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Lessons from Orchid Pharma’s story

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The task force on APIs is too late to rescue Orchid Pharma but will hopefully prevent more API makers from burning out

new-viveka-100x100After a long wait, the Ministry of Chemicals & Fertilizers, Department of Pharmaceuticals has formed a task force to build a roadmap for the Active Pharmaceutical Ingredients (API) segment. But the 3-page office memo dated April 18 is already too late for some API manufacturers.

Take the case of Chennai-based Orchid Pharma, which has a total debt of Rs 3,200 crores as per its annual report for 2016-17. The company was a prominent player in injectables and APIs, both capital intensive areas. With margins decreasing thanks to cheaper APIs from countries like China, Orchid Pharma faced shrinking revenues. Unable to pay back its loans, Orchid Pharma’s creditors demanded debt restructuring as well as means to recover their dues.

On August 23 last year, the Chennai Bench of the National Company Law Tribunal (NCLT), admitted a petition filed by one of its largest lenders, Laxmi Vilas Bank, for commencement of the Corporate Insolvency Resolution Process (CIRP).

Orchid Pharma’s bankruptcy proceedings attracted a lot of interest as it would be a good fit for many of its peers. The main attraction are its manufacturing facilities, namely two API facilities and three formulation sites in India, all of which reportedly have MHRA and FDA approvals. By October, companies like Aurobindo Pharma, Dr Reddy’s Laboratories, Piramal Group and Lupin were reportedly interested suitors for Orchid Pharma including some PE players like KKR though these companies declined to confirm their interest.

While DRL and Aurobindo had dropped out by this February, other names cropped up, like PE firm Blackstone which was one of four financial entities interested in the deal. Six pharma companies filed expressions of interest with Strides Shasun, Gland Pharma, and Nectar Lifesciences reportedly part of this list. On April 24, Orchid’s lenders rejected an offer from Union Quimico, subsidiary of Hyderabad-based Vivimed Labs as too low and called for a second round of bids. Orchid Pharma’s fate is not uncommon, with many smaller players already out of the picture.

The talk of reviving India’s beleaguered API sector has unfortunately remained just that for at least two years. (Read our Sept 2016 editorial: http://www.expressbpd.com/pharma/editors-note/reviving-apis/376805/) The April 18 memo also does not inspire too much hope of a speedy solution. Recognising the obvious, that ‘there is still scope for further integration along the value chain in terms of manufacturing of APls and R&D where the country is importing essential APIs’, the memo states, ‘there is need for concerted efforts to harness the opportunities in the sector’. It goes on to constitute yet another task force of 12 officials, chaired by the Minister of State, Department of Pharmaceuticals, Ministry of Chemicals & Fertilizers.

The redeeming fact is that the task force is inter-ministerial, bringing together senior policy makers from the Department of Commerce, Department of Industrial Policy & Promotion, Ministry of Health & Family Welfare (MoH&FW), Ministry of Environment, Forest & Climate Change, Department of Health Research, Department of Science & Technology, Department of Biotechnology, as well as institutions like the Council of Scientific & Industrial Research, and the Drugs Controller General of India, Central Drugs Standard Control Organization. With all concerned ministries on one task force, one hopes that they will all finally be on the same page.

This is crucial since the past has seen a tug-of-war between ministries. For instance, while the DIPP, whose mandate is to promote the sector, would like industry-friendly policies, the Ministry of Environment would flag pollution concerns and the MoH&FW, CDSCO would highlight quality and patient safety issues.

Recognising the importance of getting industry on board, the task force may co-opt one member each from associations like IDMA, IPA, BDMA, OPPI (of the rank of CEO) as well as experts from the private sector, other government departments/ ministries as required. One hope that such associations are made part of the process sooner rather than later, to avoid further delay. There have been many proposals for the revival of API manufacturing. However, what is needed now is a balanced and nuanced policy.

The areas of focus span R&D, acquisition and commercialisation, application and adoption in specific sectors, development of the industry, regulatory framework, and lastly, potential impact on industry, job creation, investments, contribution to the economy, technology infusion, exports, integration with value chains. The task force may also study global practices and interact with relevant stakeholders as required. While these terms are vague, can we hope that our policy makers study China’s policies and practices for APIs first?

Orchid Pharma’s dreams to dust story has many lessons for API manufacturers and policy makers. One hopes that the task force does not ‘start at the beginning’ but takes off from previous efforts. The task force is too late to rescue Orchid Pharma but will hopefully prevent more API makers from burning out. But, time is running out.

Viveka Roychowdhury
Editor

[email protected]

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