It is no secret that declining pharmaceuticals exports have been worrying not just pharma honchos but the Prime Minister’s Office as well. The slide has not been sudden. Trading Economics’ data shows that pharma exports decreased to $2086.32 million in 2016 from $6488.40 million in 2015. They averaged $3902.05 million from 1996 until 2016, reaching an all time high of $11140.5 million in 2013 and a record low of $672 million in 1996.
According to the Directorate General of Commercial Intelligence & Statistics, Government of India, Ministry of Commerce, exports of drugs & pharma de-grew by 5.8 per cent in the first four months of this financial year from $5588.24 million in April–July 2016 to $5264.13 million in the corresponding period this year. It may be a good sign that imports of medical and pharma products de-grew -0.7 per cent during the same period, from $1678.68 million in April–July 2016 to $666.86 million in the corresponding period this year. Interestingly, this July saw a drop of 15.5 per cent, from $449.56 million in July 2016 to $379.9 million.
While India Brand Equity Foundation’s estimates put pharma exports from India at $16.4 billion in 2016-17, and estimate exports to reach $20 billion by 2020, there are more sobering projections. For instance, according to Trading Economics’ global macro models and analysts expectations, in the long-term, India’s pharma exports is projected to trend around $1551.86 million in 2020, as per their econometric models.
While one reason for this drop could be that Indian pharma companies are increasing manufacturing activities in their overseas locations, exports are still a sizeable slice of their revenues. The US alone accounts for approximately a third of total Indian pharma exports,and this has been in a slide for various reasons. A CARE Ratings report dated August 31 has identified four primary contributors for the decline in margins from the US exports: consolidation of pharma distributors in the US, mergers among major drug players, significant increase in Abbreviated New Drug Application (ANDA) approvals and lastly heightened scrutiny by US Food and Drug Administration (US FDA). It is interesting to note that while faster processing of ANDAs, thanks to the Generic Drug User Fee Act (GDUFA), has increased ANDA approvals for India based pharma companies, it has also raised approvals for competitors with ANDAs for the same products. This has increased pricing pressure in the US market in the medium term, especially on plain vanilla products.
The recently released Earth Security Report (ESR) 2017 had a section on India’s pharma sector which points to another headwind on the exports side: poor environmental norms which delay permissions for pharma exporters. The report points out how untreated wastewater from pharma factories is not just polluting water bodies in India but also adding to anti microbial resistance. Not just in Indians, but also foreigners who spend time in India and take back superbugs when they return home.
While the ESR looks at the issue from a sustainability perspective, the pressure on global pharmaceutical to clean up its supply chain, will impact Indian companies as well. According to the ESR, investors like BNP Paribas and Nordea Asset Management are increasingly pressuring international pharma companies to address water pollution in their supply chains. In 2016, Nordea revealed that hundreds of drug companies operating in Hyderabad and Visakhapatnam, were still discharging wastewater from factories linked to the supply chains of the largest global pharma companies in its portfolio, including Sanofi, Novartis, and Roche. Considering that these two states, Telengana and Andhra Pradesh, together account for roughly 20 per cent of India’s pharma exports, there is no doubt that Indian pharma exporters will feel the heat soon from their clients.
In fact, the ESR quotes from media reports that India’s bulk drug exporters had warned the commerce ministry that stricter environmental requirements were creating delays in production and clearances. The then commerce minister Nirmala Sitharaman had promised to take up the complaints of API manufacturers with her counterparts in the environment and chemicals and fertilizers ministries. The ESR points out that while larger manufacturers/ exporters, including Dr Reddy’s, Hetero, Aurobindo, Matrix (Mylan), Divis, Natco, all report to having zero liquid discharge (ZLD) technology and waste processing facilities onsite, common effluent treatment plants for the smaller production plants are over-burdened and under-equipped to process many chemical effluents. Worse, more expensive ZLD equipment is seen as prohibitively expensive for smaller manufacturing facilities. This lack of waste water treatment and other environmental norms would then be a barrier to these smaller companies approaching global clients and accessing global markets.
Thus, it is high time that the sector does a deep dive to find a holistic and sustainable prescription to arrest the slide in pharma exports.