Growth Opportunities?
The current coronavirus pandemic has exposed certain vulnerabilities in Indian API supply chains, not least due to the country’s huge reliance on imports of both APIs and key starting materials (KSMs) from China.
According to a PwC report, the percentage of India’s API imports from China has spiked from just 1% in 1991 to about 70% in 2019, while 50% of critical APIs are being imported, with almost most of them from China.
The report says the Chinese API industry has an inherent advantage over that of India due to economies of scale and Chinese government support in the form of financial incentives, infrastructure and regulatory policies such as lower capex requirements due to large Special Economic Zones, which are 10–15 times the size of Indian SEZs.
In competitive terms, the Indian API industry is also hampered by India having higher borrowing costs (11-14% versus 5-7% in China), higher logistics costs (3% versus 1%) and higher conversion costs as labour and electricity costs in China are relatively cheaper, the study finds.
Deepak Sapra, Chief Executive Office of Dr Reddy’s API and Services business says that Indian domestically produced APIs account for 50% of the total quantity; however, KSMs for some key APIs like caffeine, chloramphenicol, azithromycin, sulfadoxine, ciprofloxacin, metformin, ciprofloxacin, levofloxacin, ofloxacin, ampicillin, amoxicillin and cephalosporins are sourced from China.
Dr. Ashok Kumar, President - R&D (Chemical) at Ipca laboratories is of the opinion that India’s growing dependence on China for APIs, KSMs, intermediates and even chemicals/solvents has been affected by “high uncertainly” owing to a strained relationship between the countries due to China’s “unsubstantiated claims of Indian Territories and regular border tiffs.”
However, India’s burgeoning API sector is not only characterised by the country’s competition with China, but also from its prominent share in the global pharmaceutical market.
Manjit Singh, Associate Director-Corporate Sustainability at Centrient Pharmaceuticals says India is recognized as the ‘Global Pharmacy’ due to its galloping share in the global pharmaceutical market and Indian API growth has been fuelled by “the entrepreneurship spirit which built the reliable supply chain with key attributes of cost competitiveness, world class facilities, innovation, speed to market, quality and regulatory capabilities.”
He adds that the growth has been augmented by the talent, availability of raw materials, ancillary services, pharma parks coupled with economic incentives, huge trust by international buyers and growing local demand catalysed by the Ayushman Bharat.
Deepak Sapra at Dr. Reddy’s says API sector growth is not only determined by the global market but also increasing domestic demand and India’s ability to meet it.
“The competitive advantage of Indian API suppliers is based on the three pillars of speed, cost and quality,” he says. “The industry has built strong capabilities in each of these three areas during the last three decades. Manufacturing sites are state-of-the-art and equipped for handling complex APIs, but capabilities go beyond pure manufacturing. India further builds on its strong R&D capabilities to address major global pharmaceutical issues.” He adds that incentivization drives from the Indian government have further driven the already ongoing investment in API manufacturing infrastructure.
“Automation and digitalization are already happening but will play a significant role in the future,” he says, adding that another aspect is robust supply.
“Companies such as Dr. Reddy’s start to pay a lot of attention to reaching self-sufficiency in API manufacturing, which goes backward from the API to the intermediates and the key starting materials. All this contributes to the robustness of our supply chains and, consequently, sustained access, availability and assurance of global healthcare systems,” he says.