Karnataka biotech companies eyeing Andhra Pradesh

Nandita Vijay, Bangalore Thursday, February 17, 2011, 08:00 Hrs  [IST]

The attractive industrial facilities  in Andhra Pradesh like  Special Economic Zones (SEZs), massive cost savings in infrastructure for manufacturing, presence of ancillary industries, interface of railroad air network, access to both skilled and unskilled labour workforce and varied options for locations (Hyderabad, Vizag, Kurnool, Chittoor, Vijayawada), is luring many of the Karnataka companies to Andhra Pradesh.

Hence as a part of their expansion plans, Karnataka pharma and biotech companies are eyeing    Andhra Pradesh for setting  up their  second facilities. The larger ones like  the Biotech major Biocon and Shipla Medicare in the pharma sector have invested in Andhra Pradesh, mainly to prevent an over-dependence on a single location. These companies are  also keen to   capitalize on  the advantages of multi-location strategies.

Since the biotech boom in 2000, Karnataka and Andhra Pradesh have been putting in efforts  for capturing a lion's share of the biotech-pharma business. The  poor industrial infrastructure  and the inability of the units to expand in the state in prime areas  has led many pharma-biotech companies  of Karnataka to look at andhra as an alternative option for the future, The biotech and pharma companies of other states are also eyeing SEZs in Andhra Pradesh thus  making it a hot destination for low value but high volume manufacturing.

The enforcement of the excise duty on maximum retail price  (MRP) regime in January 2005 had forced the Karnataka companies to look at the excise free zones at Baddi in Himachal, Uttaranchal and Jammu & Kashmir to capitalize on costs , said Jatish N Seth, director, Srushti Pharmaceuticals, who is also secretary, Karnataka Drugs and Pharmaceutical Manufacturers Association (KDPMA).

However with the govt taking a U-turn on its decision on 2005 ,companies now feel that Andhra would be a better location for their future activities mainly due to the easier accessibility, he pointed out.

Biocon, Shilpa Medicare  projects
Biocon has acquired land in the special economic zone, Jawaharlal pharma city, near Visakhapatnam for its second manufacturing facility in Andhra Pradesh. The company has acquire approximately 50 acres of land to set up a manufacturing facility.

"It is incorrect to view our preference for Andhra Pradesh to establish a second manufacturing base due to lack of infrastructure in Karnataka. Given the current size of the company's operations, it was imperative to have a multi-location strategy to de-risk the business. While Bangalore is an ideal location for research and development  for high value and low volume manufacturing, Andhra Pradesh is a place suitable for low value and high volume manufacturing," said Kiran Mazumdar Shaw, chairman and managing director, Biocon Ltd.

"In order to achieve high volumes, low value manufacturing needs, a lower investment and operational cost base that is globally competitive, is often the choice of companies. Other attractive factors include, uninterrupted power that allows a smaller standby power generation system, availability of water at low cost and a central effluent treatment facility. In the case of Biocon, it decided on the SEZ at Visakhapatnam because the facility would allow the company to release effluent after secondary treatment" said Shaw.

Biocon's operations in Bangalore has cent per cent standby power generation, a zero discharge effluent treatment facility and water supply at a rather high cost. Expanding the current manufacturing operations in Bangalore therefore will not allow the company to be globally competitive, she said.

Raichur-based Shilpa Medicare has slated an invested Rs 90 crore to set up an oncology formulations facility at the Andhra Pradesh Industrial Infrastructure Corporation Ltd's Pharma Formulations Special Economic Zone (SEZ) at Jadcherla in Mahaboobnagar district.

The company has been allotted the land and has raised the funds through internal accruals and banks. The plant construction will begin in a few weeks. "We are looking to commission the advanced plant in the next 18 months",  said Vishnukanth Bhutada, managing director, Shilpa Medicare Ltd .

"We have a total of 25 APIs in oncology and therefore we will do well in formulations. Not only that, we are one of the few dedicated oncology drug manufacturers in the country," he added.