As India Pharma Inc reels under the far-reaching impact of the coronavirus epidemic, industry experts suggest policy reforms to insulate the sector and improve its emergency-preparedness By Usha Sharma
The novel coronavirus pandemic (COVID-19), which began with an outbreak in China, has killed over 4,990 people worldwide and the death toll is increasing constantly. With over 120 countries affected by the virus, this threat has put a dent on the global economy as well. The COVID-19 pandemic’s impact on India Pharma Inc too will be mammoth in stature.
One of the most signifcant impact will be the lack of availability of key raw materials for the pharma industry. Presently, the Indian pharma companies who lead the global generic business markets are largely dependent on China for up to 90 per cent of their APIs imports, and they stock a maximum six months worth market requirements. The Indian regulatory agency anticipates that 50 plus APIs of crucial antibiotics, vitamins, and hormones or steroids could go out of stock in case of a prolonged lockdown in China. Also, the sector is already witnessing a rise in prices of several key ingredients which will certainly disturb product availability in the market.
According to Pharmaceutical Export Promotion Council (Pharmexcil) reports, there has been a rise of nearly 40 per cent in the cost of paracetamol from Rs 250-300 kg to 400-450 kg. ‘Montelukast sodium’ (an anti-asthma drug) is now trading between Rs 52,000 – 58,000 per kg, compared to Rs 33,000-38,000 per kg a few months ago. Similarly, the prices of vitamins and penicillin have increased by 40-50 per cent and the majority of the vitamins are trading at double or triple the original price. The cost of azithromycin – an antibiotic used for curing various bacterial infections – increased by 70 per cent. The companies may end up exhausting most of their stock of active ingredients for high-demand drugs like paracetamol and ibuprofen in another two to three months. There are also fears that an artificial shortage of essential drugs might get created in the market.
All these factors have pushed regulators and government authorities to hold several brainstorming meetings with pharma stakeholders. For instance, last month the central government formed a committee to monitor the availability of drugs in India. The committee, led by Joint Drugs Controller Eswara Reddy subsequently asked drug-makers across India to inform the government if they required urgent ‘pick-ups’ from China. To this, Cipla wrote back with a requirement of six tonnes of raw material primarily comprising of active pharmaceutical ingredients (APIs) and key starting materials. Following this request, the central government promised to help Cipla import cargo weighing six tonnes from China, most likely by a flight run by Cathay Pacific from Hong Kong at the earliest.
Thus, the authorities are trying to tackle these challenges but the situation has reiterated how important it is for India to become more self-reliant. Though 2015 was declared by the Government as ‘Year of Bulk Drugs’, unfortunately nothing concrete happened on that ground. After that too, several attempts have been made by the pharma industry to make India self-reliant at the API front. There were also concerns that political relations between India and China and the trade wars between US and China could affect the pharma industry adversely.
However, there are hopes that this crisis will offer some silver linings in the form of learning opportunities and expedition of policy reforms. This, in turn, can eventually boost the process of India becoming more self-sustainable. In this light, industry stakeholders share their views on how COVID-19 may prove to be a turning point in the Indian pharma industry.
‘Need to adopt a strategy to make India self-sufficient in KSMs, intermediates and APIs’
In terms of imports from China, India is vulnerably dependent for imports of key starting raw materials (KSMs) like Penicillin G, 6APA, 7ACA and lot of APIs. In all 600 such molecules are being imported in India out of which 58 are imported from China only and out of 58, 12 are imported from Hubei province where Wuhan Coronavirus
affected city is located. We’re confident through our suppliers and sources in China that areas in access of 500 km from Wuhan City will start dispatching KSMs and APIs in two to three weeks. Wuhan city might take eight weeks or thereabouts to bring about a semblance of normalcy to some extent. Therefore, 16 molecules will be affected to a larger extent such as certain antibiotics like Chloramphenicol, Erythromycin, Azith-romycin, Clarithromycin, Amoxicillin, Vitamins A B, E & C & E, hormones like Progesterone, Metronidazole etc.
India may have to go slow on exports of formulations based on these molecules so as to ensure adequate supplies for India irrespective of other international commitments. In case of such commitments to the foreign suppliers, force majeure clause can be initiated.
COVID-19 is a wake-up call for India and we need to adopt short, medium and long term strategy to make India self-sufficient in KSMs, intermediates and APIs. As a short term measure, GoI may incentivise MSMEs and certain large companies which were earlier API producers but stopped producing on account of Chinese companies dumping at the below variable cost. With new scenario, they can be incentivised to restart old plants which were shut down. Assessments can be made through DoP and Ministry of Commerce, Pharmexcil, IDMA and other recognised bodies to ensure that genuine manufacturers are incentivised.
