8 minute read
GOVIND K. JAJU
POSITIVE OUTLOOK
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GOVIND K. JAJU
FOUNDING PARTNER, SUINGORA CONSULTING LLP
AAs the largest provider of generics to the world, India’s pharma industry contributes to over 40 per cent of the United States’ generic demand, 60 per cent of the world’s vaccine demand and 60 per cent of the world’s HIV drugs demand. Moreover, the industry exports to almost every nation and has significant footprints in all the highly-regulated developed markets. The outlook of the Indian pharma industry for the year 2021 is very positive. This is one of the few industries which not only survived the COVID pandemic but had grown in 2020.
COVID Vaccine
India today has the distinction of being one among the five nations already manufacturing corona vaccine. The two vaccines now made in India are possibly the cheapest among those available globally and do not need special, costly storage and distribution. While these two vaccines are already in the market and being used by front line workers, senior citizens and comorbid patients, there are more in the pipeline to be approved soon. We expect 1/3rd of India’s
3bn
population will be vaccinated during the year. This is in addition to what is being exported to many developing and developed countries. Many countries have booked vaccines from Indian manufacturers.
India can expect to sell about 3 billion dosages during 2021 which will bring about US $10 billion in revenue. The recognition of the capability of our pharma industry to develop, manufacture and distribute complex formulations at affordable prices is now beyond any doubt in the global pharma scene.
Role of API
While the Pharma Industry’s dependence on China for API, AI, KSM etc., grew from negligible in 1990 to almost 70% by 2020, COVID made the government and industry realise the extraordinary risk associated with this dependence it has created itself on China. While India is recognised as the `Pharmacy of the World’, this pharmacy is hugely dependent on China for basic supplies. Tension on the India-China border provided the much-needed push to start thinking of making the pharma industry Aatmanirbhar. It is frightening to reckon that today even for the basic medicines required by masses for common ailments like Antibiotics, Analgesics, HIV, Vitamins, Cardiac medicines are majorly dependent on China. Even for the APIs made in India, we are importing Starting Materials, Key Starting Materials, Advanced Intermediates and Side Chains from China. Therefore, the formulations industry too is dependent on China and thus it may suffer a major backlash if we do not meet the gap in our API/AI manufacturing capabilities. While India has talent, knowledge, in many places infrastructure, the main reason behind our competitive weakness is the low price of Chinese products, which is sometimes even lower than the base cost of Indian produce. The Chinese API Industry has the advantage of scale, government support in terms of export incentives, low electricity cost, low financing cost, the cheaper capital cost of assets, low pollution control related cost etc. While it may not be practicable to remove all these factors entirely in the immediate future, with the realisation of this risk, government and industry have now started working together on backward integration considering issues at hand. The government has taken concrete action by way of starting an API PLI scheme and API Parks. The API PLI scheme gives a financial incentive to eligible manufacturers of identified 53 critical bulk drugs on their incremental sales over the base year for six years. Out of 53 identified bulk drugs, 26 are fermentation-based drugs and 27 are chemical synthesisbased drugs. There is a good response to the scheme from the industry with 215 applications from 83 manufacturers. The government has approved the first set of fermentation-based projects with a committed investment of Rs. 3,761 crores. 5 projects for the manufacture of Penicillin-G, 7 ACA, Erythromycin Thiocyanate and clavulanic acid have been approved. These projects are of Aurobindo, KAPL
and Kinvan as reported. The central government has decided to set up 3 Bulk Drug Parks to make the API, KSM, AI and other chemical compounds for medicines and reduce their imports from China. The pharma parks offer a great opportunity to investors by a reduction in capital expenditure and operational expenses. These Bulk Drug Parks will be set up at Rs. 14,300 crore in partnership with states. Over a dozen states including Himachal Pradesh, Telangana and Andhra Pradesh are in the race to start these Bulk Drug Parks under this scheme. Also, many API manufacturers have started backward integration exercises to reduce dependency on China. This cannot be achieved with small-time players trying to build sub-optimal capacities only to get some government subsidy. This can be achieved only by the large players in partnership with global players. And the time for that is now, not later. It is an opportune time for the Indian pharma players to look at creating sustainable competitive ability by working on ways to create alternate supply support for their formulations as well as API businesses keeping the long term in view. It needs to build capacities that bring suitable economic scale. And one must admit that support from the government, not entirely through subsidies but more from the availability of land and expeditious approvals, will indeed help the private sector to move forward in this regard more expeditiously.
“China + 1” policy
It is not that only India has now realised the risk of dependency on China for their API requirement but the global pharma industry has started working on a “China + 1” policy to de-risk their operations, thanks to COVID. Many global formulation manufacturers are now looking to add one more source where they have a single Chinese source. This opportunity should be utilised by the Indian pharma industry. Depending on regulatory requirements of the formulation importing country, the process of vendor addition takes from 6 months to 2 years and then the actual buying starts. So, you can see a positive commercial impact in 2021 and thereafter.
Other growth factors
There are going to be patent expiries of US $45 billion over the next three years allowing the Indian generic industry for incremental sales. Genericization of these molecules will help Indian manufacturers grow their sales in developed markets. The world’s biggest pharma market is the United States and 40 per cent of the US generic market is captured by Indian companies. This is the biggest achievement of Indian pharma companies. However multiple players and the cut-throat competition saw eroding of profits. We expect normalization of the price erosion in the US which will help in making the balance sheets of the Indian companies healthier.
There had been a rise in demand for certain specific drugs due to the COVID pandemic. This incremental demand is not likely to vanish completely and will remain high.
Better collaboration among industry, academia and govt.
There is a need to promote innovation for the development of complex and hitech products. That is where the partnership of industry, government institutes and academia can help. The government can help financially and also government institutes and academia can work together with the industry. Actually, DST, DBT, CSIR, ICMR and industries are working together on some projects. Academia and industry are working on making the first vaccine of its kind which the world needs and so on, however, this is not enough. India needs to do a lot more in this area compared to what is already happening globally where industry and academia work seamlessly in priority areas with major patents coming from them. The major discoveries coming out from these partnerships are seen to have the potential for commercializing, industry and academia partnerships not only creates a synergy but has a multiplier impact to develop and scale-up solutions at a much faster pace. We can also use industry and academia partnerships for working on APIs and AI to reduce their cost. One other point very relevant today is getting academia focused on key sciences. China has got where it is today, not only with govt funding but also with a sharp focus on advancement in academia. India is falling way behind. There should be investment by the government in education in life sciences to attract the best talent and train them up to meet the increasing need for skilled manpower. Not much was heard in this regard in the last few years. To promote innovation for the development of complex and high-tech products including products of emerging therapies and in-vitro diagnostic devices as well as self-reliance in important drugs, the cabinet has approved PLI Scheme for the pharma industry of Rs. 15,000 crore for promoting the manufacture of high-value products in the pharmaceutical sector. It is also expected to improve accessibility and affordability of medical products including orphan drugs to the Indian population
Conclusion
To sum up, the outlook of the Indian Pharma Industry is very positive. COVID Vaccine, “China + 1”, API Parks, API PLI scheme, cost-saving initiatives and the latest PLI scheme for the pharma Industry are good news. For the industry to retain its position as the largest generic drug supplier, it must continue improving regulatory compliance of manufacturing sites, as well as developing costeffective and high-quality manufacturing processes, reducing the dependence on the imports of APIs, key intermediates and starting materials and work closely with governments on strict implementation of pollution control norms, Implementation of DPCO, lower import duties, Anti-dumping duties and coherent working with academia and Public research labs. This will be key to sustaining its global leadership position.
