Immunising India’s pharma supply chain

With China battling another COVID wave, have previous supply shocks helped immunise India's pharma procurement systems?

The more things change, the more some things remain the same. China could be in for another COVID wave in 2023, thanks to a zero-COVID policy that misfired. But, inspite of having enough warnings over the past two COVID years, India Pharma Inc seems to be heading for another shortage of key chemicals used in the manufacturing of medicines. Ranging from Key Starting Materials (KSMs), intermediates and APIs, will India once again face stockouts and spiralling medicine prices? Or, have previous supply shocks helped immunise our pharma procurement systems?

API factories in China could remain leanly manned due to ill health of staff or lockdowns. The Chinese government has reportedly moved to reduce exports of KSM/API/intermediates, seeking to stockpile medicines for its own population should the COVID cases increase. As a result, certain imports from China have already seen price spikes.

It is but natural for governments to safeguard their citizens first. India did the same during the COVID vaccination drives when vaccine makers were restrained from exporting vaccines until India’s population was sufficiently vaccinated.

On cue, tensions at the India-China border have also risen, as we head into winter. And, as China has stopped reporting daily COVID cases, there is no way the world has accurate information or insights on how the country is coping with the virus.

There are already warnings of the weak links in the pharma procurement chain. Reports suggest that 90 per cent of India’s antibiotics are still sourced from China. Some progress has been made, but these will take time to mature. For instance, 51 companies have projects approved under the Production-Linked Incentive (PLI) scheme, which was launched in July 2020. But, to date, just around 25-30 per cent of these pharma companies have started projects. These units are set to start manufacturing operations only by 2023-24, meaning that they are more than a year away from making any meaningful contributions.

Pharma manufacturers blame the slower-thandesired takeoff of the PLI scheme on the convoluted process of getting approvals from multiple departments to start a pharma plant. This is understandable as the pharma sector does have a huge pollution problem and green manufacturing processes are more expensive.

Will China’s COVID wave of 2023 serve to re-double efforts of India’s policymakers and pharma makers to tackle these roadblocks? Beyond bagging a larger share of the global move to relocate manufacturing units out of China, India’s pharma and allied companies have also made plans to diversify beyond China to Europe and other locations.

Fortunately, companies which heeded the writing on the wall, much before COVID, are already in a better place. For instance, according to Manoj Mehrotra, President-Pharmaceuticals, Hikal, the company’s efforts to be self-sufficient are finally bearing fruits. He explained that over the last two to three years, they have been looking at partners within India and other geographies that are not dependent on China. Though they are currently dependent on China for about 50 per cent of their KSMs, they intend to bring it down further in the next few years.

But, companies like Hikal cannot rest on past successes and will have to be constantly vigilant. Tweaking their strategies as per evolving geo-political events will be the norm rather than the exception. For instance, Hikal’s plans to source some chemicals from Eastern Europe suffered a setback due to the escalating energy prices and the instability of the Ukraine-Russia conflict. Even so, Mehrotra reiterates that their long-term plan, the objective is to have a robust supply chain out of India and Europe and reduce dependence on China.

India has several companies like Hikal that are vying to be vital cogs in the global lifesciences procurement value chain. Though changing gears may initially be painful, if executed right, the gains are manifold. For instance, in Hikal’s case, validation of its strategies can be gauged by deals like its multi-product 10-year contract for APIs with a global pharma company as part of the client’s supplier consolidation programme. Mehrotra indicates that there is a fair chance that they may get a few more (APIs) in the next wave of consolidation. I am sure we will get to hear more such success stories as pharma companies in India find their sweet spots.

Mehrotra echoes the views of most pharma honchos that there is a lot more that can be done on the policy front. As one example, alluding to the performance of the PLI scheme, he mentions that multi-national customers feel that in India, the environmental clearance process is slow and suggests that the government should consider giving category-wise rather than product-wise approval to various manufacturing industries. One hopes that the evolving situation in China is cause enough for India’s policymakers to critically analyse such approaches, while ensuring that the companies meet the global norms for environment protection and effluent treatment, etc.

If we do see a COVID wave in 2023, with some countries seeing similar infection rates following China’s lead, it is another timely warning to re-focus on procurement strategies and make supply chains more resilient and agile, besides relocating to more transparent and stable regimes. The good news is that India fits the bill. The bad news is that so far, the sluggish rollout of the PLI scheme in an important priority sector like pharma does not inspire too much confidence. Let us hope that 2023 is a true watershed year for proactive and strong pharma policies, starting with Budget 2023, which are industry-friendly, but also balance other compliance norms expected of a global corporate citizen.

China COVID scenarioChina COVID waveIndian pharma supply chain
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  • djamila_st

    Good post but I was wondering if you could write a litte more on this subject? I’d be very thankful if you could elaborate a little bit further. Appreciate it!