As midterm measures, existing clusters in states like Telangana, Andhra Pradesh, Maharashtra and Gujarat should be fast-tracked in terms of manufacturing KSMs, intermediates and API’s on SOS priority basis on China parity both in terms of financing at Libor + 1.5 per cent and non WTO conflicting incentives to promote manufacturing for APIs at reasonable profit and RoI approximately 10 per cent or thereabouts. Clusters may be expanded from current size 100-200 acres to 500 acres wherein in China clusters are in region 4000 to 5000 acres with complete assistance from the Chinese government both in terms of moratorium on interest for five years, as well as various incentives to promote exports andself-sufficiency for the domestic market.
A suitable work plan can be provided to GoI for this purpose as a long term measure. Keeping in mind the long term objectives, a moratorium period for the first five years should be provided on principal and interest. With significant volumes and ascendancy over China all over the world, both interest and principal can be paid off and became larger suppliers of all these three verticals not only for domestic sufficiency but also for current exports $22 billion estimated in 2021 can go to $50 billion or more in the next four to five years.
“We have a chance to improve the Indian API sector in the coming years”
Although the Indian pharma industry has an edge over China in production of pharma formulations for domestic and international markets, India still needs the support of China for the supply of a good number of APIs and intermediates for making the formulations.
Due to coronavirus impact in China, there have been delays/suspension of supply of APIs to India, which are very important for our formulations, particularly, antibiotics, hormones and vitamins. At this point of time, it has become difficult to estimate how long this situation is going to continue.
All along, the Indian pharma industry has been requesting the government for providing supportive measures for the development of API sector in India to compete with China. Although the intention of the Government has been positive, the response has been slow. The year 2015 was declared by the government as ‘Year of Bulk Drugs’, but nothing concrete happened on the ground. Now, due to the impact of coronavirus, leading to a possible shortage of medicines, the Government has come into full gear to look at the possibilities of boosting the Indian API
The government is also considering clearing of bottlenecks for getting quicker environmental clearances. If the
government is able to announce a package quickly for the existing as well as the new API industries, in the form of soft loans, capital subsidy, power subsidy, interest subsidy and other support, besides speedy environmental clearance, we have a chance to improve the Indian API sector in the coming years, although it may not meet the immediate requirement due to paucity of time. To meet the immediate requirements, we need to consider imports of raw materials from non-affected areas of China as well as doing any short term measures to increase the production of APIs in India. A short term measure for API production can be in the form of lifting environmental restrictions and allowing Indian manufacturers to produce any raw material if they are within the the approved pollution load.
“Old PSUs should be revived to produce antibiotics like Pen G”
These are challenging times for the Indian pharma industry and the Government of India,and they need to do an analysis about the sudden shortage of APIs and intermediates due to the Coronavirus pandemic. We normally wake up when there is a fire in the system and that is what has happened this time. The industry, as well as people at large, have been expressing concern for a number of years to reduce the dependability on one particular country for Key Starting Materials(KSM), Intermediates, and many of the APIs but nothing concrete has happened over a period of more than a decade or so.
A ray of hope was seen in 2015 when the Government of India declared that particular year as ‘Year of API’ and to that extent. Many interactive sessions and workshops were also conducted by Department of Pharma with BDMA as well as with IDMA but the unfortunate part is that during those sessions, nothing happened. Now it is a blessing in disguise that the government and industry have realised the importance of strengthening domestic API industry and DOP as well as Ministry of Commerce and NITI Ayog has felt the pain and took immediate action.
The main concern is the availability of the products whether it comes from abroad or within the country. As everyone is aware, India is the capital of diabetes and around 10 per cent population is suffering from this illness. Metformin is a well-known dose for the treatment of diabetes and hundred per cent of its intermediates are depended on China.
Similarly, most of the antibiotics, vitamins, hormones and steroids salt also are sourced from China alone. The issue which we all have to understand is the Question of National Security. If suddenly, due to any reason, supplies are stopped, then what is going to be the fate of patients of the Indian population? It is high time for the industry and the Government to sit together and start reducing dependability on China, category wise. It is practically not possible for the government to suddenly develop the production of such molecules locally but category wise product range can be shortlisted and dependability can be slowly and gradually be reduced. The second option is that old PSUs should be revived to produce antibiotics like Pen G etc. It may not be viable for those units to produce the product at the cost on which China is producing because of technology, because of tariff of power and because of the economy of school. However, our country can afford to subsidise the product to some extent.
