Most of person has issue of investment. 98 out of 100 person who think to start own business faces investment problem. Investment and money is most important prospect for starting any type of business. Here we are providing some basic calculations to calculate investment required to start pharmaceutical company.
Pharmaceutical Sector is one of the fastest growing sectors in world. As we have discussed in our Article: How to start Pharmaceutical Company? Pharmaceutical companies are of two types:
- Pharmaceutical Marketing Company
- Pharmaceutical Manufacturing Company
Investment required for both types of companies are also different. While preparing a Business Plan, investment is an important part of it. Pharmaceutical Marketing Company require less investment as compare to manufacturing company because manufacturing unit requires lot of machinery, a world class infrastructure, building and much more.
In this article we will try to calculate total investment required for starting marketing company and manufacturing company. Investment is of three types generally:
- Fixed Capital Investment (One Time investment)
- Working Capital Investment (Investment to run a company)
- Inventory Investment (Stock, Raw Material, packaging material etc.)
Fixed Capital Investment:
We can say it also as One Time Investment. Fixed Capital Investment is the investment in fixed assets (like land, building, office, vehicle, machinery and equipment etc.). Fixed Capital Investment will be different for marketing company and manufacturing company.
Working(Operating) Capital Investment:
Working investment is liquid assets needed to run a company. Operative capital includes salary, wages, raw material cost, and marketing & promotional expenses etc. These are planned and unplanned investments (timely arise) require in daily basis to smoothly run an organization. Operating capital investment require till company start to earn adequate profit to handle its regular expense and wages.
Third type of Investment required for Stock and Product Availability (Inventory). Inventory investment depend at number of products you want to launch and manufacture in starting.
Investment Required for Pharmaceutical Manufacturing Company:
Pharmaceutical Manufacturing is a highly investment project. Major portion of investment will invest in purchasing a land, Building and infrastructure etc. This can be prevented if you start at rented premises and building. But location, area, plant and building infrastructure should meet with requirement of GMP certification (WHO: GMP and/or Schedule M).
Area required and machinery detail for starting manufacturing unit, you can read at our article: Area and machineries required for each section in Pharmaceutical Manufacturing Unit.
If you have own land and building that Good, but that is also an investment. We will consider it as investment. If you don’t have, you have two options: Either you purchase or you take a building at rent. In case of rented premises, rent and/or deposited money will be calculated as investment.
It’s not easy to calculate actual investment as cost of land, plant, cost to build a building, rent, machinery and equipment, staff salary, worker wages are not same at all locations, area’s, states and countries. Cost of any particular thing, we will replace with any alphabets. By replacing that alphabet with cost of that thing in you locality, you can calculate actual investment required to start pharmaceutical manufacturing company.
Requirements for Starting Pharmaceutical Manufacturing Unit:
- Land (L)
- Building (B)
- HVAC (Heating, Ventilation and Air Conditioning) System (H)
- Air Lock System (A)
- Fitting, Finishing and Furnishing (F)
- Machineries and Lab Equipments (M)
- Electricity Supply (E)
- Water Supply (W)
- Compressed Air Supply (C)
- Investment for completing Licenses and formalities (I)
- Other Requirements (R)
- Skilled and Technical Staff Wages (S)
- Non Skilled Worker Wages (N)
- Repair and maintenance (H)
- Rent if applicable (T)
- Bank Loan installments and related expenses (I)
- Promotional and Marketing (P)
- Other expenses (J)
- Raw Material and Packaging Material Stock (R)
You need to calculate fixed capital investment and operating capital investment separately. This will help to establish and run manufacturing company smoothly. Fixed capital investment can be calculated by adding fixed assets cost where as operating capital investment can be calculated by adding liquid assets.
Fixed Capital Investment = L+ B + H + A + F + M + E + W + C + I + R
Operative Capital Investment = S + N + H + T + I + P + J
Other than these, a manufacturing company also needs to market its own product in market. So it also requires investment needed for marketing and promotion as needed by marketing company. We can also include investment that will require for starting pharmaceutical marketing company in below portion.
Investment Required for Pharmaceutical Marketing Company:
Investment for Pharmaceutical Marketing Company is relatively low as compare to manufacturing company. In marketing company there is less infrastructure and capital required. For marketing company, less space, small office and fewer requirements are needed but marketing and promotional budget could be higher side.
A pharmaceutical manufacturing company has few addition marketing tools other than conventional marketing tools and advantage in marketing like third party manufacturing, contract manufacturing, loan licensing, greater reputation and institutional supply etc. That is not available for pharmaceutical marketing companies. Marketing has to reliable at conventional marketing solutions like ethical, generic, pcd, franchise etc only.
In marketing company, office and premises can be at rented basis if not owned. If owned premises, we will add it in fixed capital investment. Otherwise rent will be considered as operating capital investment.
- Office Building (B)
- Office Furniture and Accessories (A)
- Computer and Electronic Equipments (C)
- Fitting and Furnishing (F)
- Investment at licenses and documents (L)
- Other Requirements (X)
- Office Staff Wages (O)
- Rent if applicable (R)
- Bank Loan installments and related expenses (I)
- Promotional and Marketing (P)
- Other expenses (J)
- Stock Investment (S)
Fixed Capital Investment= B + A + C + F + L + X
Operation Capital Investment+ O + R + I + P + J
Marketing Strategy and promotional methods are almost same for marketing and manufacturing companies. So there marketing and promotional expenses are almost same.
