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Acing the value chain


new-viveka-100x100It is ironical that a Chinese movie seems to have done what India’s policy makers have been trying to do for many years: get China to lower the barriers for Made in India medicines. The movie, Dying to Survive, is being described as a ‘black comedy’ on how a Chinese patient with leukemia starts sourcing a cheaper version of his medicine from India and then shares this information with other patients. The film is based on the real life story of Lu Yong from China’s Wuxi, Jiangsu province. He was jailed for distributing these medicines in China as they were considered counterfeit, because the Indian brands were not registered in his country. He was released when the government was faced with appeals from his fellow patients and his lawyers proved that he had not profited personally from doing this.

Pharma manufacturers in India are pinning their hopes on statements from China’s foreign ministry spokesperson Hua Chunying. Referring to the film, she says, “That movie is about zero tariffs imposition on anti-cancer medicines in China.” Though the statement is still vague, there is hope that this is a long awaited crack in China’s stonewalling approach when it comes to opening up to imports from India, in particular IT and pharmaceuticals.

Xinhua News Agency, the official state-run press agency of the People’s Republic of China, also reported on July 9 that policy incentives would be be given to imports of daily consumer goods, medicine, and equipment for rehabilitation and elderly care. According to the guidelines approved and released by China’s State Council, the country ‘will optimize the structure of imports to support upgrading production and consumption, with tariff cuts in certain products and clean-up of unreasonable price mark-ups.’

Even though vague, the remarks come after an meeting between Prime Minister Narendra Modi and President Xi Jinping during the April 28 Wuhan summit. Both countries have since reportedly stepped up negotiations for Chinese imports of Indian rice, sugar and pharmaceuticals.

With the US market getting tougher, India’s policy makers will need to step up trade negotiations with countries like China and Japan, the next two biggest pharma markets, to ease the trade barriers.

Thus Hua’s comments and statement will certainly cheer India’s Ministry of Commerce & Industry which had recently released a research study titled, Enhancing Indian Exports of Pharmaceutical Products to China. Prepared by IQVIA, with inputs from Pharmexcil, the report outlines as many as 17 recommendations for Indian pharma companies to gain market access to the China market.

As the report analyses, today China is the largest supplier of APIs to the west while India is the largest supplier of finished pharma products. China would like to leapfrog India and focus on biologicals and large molecules which are the hardest to make and also have the most value.

As the largest manufacturer of APIs, China has a stranglehold on India’s pharma companies, as they can dictate prices of these key ingredients. India’s API policy has failed to get the desired results. Many API manufacturers in India are reportedly facing huge debts and are selling out. The most prominent example is Orchid Pharma (See editorial:

But the silver lining is that there are interested buyers for API units. Due to the strong fundamentals of the sector, larger pharma companies as well as venture capital (VC) and private equity (PE) investors are looking at APIs and pharma services as reliable bets.

For example, in early July, PE firm TPG outbid peers to reportedly acquire 40 per cent stakes in Hyderabad-based Sai Life Sciences, which provides drug discovery, development and manufacturing services. At around $ 135 million, or Rs 900 crore, this was a good deal for the promoters.

Glenmark Pharma is also reported to be looking at hiving off and selling stakes in its API business. It reportedly is in talks with PE players like Carlyle Group, Advent International and China’s Fosun International. Meanwhile, Aurobindo Pharma is said to be in final negotiations to acquire Mallinckrodt’s specialty generics business in the US. The cherry on the cake for Aurobindo would be that the deal is at a much reduced price, thanks to pressure from the Trump administration against controlled substances. But betting on a portfolio of controlled drugs is risky, given the backlash against opioids addiction. Lupin’s purchase of Gavis Pharma weighed down its balance sheet for three full years. Big bold deals are always a double edge sword, and pharma companies from India are showing a willingness to ride this sword. As the margins in generics further erode, the future is clearly in value addition.

Viveka Roychowdhury

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