The Indian pharmaceutical industry is one of the major contributors to the Indian economy and it is the world’s third-largest industry by volume. The Indian pharmaceutical industry’s success can be credited to its world-class capabilities in formulation development, entrepreneurial abilities of its people, and the vision of its business leaders to establish India’s footprint in the United States and other large international markets.
The generics industry plays a critical role in enabling enhanced health outcomes throughout the world with the availability of affordable and high-quality generic drugs, achieving 60 per cent of global vaccine output; approximately 40 to 70 per cent of the WHO’s demand for vaccines comes from India for Diphtheria, Tetanus, and Pertussis (DPT); Bacillus Calmette-Guerin (BCG); and measles. As per the estimates, approximately one-third of all the pills consumed in the US are made in India, while approximately 25 per cent of the medicines consumed in the UK are produced by Indian manufacturers. African countries with access to affordable Indian drugs have seen an increase in the number of people receiving treatment for AIDS, and 37 per cent of AIDS patients in 2009 received treatment compared to just 2 per cent in 2003.
As the world’s top supplier of bulk drugs and formulations, Indian pharmaceutical plants consistently attract the highest number of FDA approvals outside of the US, and the country submits more than 40 per cent of all global abbreviated new drug applications (ANDA). As the Indian bulk drug industry has grown, it has progressively evolved from manufacturing simple molecules for active pharmaceutical ingredients (APIs) to becoming a preferred source for premium APIs with high value. With a focus on utilising skilled manpower and low-cost operations, the industry is ranked third globally, next only to China and Italy.
India’s Import Dependency on China for APIs
In spite of India being one of the top manufacturers of formulation drugs, its pharmaceutical industry heavily relies on bulk drug imports. Over time, Indian companies progressed to the formulation part of the value chain that is considerably more profitable than API. A majority of the total Indian pharmaceutical market is made up of formulations, with bulk drugs accounting for less than a quarter of it. According to the data import reports, of the total of India’s import of APIs, the dependency on China is for about 65 per cent–70 per cent of the APIs. As there is a high import dependency on a single nation, there is always a risk of price volatility and supply disruption, which in turn could lead to rise in the prices of formulation drugs. To overcome this challenge, Indian manufacturers should opt for building their own API production units.
In 2020, disruption of global supply chains was already apparent due to COVID-19 pandemic. Several API prices have spiked in response to this pandemic, which might disrupt the supply of medication in the country. Supply chain interruptions affected small industrialists more compared to the larger firms, and antibiotics and vitamins were the most affected areas of the drug portfolio. Various stakeholders are worried about the current scenario, including the government, industry, and end consumers. The health security issue concerns the government; the industry is concerned about the increase in prices and the shortage of raw materials; and the consumers are concerned about fake drugs. In API production, raw materials, labour, utilities, logistics, and financing are major cost factors. Despite labour being significantly cheaper in India, we lose heavily on all other equally important cost heads, which are more expensive in India.
Challenges as a Roadblock
The pharmaceutical and bulk drug industries are regulated by multiple regulatory bodies, either directly or indirectly. Multiple decision-makers can make it more difficult to resolve challenges pertaining to regulations. In addition to the lengthy timetables (about two-three years) and the voluminous approvals (about 20-25 approvals), there are multiple stakeholders involved in the approval process.
To make medicines affordable, the price control strategy has listed around 350 drugs under the National List of Essential Medicines (NLEM); this has also unfavourably affected the bulk drug industry. The manufacturers of the drugs listed in NLEM are not allowed to increase the selling price of these drugs even if there is rise in cost of raw materials and in order to protect their margins, companies opt to import cheaper raw materials from China.
Steps to Win the Battle
India’s capacity to manufacture many bulk drugs has been gradually eroded by imports. In the past, India had the capacity and capability to manufacture many APIs locally (as they are imported today). Unfortunately, as low-cost imports became more prevalent, many of these APIs industries were closed. Cheaper imports brought about a reduced tax revenue and reduction in employment opportunities. In the recent years, a number of domestic pharmaceutical companies have started to backward integrate their manufacturing of APIs. Nevertheless, India can reduce its dependency on imports only if it manufactures APIs/intermediates efficiently and sustainably.
For this to happen, the government’s intervention and support are crucial. Additionally, a panic sprang up during the second wave of the pandemic over the rapid spread of disease and the possible exhaustion of essential drugs. In response, India banned API exports and reversed the decision a couple of months later. To add to this, measures to combat the threat included monitoring inventory levels of critical APIs and intermediates, evaluating alternate raw material sources, as well as attempting to speed up the regulatory approval process for certain APIs in areas where capacity is available.
Further, in the face of Chinese imports, and as part of its efforts to boost domestic manufacturing of critical intermediates and APIs, a Rs 9,940 crore package had been announced by the government in March 2020 to boost domestic production and exports of bulk drugs. Within this, the government approved the setting up of three bulk drug parks costing Rs 3,000 crore and an Rs 6,940-crore production-linked incentive (PLI) package.
In the world market, quality has always been under scrutiny and Indian pharmaceutical industries were not left untouched with the impact of this increasing scrutiny. As Indian companies have recognised the importance of quality, they are now investing much more in the adoption of good manufacturing practices (cGMP) by upgrading their own facilities with process automation, installing high-quality equipment, and offering employees training and upskilling.
Besides the above listed efforts by the government, there are other initiatives which are under development stage. The Katoch Committee was task forced to provide recommendations to make Indian pharmaceutical sector independent and promote self-sufficiency. Major recommendations of the report were to establish API manufacturing clusters, financial incentives to manufacturers, tax-holiday, single-window environmental clearance, income tax benefits, and liberalise FDI policies. The draft of the Pharmaceutical Policy 2017 also proposed in favour of building the indigenous pharmaceutical sector through tax exemption, price monitoring, custom duty imposition, etc.
The Indian pharmaceutical industry and Chinese API manufacturers have been fighting a very long war, and India was losing its API manufacturing industry to China. But now, with government’s intervention, we hope to win this battle and revive the dormant API industry and make a significant contribution to the achievement of Atmanirbhar Bharat.
This article was first published on ORF.