How much investment needed to start a Pharmaceutical company?

Most of person has issue of investment. 98 out of 100 person who think to start own business faces investment problem. Investment, fund, money is most important prospect for starting any type of business. Same is the case when come to starting a pharmaceutical company.

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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.

Pharmaceutical companies are generally 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 detail we will discuss later in article, first have look at minimum investment required to start a pharmaceutical company.

Minimum investment required to start a Pharmaceutical Marketing Company

The minimum investment required to start a pharmaceutical marketing company can vary depending on a variety of factors, such as the size of the company, the type of products being marketed, and the target market. However, it is generally recommended to have a minimum investment of at least INR 5-10 lakhs in India, which is roughly equivalent to USD 7,000-14,000.

This investment is typically required for expenses such as office space, equipment, staffing, product licensing fees, and promotional materials. In addition, it is important to have sufficient funds available for working capital to cover expenses until revenue starts coming in.

Minimum investment required to start a Pharmaceutical Manufacturing Company

The minimum investment required to start a pharmaceutical manufacturing company can vary widely depending on the size and complexity of the operation, the type of products being manufactured, and the location of the facility. In general, however, it is recommended to have a minimum investment of at least INR 2-5 crores in India, which is roughly equivalent to USD 300,000-700,000.

This investment is typically required for expenses such as land, building, equipment, machinery, raw materials, utilities, labor, regulatory compliance, and quality control. In addition, it is important to have sufficient funds available for working capital to cover expenses until revenue starts coming in.

Check out: How to start a pharmaceutical company?

Types of Investments

Now 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.

Inventory Investment:

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 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.

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.

Fixed Assets:

• Office Building (B) if owned
• Office Furniture and Accessories (A)
• Computer and Electronic Equipment’s (C)
• Fitting and Furnishing (F)
• Investment at licenses and documents (L)
• Other Requirements (X)

If we take approximate value for all above investments i.e. Office Building (B) – 20 Lakh, office Furniture and Accessories (A) – 1 Lakh, computer and Electronic Equipment’s (C) – 1 lakh, Fitting and furnishing (F) – 1 lakh , Investment at licenses and documents (L) – 50000/- , others – 50000/- then Fixed capital investment will be 20 lakh + 1 lakh + 1 lakh + 1 lakh + 50000/- + 50000/- = 24 Lakh.

This investment in marketing company could be prevented. Office building investment can be prevented by taking rented office. Office accessories, fitting, computer and other requirements can be prevented by keeping office simple and with minimum requirements fulfillment. Licenses charges may be only thing you can’t avoid.

Liquid Assets:

• Office Staff Wages (O)
• Rent if applicable (R)
• Bank Loan installments and related expenses (I)
• Promotional and Marketing (P)
• Other expenses (J)

Liquid assets in pharma marketing company could also be minimize by keeping expenses to only necessary things like staff you can avoid in starting by doing everything yourself, taking office at low rent place and so on. This are monthly, weekly or daily expenses and can be minimize at any extend.

If we take approximate value then office staff wages (O) – 50000/-(if you have staff), Rent (R) – 4000 to 50000/- (any value depend at locality and size of office), Bank loan installments (I) – 20000/- (depend at how much loan amount you have or not), promotional and marketing (P) – 30000/-, other expenses (J) – 20000/- so operative capital investment be 50000/- + 4000/- + 20000/- + 30000/- + 20000/- = 124000/-. at monthly basis.

It will be needed by you till you company start to generate enough money to so these expenses can be covered by its profit. Suppose you will require 6 month for your marketing company to come in profit i.e. 124000*6 = 744000/-

Inventory Investment:

• Stock Investment (S)

Stock is the main investment for pharma marketing company. Third party manufacturers make a certain fixed minimum quantity for any product. So, you need to get manufactured that quantity for every product, you want to launch.

Suppose you want to launch 10 products and each has tablets/capsules and minimum order quantity is 300 box then we are taking approximate value of all product manufactured is 10 lakh. Value may be high or less depend at many things. Check video to know more details about product wise investment

Fixed Capital Investment= B + A + C + F + L + X

Operation Capital Investment+ O + R + I + P +  J

Total investment for pharmaceutical marketing company is 24 lakh + 744000/- + 10 lakh/- = . 4144000/-

Marketing Strategy and promotional methods are almost same for marketing and manufacturing companies. So there marketing and promotional expenses are almost same.

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).

Check out: How to set-up pharma manufacturing company?

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.

Fixed assets:

• 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)

Fixed Capital Investment = L+ B + H + A + F + M + E + W + C + I + R

If we take approximate value for all above investments i.e. Land Cost – 50 Lakh, Complete Building set-up including air lock + fitting + electricity + water supply – 1 crore, HVAC – 8 lakh, machinery – 40 lakh, compressed air supply – 5 lakh, licenses and formalities – 5 lakh, others – 10 lakh then Fixed capital investment will be 50 lakh + 1 crore + 8 lakh + 40 lakh + 5 lakh + 5 lakh + 10 lakh = 2.18 crore rupees.

This are fixed investment and will cost one time or at certain period of time. Investment may be less or more depending upon various factors. If you don’t own land and building, and start at lease or rent then land and building cost may be prevented.

Liquid Assets:

• 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)

Operative Capital Investment = S + N + H + T + I + P + J

Approximate value at monthly basis we put in above formula i.e. Skilled staff wages – 1.5 lakh, Non-skilled workers wages – 90000/-, Repair and maintenance – 50000/-, Rent if land is not owned – 50000/-, Bank loan installments if loan – 1 lakh, Promotion and marketing – 50000/-, other expenses – 50000/-.

So, total monthly cost for liquid assets will be 1.5 lakh + 90000/- + 50000/- + 50000/- + 1 lakh + 50000/- + 50000/- = 540000/-. Like wise fixed investment, liquid investment may be affected by various factors.

Capital investment is required till business reaches at break even point. We assume it take 6 months to reach your medicine manufacturing plant at break even point. So, operative investment will be 540000*6 = 3240000/-

Inventory Investment:

• Raw Material, Packaging Material Stock (R)
• Credit in Market

You have to stock raw material i.e. active pharmaceutical ingredients and excipients. Along with it, you have to invest in market to sell your products. Here approximate value is raw material stock – 10 lakh and credit in market – 20 lakh. So, inventory investment will be 30 lakh.

Total investment for pharmaceutical manufacturing company is 2.18 crore + 3240000/- + 3000000/- = 2,80,40,000/- i.e. 2.80 crore.

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.

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 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
• Secondary 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.

Factors affecting investment for pharma company:

Land Cost:

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.

Rent:

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.

Monthly Expenses:

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.

Promotional Inputs:

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.

You can also read here about- how much money you require for 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:

Related 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.
Please advice.

Response 1: 

You want to start pharma business and sell products from your name and thinking about starting your own Pharma marketing company.

1. 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.

1. 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

1. 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.

Query 2:Estimate Budget for Pharmaceutical Marketing Company!!!

Query 3:How much cost required to set-up pharma marketing company office?

Query 4:I want to start my own pharma company with multivitamin, iron and calcium. Please send me the budget.

Query 5:How much cost required to set-up pharma marketing company office?

Query 6:What will be budget for pharma company, please guide us !!!

Query 7:I want to start a pharma company with two products

Query 8:I want to start pharma marketing company. I want to know of budget of starting business

You will also need to find out price to retailer/price to stockist read here…

Hope this article is helpful for you to calculate investment required for starting pharmaceutical company.

For any query and suggestion mail us at pharmafranchiseehelp@gmail.com