India mobilizes resources to secure pharmaceutical prowess

As the curtains rise on India’s audacious plan to overhaul its pharmaceutical sector, the nation is poised to not just shake the foundations but reconstruct the entire edifice of its drug production landscape. 

 India has been taking sweeping measures to extricate itself from the clutches of dependency on foreign-sourced raw materials – specifically from China, which has long been the lifeline of India’s API supply chain. The government is striving to clip this over-reliance by 25% come 2024. 

 Ranked third globally by volume, India’s pharmaceutical industry is a key player in the international market, supplying 3.5% of the world’s total drug exports. Notwithstanding this, the industry is heavily dependent on China for active pharmaceutical ingredients (APIs), which make up approximately 70% of India’s API imports. 

 In the fiscal year 2021-22, while India’s pharmaceutical exports were valued at $21.42 billion, the nation also imported APIs worth $4.31 billion, thereby raising concerns of over-dependence on China amid worsening geopolitical tensions in the region. 

 A report by rating agency ICRA Ltd accentuates the gravity of the situation, indicating that specific APIs, such as Penicillin and Erythromycin, are almost entirely imported from China. This leaves India vulnerable to supply-chain disruptions. 

 The ICRA report said that in FY22, India’s API imports, mostly from China, constituted 35% of its total requirement.   

Vinay Pinto, executive director at Wallace Pharmaceuticals, one of India’s leading manufacturers of antimalarial drug Hydroxychloroquine, said: “India must improve its self-reliance by manufacturing fundamental KSMs (key starting materials) and bulk drugs, such as Penicillin-G, right here in India. This will improve India’s competitiveness and ringfence the Indian pharmaceutical sector from black swan events like the Covid-19 pandemic and the Ukraine war that affect prices and supply chains.” 

 The manufacturing procedure for API encompasses fundamental elements called key starting materials, or KSMs, and product intermediates. 

 The allure of Chinese APIs has historically been cost-related. China’s dominance in the sector, accounting for 40% of global supply, is supported by economies of scale, government incentives, and lower operational costs, which have made it difficult for Indian manufacturers to compete domestically, the ICRA report said. 

 To address the issue, the central government introduced the ‘Promotion of Bulk Drug Parks’ scheme as part of its 2020 budget. A substantial $3.67 billion was earmarked for the establishment of three bulk drug parks and four medical device parks. 

 The Department of Pharmaceuticals of the Indian government subsequently gave its preliminary approval to proposals submitted by the state governments of Himachal Pradesh, Gujarat, and Andhra Pradesh for the creation of these parks. 

 These parks are designed to be equipped with state-of-the-art infrastructure and facilities such as testing laboratories, effluent treatment plants, and storage spaces, which will provide a conducive environment for fostering the growth and development of the domestic API industry. 

 Dr. Anamika Gulati, assistant professor, Centre for Studies in Science Policy, Jawaharlal Nehru University, told Press Insider that the central government’s financial support to three states to construct bulk drug parks comes as a big boost for the sector.  

 “This sector is now banking on the pharma parks being established by the government to minimize India’s reliance on imports, majorly from China,” Dr. Gulati said. 

 These concerted efforts signify a crucial juncture for India’s pharmaceutical industry. 

 Over the past decade, the foreign direct investment (FDI) policy in India’s pharmaceutical sector has seen major changes. The reformed regime currently allows 100% FDI for greenfield ventures through an automatic route. 

 Greenfield investments refer to the creation of new facilities, such as manufacturing units, along with obtaining the necessary licenses for industry operations. On the other hand, brownfield projects, which consist of investments in pre-existing facilities, require explicit approval from the government before proceeding. 

 Deepak Jotwani, assistant vice-president and sector head at ICRA Ltd, spoke about the recent supply chain disruptions due to the pandemic and geopolitical tensions.  

 “The Indian API industry has faced various headwinds such as rising input costs (raw materials, freight, and energy), forex volatility, and supply chain disruptions…resulting in a sharp contraction of 550-600 basis points in the operating profit margins…to ~13% in FY23E (fiscal year 2023 estimate) over ~18.7% in FY21,” he said. One basis point is one-hundredth of a percentage point. 

 Jotwani is optimistic that easing disruptions and stabilizing costs will see an improvement in profit margins in FY24. 

 Incentives are also afoot from the central government, including a production-linked incentive (PLI) scheme, which, alongside schemes for promoting locally produced APIs in government procurement, is poised to further invigorate the API industry. 

 ICRA forecasts the Indian API industry will grow at a compound annual growth rate (CAGR) of 7-8% over the next three to four years. This estimation factors in the growing elderly population, prevalence of chronic diseases, and diversification away from China. 

 Dr. Gulati said, “Through bulk drug parks and the PLI program, local businesses would have expanded domestic manufacturing to $520 million by 2025.” 

 She added that the government has earmarked around $2 billion in incentives for both domestic and foreign companies to manufacture 53 APIs, with big pharma companies such as Sun Pharmaceutical Industries and Aurobindo Pharma already on board. 

 The next frontier, Dr. Gulati said, is innovation. She advocates for increased research and development (R&D) spending by leading pharmaceutical companies, which is pivotal for India to solidify its status as the world’s pharmacy. 

 This multi-pronged approach not only seeks to cultivate a self-sufficient pharmaceutical industry but also holds the promise of innovative pharmaceutical products that leverage India’s healthcare acumen. 

 Indian businesses and embassies abroad, especially the US, are doing their bit to woo global investors to take advantage of the government’s production-linked plans.  

 Moreover, the Indian Drug manufacturers Association (IDMA) has collaborated with the US Food and Drug Administration (USFDA) in the past to help Indian pharmaceutical companies understand regulatory norms and adopt modern manufacturing technology. 

 Currently, under the PLI scheme for domestic manufacturing of KSMs or drug intermediates (DIs) and APIs, 51 projects have been approved, 14 of which are already operational. 

 While navigating through the complexities of reducing import dependencies and enhancing domestic production, India’s pharmaceutical industry is locking horns with time and competition. Government-backed initiatives such as bulk drug parks and production-linked incentives are acting as catalysts for change, while industry leaders make a clarion call for innovation. 

 But experts, including Dr. Gulati and Pinto, caution that tangible results and global competitiveness will not happen overnight. 

 “Even though many PLI scheme projects have already broken ground, they will take at least 3 to 5 years to show results and about double that time to be globally competitive,” Pinto said.  

 It’s crucial for the stakeholders to remain vigilant and adaptable in an ever-evolving landscape. As Pinto noted, protective measures for domestic drug manufacturers are indispensable until they mature. 

 Dr. Gulati said that the steps taken are expected to pave the way for a more resilient pharmaceutical industry that can weather external supply chain disruptions. Moreover, it could spur the development of innovative pharmaceutical products that leverage India’s vast healthcare talent pool and knowledge repository. 

 Simultaneously, global partnerships and collaborations are in the spotlight as IDMA aligns with the US drug regulator, paving the way for better understanding and adoption of modern manufacturing technology.  

 This collaboration will play a crucial role in ensuring that Indian pharmaceutical companies not only understand but also meet international regulatory standards, analysts said. 

 With a multifaceted approach that encompasses financial incentives, infrastructural development, global collaborations, and a vigilant eye on market dynamics, India’s pharmaceutical industry is poised for a metamorphosis. Whether this metamorphosis translates into the envisioned self-sufficiency and innovation remains to be seen. 

 As the world watches, India’s pharmaceutical sector is charting an ambitious course. The stakes are high. With resilience, innovation, and strategic collaboration as its arsenal, India looks set to script a new chapter in pharmaceutical self-reliance.