India's Pharmaceutical Machine Manufacturers: From Imitation to Innovation

Indian pharmaceutical machine manufacturers (IPMMs) are exceptional among their foreign counterparts. Historically similar to the Chinese with regard to copycat practices, patent infringements, and substandard quality, the IPMMs have made great strides in innovation and collaboration to break free from the shackles of this paradigm.

"If you have a product which is replicable, scalable, and does not require after-sale support or customization, then you cannot compete with the Chinese. But if you are talking about pharma machines, then it is just common knowledge that you need the necessary customization or after-sales support and documentation for operating and maintenance. This is where Indian pharma machine manufacturers have the advantage of fluency in English and greater technology-orientated skills," declares Vishesh Parekh, committee member of the Indian Pharmaceutical Machine Manufacturers Association (IPMMA) and managing director of INCOME Ltd.

The IPMMs' industry has shown significant activity, mainly during the last five years. IPMMA reports that the industry generates nearly $500 million of turnover, 40% of which comes from exports to countries around the globe. There are more than 350 facilities in India's pharmaceutical-machine manufacturing industry, in categories like instrumentation and process control, lab equipment, pharma research and development (R&D) tools and techniques, pharmaceutical machinery, packaging material and machines, plant design and engineering, pharmaceutical process technology, and software.

"We were being taken for a ride, so we formed the IPMMA to unify into one voice," recalls Vishesh Parekh. "We were getting higher prices from exhibition and event organizers, and our common needs as IPMMs were not being addressed. Then, after getting together frequently, we saw that we shared many of the same concerns and could make a difference in promoting the interests of our own industry." Established in 2001, the IPMMA has unified 200 companies in the sector with a common goal of establishing and exchanging knowledge resources and keeping its members updated on global trade and technological developments. The IPMMA believes it has contributed greatly to the success of the industry during the past five years.

Much of the experience and technical expertise found in the industry was gained through defense contracting. Hamis Shahani, Director of Klenzaids Contamination Controls, Ltd., explains, "Through the 1970s and 1980s, India was heavily trading with [the] Soviet Union and Germany, manufacturing defense equipment and chemicals for their military and anywhere they went. This is where much of our exports during that period were going." Hamis Shahani later described India's need for trading with the West, "The revenue model generated by the pharmaceutical industry at the time [late 1980s] mandated growth and required Indian industry to build more and better facilities. Once we started building facilities of sizeable scale, we required the latest technology. That's when we started farming out to the West for better technology, in return providing them with low-cost manufacturing."

Klenzaids's history and development is a strong testament to the specialized level of experience and knowledge Indian companies have acquired over the years. Starting as a manufacturer of clean-air tents for missile-launch systems, the company today has a project for the turnkey design and contracting of a maximum containment laboratory of Bio Safety Level-4 in India. "Only five such laboratories exist on Earth: four in America and one in Canada. One of them in the United States is at the US Army Military Research Institute for Infectious Disease (USAMRIID) in Fort Dietrich, Maryland, where they keep the smallpox virus. This will be the only place in India where dangerous substances and primate testing in Phase 3 and Phase 4 can be conducted, not to mention become India's Center of Biological Warfare and Intelligence," Shahani explained.

In building such a microbial-containment complex, India has taken a step further toward attracting international R&D business. Combined with existing clinical research and testing organizations in India, this facility, commissioned by the Indian Council of Medical Research, will provide a greater range of specialized services necessary for high-value drug discovery and development.

IPMMs are rapidly specializing, like the pharmaceutical industry, as needs for high value-added services and products increase. Electrolab's director, Amit Marfatia, describes how the company made a niche for itself with testing equipment, "Kadila Pharma in Ahmadabad originally showed me a dissolution tester and asked if we could make one. A dissolution tester gauges how much drug is available to your body from a pill. In two years, we reengineered and developed one that delivered better accuracy."

Marfatia's partner and Electrolab's technical director, Bharat Zaveri, describes the innovation and design needed to achieve the task. "Controlling accurate rpms was the most difficult part of creating the machine. So, we devised the AC motor controller with a feedback system and with that, the rpm was very consistent. Specification back then by the United States was ±5 rpm. We were able to create it at ±1 rpm."

Rajesh Subramaniam, managing director of Subnil Packaging Machines Ltd., satisfies the industry demand for complete tube-filling packaging lines. Subnil capitalized on this niche by manufacturing a complete packaging solution line that fills, cartons, and bundles tube products. "Now, we are the undisputed market leader in tube packaging machines in India," Subramaniam states.