Above we have discussed about investment required to start pharmaceutical company. In short discuss about factors that affect investment for starting pharmaceutical company.
Cost of land is different at different localities. Possibilities is there if some where you can find land at cheap cost and some where cost of land is high.
Building and Premises Furnishings:
Building construction as per GMP certification is very essential for setting up manufacturing unit. A good architect is needed for it. Also building material cost varies place to place. That makes different in investment to construct a building at different places.
HVAC, Air Lock System and other machineries & equipments:
Some countries and localities are dependent at import for high quality systems and machineries for setting-up a plant. Also prices vary according to the manufacturers and quality of machineries and equipments.
Licenses and Documentation process and Fees:
Some regions and countries have relaxed policies in respect for licenses and documents to start pharmaceutical company. In some regions, it’s a difficult task to get any type of license even after completing all formalities. Bribe and unethical money distribution also affect the investment required.
In case, you are in rented premises and/or building, rent at that particular locality affect the investment. In prime location rent may be high, in non prime locality rent would be relaxed.
Staff and Workers wages:
Easy availability of skilled and technical staff, Non availability of skilled staff directly or indirectly affects operation investment. If available then investment will be lesser otherwise skilled staff recruitment from outside locality may increase operation investment.
Investment required for Stock and Product Availability (Inventory Investment):
Stock may be in both assets fixed and liquid depend at situations. Stock is moving thing and will be in rotation as per demand and supply. Stock investment will be covered under Inventory management but here we will also cover important aspects regarding stock because it is an important part of Operative Capital Investment.
We can divide stock investment in three parts.
- Initial Investment
- Second investment in second batch to prevent shortage of products
- Emergency money
You could need double of your initial investment as reserve money for smooth flow of stock at initial stage. You have to invest in market, doctors and products. You have to invest at stock irrespective of marketing and/or manufacturing type. You also have to invest at market by providing credit to chemist and stockiest.
Monthly expenses like Rent of Premises, Electricity bill, office expenses and other miscellaneous expenses depend at location and area. Some expenses like accountant/CA fee, quarterly sale tax return etc also will be added in your expenses.
Design of logo, company profile, product card, reminder card, catch cover, writing pads, visuals etc. Designing charges may vary printer to printer but most of printers do designing free of cost if you are printing all material from them.
Hope this article is helpful for you to calculate investment required for starting pharmaceutical company.
You can also read here about- how much you have to invest in third party manufacturing of your products?
You must read : Investment at Packing material of Each Dosage form also to prepare your complete budget.
We are also mentioning few queries related to Investment here for more elaboration. Hope you will get some help for these queries:
Query 1: I am a Doctor working in a reputed medical college. My wife is a gynecologist and she is in private sector. We want to start a pharma business of our own. What we want is that to have product packaging from reputed company and sell at our company name. Please guide us in following points. .
1. Starting budget is 12 to 15 lacs. Is it adequate?
2. Do we have to form a company to do that?
3. Where do we get quality manufacturer because we don’t want to comprise quality.
Response 1: You want to start pharma business and sell products from your name and thinking about starting your own Pharma marketing company.
- Starting budget is 12 to 15 lac. Is it adequate?
Starting budget depend upon number and type of products you want to get manufactured. Few products are costlier and few are cheaper in rates. The molecules and/or salts you want in your product list will affect your budget. For example, you are starting with 26 products and products are A, B, C etc. Your budget is depend upon rates of A to Z products.
If your products are costlier like Cefixime, Cefpodoxime, Cefuroxime , levofloxacin, Azithromycin etc then chances are you have to invest big amount. If you start with vitamins, ferrous combinations, nimusulide, paracetamol, ofloxacin etc then budget will be less. Above molecules are example purpose only, costing of products can depend upon circumstances.
12 to 15 lakhs is sufficient amount if you invest it wisely. We have seen person to start their own marketing company with amount as less as 1 Lakh.
You can start your company from 1 product or you can start with above 100 products or as number you want. We will recommend to start with lesser number of products and add new products gradually.
- Do we have to form a company to do that?
To work with your company name, you have to start your own marketing company. Read Procedure by clicking following link: How to start your own pharma marketing company
- Where do we get quality manufacturer because we don’t want to comprise quality?
Searching for Quality manufacturer is difficult task but you can find good quality manufacturer easily. You are doctor and prescribe medicines. You better know which product is good in quality and efficacy. Products which you are prescribing will have manufacturer address. Even multinational companies like pfizer, lupin, cadila, sun pharma, unichem, cipla are also get manufactured their products at third party or loan license basis. See the address of manufacturer on strip or box, you trust the most. You can easily find quality manufacturer address. Search for that manufacturer at internet and will get contact number easily. Contact them and ask them to manufacture your products.
You will also need to find out price to retailer/price to stockist read here…
Hope you have found it useful…..
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