Another method is to have a PPP model. Government, PSUs and the private sector can join hands and start production of sensitive items. An ordinary product like paracetamol cannot be manufactured in India without its intermediates which are hundred per cent being sourced from China. Another solution to this problem is to allow an increase in the existing capacity of all the APIs if the pollution load is not going to increase. At present, the Environmental Ministry has allowed 50 per cent increase in the production but why to have such a cap on percentage. It should be limitless. Such a decision will give a breather to the industry. Secondly, permission is granted by EC product-wise whereas industry demand is to give permission category wise. This will also give a sigh of relief to the nation. Industry- academia collaboration is also lacking. Academia is capable to develop new technology but some agency has to arrange their tie-up with the industry with budget allocation. To sum up, we need the following action plan immediately to reduce the risk factor:
1.Industry Academia collaboration
3.To have PPP model of Govt, Pvt and PSU
4.To allow increase in the existing production to any extent if pollution level is same.
5.To grant permission category wise and not product wise.
6.To arrange tie up with other countries like Italy etc. instead of keeping all eggs in one basket.
7.To accept some of the recommendations of Dr Katoch committee to start with.
Nation first, National security second and profit or loss at the last should be the motive of the Government and Industry.
“Domestic competition should be encouraged in case of fairly improved technology implementation”
“I trust enough time has already been lost discussing the dependence on intermediates and APIs, on China. Instead, it’s time to execute the well-framed policies and investments in this area as it’s fructification shall take time.
Being capital intensive and because of delayed economic returns, the companies need protection against unfair domestic and international competition. At least domestic competition must be fair and allowed while ensuring comparative compliances including EHS, before providing product-specific clearances for manufacture. In other words, domestic competition should be encouraged in case of fairly improved technology implementation and respect for IP. Many manufacturers of the same API/ Intermediate in small capacities will never do good for the industry as a whole.
The support for current manufacturers and encouragement to expand should yield quicker results. The operating organisations carrying skills and need shall be in the best position to upscale/ expand. An intelligent balance of regulatory expectations of audit agencies can be equally important, to either loose economics or business. Most of the time, companies either want to be over safe (defensive environment and less attractive economic returns) or lack control to demonstrate compliances as expected (risk of observations/ warning letters by audit agencies ). Smart manufacturing solutions, leading to reduced plant costs, and containment of operational costs, are critical for the sustainability of economics and businesses. ”
“We should look at reviving the plants which have shut down”
Corona Virus Pandemic and resultant lockdown in China has exposed the vulnerability of India Pharma. Over the years, dependency on China of APIs and KSM has become such that we have forgotten the simple management principle of spreading out our vendors geographically. More than 70 per cent of our requirements were met by a single country with whom we do not have very friendly relations. It is always known that it is going to be a strategic risk but the country chose to ignore it for the simple reason that we are getting APIs and KSM at relatively low cost.
India used to be a powerhouse in APIs but many plants shut down due to non-viability in the face of Chinese competition. Whatever is already running are dependent on China for KSM and Intermediates. China does not have a great formulation Industry but off late it has changed gears. Formulation Industry in China is on overdrive and they have got their act together. It will be a great Strategic Risk not only for Indian Pharma Industry as well health economy of more than 1300 million Indian population if China decides to stop the export of APIs and KSM to support their formulation industry.
At this moment in a short term we cannot do much but watch the situation unfolding in china and how they revive the production to meet the global shortfall of API. At the most what we can do is airlift the supplies from China, but this will be unviable for low-value items like Paracetamol, Metformin, Aspirin, Diclofenac etc. Supplies need to get normalised in the next couple of weeks, which looks highly unlikely as per the present scenario. If not, we are heading for tough times. Already prices of key APIs have skyrocketed. Supplies to government institutions have the potential to be badly hit depriving poor patients of medicines.
As a formulator, we cannot increase our MRP due to DPCO restrictions. Formulations supplied for government supplies are bound by rate contracts. It is an unprecedented situation. In medium term, we should look at reviving the plants which have shut down and are lying idle. The existing players should expand their capacities. We could also look at countries other than China to source APIs, registration for which should be done on fast-track.
However, what we need is a long term planning to become self-reliant. It is unsustainable to have a third-largest by volume US $40 bn world-class formulation industry exporting products to all nook and corner of the world dependent on imported APIs. Corona Virus is a wake-up call and I hope all the stake holders work together to build a robust world-class home grown API industry. The Government should also pitch in with some proactive approach. Some of the measures I feel should be taken are:
1. Ease of doing business with respect to implementation of environmental laws. Currently, environment clearance for a bulk drug plant takes anywhere between 12-24 months. This needs to be within a reasonable time of say 60-90 days. If the quantity of effluent remains same, product-wise NOC needs to be done away with.