Newtronic Equipment Company Pvt. Ltd. developed remote monitoring and maintenance for its stability chambers. Stability chambers are essential for determining the half-life of drugs. Director N.M. Mehta explains, "We saw the need for remote monitoring and servicing these chambers from anywhere in the world via the Internet, allowing [users] to communicate with each other from different plants so that various departments in testing facilities can better share data." Newtronic reported spending nearly 20% of their $5 million US turnover on R&D and establishing a new facility to increase production capacity. "We heavily invest in R&D and expansion to meet the demands of our continued growth," Mehta concluded.

Many IPMMs achieve innovation by reverse engineering a process or an existing solution to enhance performance and develop new applications. This technique allows them to gain a competitive advantage over other industry competitors. Dev Ashish Bakshi, joint managing partner of Tapasya Engineering Works Pvt., recalls the development of Tapasya's number one product, the "Saizoner" mixer grinder, "My father was first approached by Procter and Gamble in 1979. They asked if he could manufacture a mixer granulator if they helped with the design. My father agreed, and in a few years the engineering team developed our first Saizoner mixer grinder, which is now number one in Asia and seventh in the world."

Innovation can give a company a competitive advantage. Producing the same quality equipment for much less, however, is the main competitive advantage IPMMs have. Marfatia recalls Electrolab's first export, "After selling to Kadila Pharma, we exported our first dissolution tester. The average price of the imported one was 10,000 Euro. We sold ours for 1000 Euro, including profit."

Consequently, IPMMs carry the stigma of producing "cheap" equipment. Western manufactured equivalents are at least 10 times more expensive. "The price of the whole Indian machine could be equal to just the packaging cost of the European machine. The vast difference in price for similar equipment, in Europe or the United States, is staggering when compared with the lack of difference in the actual quality or functionality," comments an anonymous IPMMA committee member.

Perhaps the saying "you get what you pay for" does not strictly apply when comparing Indian-manufactured machines with Western-manufactured ones. Is there much of a quality difference between Indian and Western machines or are Western prices overinflated? Ipca Laboratories's managing director, Prem Godha, seems to suggest the latter. When asked whether he used Indian-manufactured pharmaceutical machines, Godha commented that 90% of his company's machines were Indian manufactured. "As an API producer, we have seen little or no difference, other than price, between Indian-made machines and their foreign competitors. Besides, we benefit more from using the Indian brands because they are nearby and can provide us with better after-sales support and service."

One can argue that Indian drug manufacturers would be biased in favor of Indian-manufactured machines, rather than foreign machines. An increasing number of foreign pharmaceutical-machine manufacturers also have recognized India's achievements and evolution in the industry.

"When we look at the how the pharma industry developed in Germany, we see that the precision and polished appearance of the machines, from the automation, grade of steel, to the craftsmanship in the welding, has developed over the past 30 years 85 I am shocked and surprised to see how much India's pharma-machine manufacturers have evolved in such a short period. The Indian machines look and run almost as good as ours," remarked Heino Weidner, managing director of Weipack Packaging Group in Germany.

Weidner was in Mumbai for the Pharmaceutical EXPO 2006, an exhibition of machinery and technology held at the same place and time as the CPhI India exhibition in December of that year. He described the reasons behind his technical collaboration with an Indian company, Elmach Packages Ltd., "They have the technical understanding required to make these machines and the respect for intellectual property [IP] that is necessary for collaborative development."

The primary concerns of European and US brand-name manufacturers collaborating with Indian companies are IP protection and the necessary legal framework to enforce their claims of patent infringement. Several Indian machine makers have made great efforts to protect the IP interests of their foreign partners. Matt Neumann is vice-president of sales and marketing for Aylward Enterprises, a company that manufactures blister feeding systems for packaging machines. He points out, "We knew we would not be able to sell anything in India, exported from the United States, except our know-how and technology. That's why, when Elmach approached us a few years ago, we made an agreement whereby Elmach would pay us a royalty for the technology we licensed out to them. As Americans, we fear giving out the technology we worked hard to develop because it is our primary asset. But, Elmach reinsured us with the necessary legal protection of our technology on their behalf. Now, I believe the patent laws in India are such that we can safely protect our technology."

Indian pharmaceutical-machine makers and their Western counterparts increasingly are exploring collaborations and partnerships with each other to innovate or share new technology. Together, they are targeting more price-conscious developing countries. "We currently have technical tie-ups with Paul Mueller Company, in the United States, for manufacturing single- and multiple-effect stills used in water-for-injection systems and pure steam generators. They gave us the technology and we started manufacturing a co-brand for the Indian market. Soon, we will start exporting under this co-brand to neighboring countries like Bangladesh," elaborated Himanshu Shah, the managing director of Neela India Pvt. Ltd. Shah was torn between pursuing sales in developing countries because they yield higher margins and sales in Europe or the United States because they require better technology.

