of organizational structure would definitely help these PSUs come out of their debts.
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