2. Department of Pharmaceuticals has the scheme to assist Bulk drug park offering up to Rs 100 crore in grants. But this is available only to parks developed by State Govt Agencies. The scheme needs to be extended to Private Parks as well those on PPP model.
3. Special encouragement should be given for ZLD plants.
4. Bulk drug industry is capital intensive and so we are at a disadvantage since comparatively, our interest costs are high. Liberal Capital Investment Subsidy scheme is needed since bulk drug manufacturing is going to be an import substitute.
5. Electricity tariff subsidy of Rs 2 per unit should be introduced.
6. Export credit at libor rate of interest
7. Anti dumping duty should be imposed where it is findings that there are hidden subsidies violating WTO norms.
1. Setting up of R&D and Innovation Centres to help startups to carry out their work before investing in the plants.
“Government should support in setting up mega API SEZs”
India is facing a difficult situation in the importing API from China due to the Coronavirus impact. In this tough situation, not just the government, but all stakeholders including industry, hospitals and healthcare professional must come together to face this challenge. CDSCO office is playing an essential role in overseeing our country’s medical products as part of its vibrant mission to protect and promote public health in India.
As a short-term solution to immediately address this challenge, the following could be implemented:
Product Supply Chain Surveillance: The Coronavirus outbreak may further impact the product supply chain, including potential disruptions to supply or shortages of critical medical products in the country. This could be due to reason of shortage of API or finished product. Before situation worsens, the regulatory office could reach out to manufacturers as part of a proactive approach to identify severe shortages of API or products. This would help to monitor the situation and take actions as per the current situation in consultation with manufacturers. This can also be achieved through networking with manufacturer trade associations.
In addition to manufacturers, it would also be advisable to keep in touch with other country regulators like US FDA, EMA, Health Canada etc. to assess and monitor for indications and early warning signs of potential manufacturing discontinuances or interruptions due to the outbreak in respective countries.
Expedited route for development and approval: This is important to find a drug which can diagnose, treat and prevent this disease. There should be an abbreviated pathway for the development and approval of this drug in the country. There should be technical assistance, regulatory advice, and guidance to advance the development and availability of vaccines, therapies, and diagnostic tests for this novel virus.
Evaluate API and finished product export: To prevent a shortage of API and product in future, the government should continuously monitor the situation for export. Long term solution: Local manufacturing plants to increase production capacity for these lifesaving drugs. On consultation with CDSCO office, local manufacturing plant can increase production capacity for these lifesaving drugs. As situation requires, it’s advisable to use all available tools i.e. increase batch size, increase production shift and alternate supply to react swiftly and mitigate the impact to Indian patients.
Abbreviated pathway for API import registration and license fees: Currently in India, for API Registration Certificate registration (RC), it’s the same registration pathway as the finished product. So, it becomes difficult for small scale industries to register API for import because of extensive documents requirements and finance issues. Hence there are limited companies/vendor apply for Registration application of API. If there would be an abbreviated pathway for API, there would be more companies who would register and then it would less likely to have API shortages.
Capacity building for government PSU’s: It would be important to do capacity building of government PSU’s for these critical APIs. Set up of SEZs and tax favourable environment for local API manufacturing. The government should support and create an enabling environment to set up mega API SEZ’s having common facilities for pollution control, effluent treatment, single window clearance and giving tax favourable environment.
We need to introduce policy measures which will enable local manufacture of APIs
According to estimates by the WHO, China boasts 20 per cent of the global API output. The Medicines and Healthcare Products Regulatory Agency of the United Kingdom estimates the figure to be twice that. They vary because there is no reliable registry of APIs. However, there is no denying that China dominates the market by a significant margin.
They export to over 70 countries in North America, Europe, Asia, and Latin America. In the event of global trade disruption, as is the case with the coronavirus outbreak, it would be extremely difficult for foreign suppliers to replace Chinese APIs. Pharmaceutical producers, buyers and traders should be preparing themselves for potentially far reaching supply disruptions. The delay in production could end up affecting deliveries in the second quarter of 2020. We are talking about life-saving antibiotics and surgical drugs. Manufacturers of generic drugs in India have built a sizeable pharma industry that has been instrumental in lowering the cost of many life-saving drugs. In the process, we also ended up becoming the largest importer of Chinese APIs. We depend on them for 80 per cent of APIs and other chemical intermediaries. So unless they make provisions for alternate sourcing, there is going to be a considerable shortage in supply. In the long run, we also need to introduce policy measures that will enable local manufacturing of medicines and their key ingredients. They are a strategic asset to our healthcare industry and we cannot rely on China for a lion’s share of our supply.