Interest in trading directly with the West appears to be fading. On the other hand, hardly any IPMM denied exploring opportunities with Western companies in more speculative markets such as South America, Africa, Southeast Asia, and Eastern European countries. As K.P. Kumar, managing director of Rapid Pack Engineering Pvt. Ltd., states, "We have focused on developing markets with price-conscious multinationals that are manufacturing outside of Europe and America, like South America, Africa and Turkey. Providing our machines to multinational companies and their facilities in those markets has greatly increased our international exposure and credibility with regulatory agencies like the US Food and Drug Administration, the UK Medicines and Healthcare products Regulatory Agency. Now, inspectors from regulatory bodies are more familiar with our machines."

It is widely perceived that inspectors from governmental regulatory agencies and other international bodies are more stringent and enforce higher standards for facilities and machinery produced in developing countries. Some IPMMs believe this to be a conspiratorial trade regulation, an indirect method of limiting the foreign trade of Indian machines. Foreign inspectors would argue that imposing higher standards on developing countries is a basic process essential for establishing standards. Because standards gradually tend to slacken, setting higher expectations ensures that over time, standards will harmonize with internationally accepted norms.

When a foreign regulatory inspector sees an Indian machine operating in internationally approved facilities next to brand-name Western machines, the inspector becomes less critical when scrutinizing new facilities that predominately use Indian machines. In return, this reassures drug manufacturers that Indian machines are manufactured and used in accordance with international standards and do not jeopardize the inspection and approval of their facility. This is one of the many reasons that India has the most FDA-approved facilities in the world.

Thermolab Scientific Equipments Pvt. Ltd. recently acquired one such facility to diversify into the pharmaceutical manufacturing industry. Unprecedented among Indian pharmaceutical-machine manufacturers, Thermolab acquired an injectables manufacturing facility from Korten Pharmaceutical Pvt. Director Sandip Mhatre formulates his strategy for the purchase, "Despite our yearly 70% growth and 65% market share in stability testing and walk-in chambers, we foresee stagnancy in the industry for the upcoming years. That's why we wanted to diversify. We took over a small contract-manufacturing unit making injectables for Novartis and Merck. The facility is FDA- and UK-MHRA-approved, and Novartis recently has audited and inspected the facility so that we may continue manufacturing for them." Mhatre continued, "With the excess capacity, we plan on producing and exporting small-volume parentals like ampuls and vials. We estimate this will expand our business fourfold and allow us to compete in international markets."

This may paint a rosy picture for the IPMMs, yet there is much room for improvement if Indian manufacturers wish to catch up with the competition. Western branded pharmaceutical machines still tend to provide more automation than their Indian equivalents. They often yield higher volumes and operate at greater production speeds. Sometimes Western machines include more detailed documentation for after-sales support and maintenance and have sophisticated metallurgy that protects them from wear and tear during long hours of operation.

Parekh believes that, regardless of the differences between Indian and Western manufacturers, "there are two distinct buyers: the ones that are interested in Indian machines and would never consider buying machines from the West, and the ones interested in buying machines from the West that would not consider an Indian machine, regardless of the price. They both have their own market of customers to cater to, so there isn't much competition with the West." Parekh's company illustrates this distinction: it imports pharmaceutical machines from Switzerland and Germany and sells them to the Indian market.

Even if the IPMMs have established their own international or domestic markets, India's imperfect infrastructure prevents the development of reliable, on-time supply chains. High property values inhibit cost-effective expansions to increase capacity, forcing companies to expend effort and resources to construct new facilities in undeveloped areas. Considering that they also face missed deadlines and overcapacity that necessitates scheduling operations from six months to a year ahead, the IPMMs seem to have their work cut out for them.

Overall, it is indisputable that IPMMs are well poised to exploit international markets and opportunities. Paralleling the growth of Indian pharmaceutical companies, IPMMA reports an annual growth rate of 10% for the industry, nearly twice that of the European and US pharmaceutical-machine industries' recorded growth. Certain IPMMs have reported triple-digit growth. Against the background of a growing economy and exports that have doubled annually during the last two years, IPMMs are forging a new image by jumping up the value chain and changing from the imitators to the innovators of technology. They manage to emerge as potent partners for Western players willing to step in the Asian foray with fresh competitive advantages. For decades, manufacturers observed their competition closely. Now is the time for them to align competencies and exchange know-how and experience to go the next mile. Like the pharmaceutical industry, the machine-making industry has proven its worth. Now it is time to move to the next stage.

This report was prepared by Executive Country Reviews by Yaz Yazicioglu yaz@ecreviews.com and Emmanuelle Berthemet emma@ecreviews.com