Value Migration

Value migration - flow of economic and shareholder value away from obsolete business models to new

Adrian Slywotzky

Adrian Slywotzky’s book Value Migration: How to Think Several Moves Ahead of the Competition highlight that there are 4 Key Drivers of Value Migration:

• Customer Needs: Shifts in what customers value (e.g., cost, quality, convenience).

• Business Design: How a company structures itself to deliver value.

• Technological Innovation: New technologies that enable better solutions.

• Policy and Regulation: External forces that shape market opportunities

The 2021 revision of Schedule M underlines India’s commitment to becoming a global leader in pharmaceutical manufacturing. I think it may be catalyst of tremendous value migration from unorganised to organised players

How Big is the landscape?

Currently I understand that the backend of WHO GMP infrastructure, so there are close to 10,000 Pharma Contract Manufacturing companies in India and most of them, more than 90% I believe are not WHO GMP compliant

Everyone has to comply

The revised Schedule M under the Drugs and Cosmetics Rules, 1945, in India has specified different compliance timelines based on the size of the manufacturing companies:

• Small and Medium Manufacturers (those with an annual turnover of less than ₹250 crore): They have 12 months to comply with the new regulations from the date of publication of the revised rules.

• Large Manufacturers (those with an annual turnover exceeding ₹250 crore): They are given 6 months to implement the changes following the publication of the revised Schedule M.

This creates a clear divide:

• Survivors: Companies willing to invest in quality and adapt to the new norms.

• Casualties: Small, underfunded players who can’t meet the upgraded standards.

In this post I have collated management commentary from concalls to capture how is this migration is playing out and which companies you should dig deeper

Small players will be acquired or they risk of running out of business

so a lot of small PPL, which does not have those kind of quality cultures and others they get weeded out. So we are happy that the government is revising that schedule M and further enforcing the regulations in country - IPCA Labs

So if you see, there is an implementation of revised Schedule M, and due to this new act, new revised Schedule M, there is a stiffness in the plant guideline and so that is at par with what we can say is the international guidelines. As most of our facility is having SRA approvals like EU-GMP or MHRA or WHO-GMP, so we are complying with all these guidelines. So, we see it as a positive trigger. The industry will further consolidate to the larger players due to this implementation of the sticker norms - Innova Captab

New schedule M implemented in October 2021 –many small manufacturers may become unviable - Windlas Bio Tech

Cost of running operations will increase

it will reset the manufacturing landscape. There are some people who will have to opt out because the quality has a definite cost, and it will reset the manufacturing landscape - RPG Lifescience

recently the Schedule M GMP has also upgraded itself to the WHO GMP standards and mostof the foreign regulatory bodies are going at par with PIC/S and EU GMP level.

So, we are upgrading our plants to meet those guidelines. This is happening by the way of adding technical people as well as testing equipment, production equipment, which improve the quality of the medicine as well as the output. - Sanjivani Paranternal Limited

The third area where the cost or the challenge comes in is in maintaining. Once the standards are set up and the practices are put in, how do you actually maintain day after day the same level of quality for every product that comes out - Windlas Bio Tech

Large Indian Pharmaceutical players would have to source responsibly and from compliant players

Schedule M is leading to clients making better decisions about where they should source from.And there are more than 12,000 to 13,000 CMOs as per the market research that was published some while back. So, there’s a huge opportunity even for this upward movement where organized players should benefit. Windlas Bio Tech

Schedule M is putting focus on the quality of manufacturer who is making the product for the marketer, because now marketer is equally responsible for defects in the product.They can no longer say that I did not manufacture it. They are equally responsible, and I believe that it is leading to a change in thought process in a lot of companies who are saying that in order to comply why not go to a better manufacturer who has got a professional set up, available capacity and strong track record of delivering- Windlas Bio Tech

Contract Manufacturing are there to stay and grow

But having said that, there will be about 20%, 25% of our products, which will continue to be manufactured at contract manufacturers because, A), we might not be having those types of manufacturing facilities in-house. B) We might not be having those kind of skill sets in-house. But having said that, we ensure that the quality standards of these contract manufacturers are at par with our in-house manufacturing facilities. We have a lot of big contract manufactures, who manufacture for us, where the quality standards are as per schedule M and WHO guidelines. -Mankind Pharma

The revised Schedule M is resetting the Indian pharmaceutical landscape, raising the bar for quality and competitiveness. It’s a moment of transformation, and those who adapt will thrive, while the rest will fade into obsolescence.

As India aspires to become a global pharmaceutical powerhouse, Schedule M is not just a regulation; it’s a cornerstone of that ambition. The question now is: Who will rise to the occasion?

I think all listed players will benefit, I may or may not have positions in all companies discussed in this post. This post was written to improve my knoweldge

As Raamdeo Agrawal might say, “Every crisis is an opportunity in disguise.” Schedule M is a textbook example of value migration—a phenomenon where market value flows from laggards to leaders.

For investors, this is a moment of clarity. The companies that embrace quality will dominate. The laggards? They’ll be history.

For business leaders, this is a wake-up call. manufacturers that don’t adapt will either upgrade or vanish.

For marketers, it’s a moment of accountability. Your product is only as good as the manufacturer behind it. Choose wisely.