Weighing the Strengths and Weaknesses of India's and Chinese Bulk Drug Industry

D Naveen Kumar
Senior Manager
CARE Ratings Ltd

Vidhyasagar L
Associate Director
CARE Ratings Ltd

The authors of this article compare bulk drug manufacturing industry of India vis-à-vis China and how can India get back to its past glory.

Indian pharmaceutical sector companies have a strong footprint globally in generic segment to become the third largest in terms of volume and thirteenth in terms of value. By the product classification, Indian Pharmaceutical Industry (IPI) can be classified into formulations, API (Active Pharmaceutical Ingredient)/bulk drugs and CRAMS (Contract Research & Manufacturing Services). Although, IPI has a strong footprint globally and is known as a leader in manufacturing and supplying of branded generic finished dosage formulations surpassing China in pharmaceutical exports over the past half a decade, the concern of its (IPI's) excessive dependence on China for sourcing some of the vital key starting materials and intermediates continue to loom.

Over-dependence for the raw material on any one country or few suppliers can create significant supplier concentration risk not only for the industry but also to the nation. The Indian companies during FY-17 to FY-19 have encountered the above risk wherein China alone contributed about 60 percent of all pharmaceutical imports by volume and 70 per cent by value till FY-18. During April 2016, the Chinese government has enacted the new environmental laws to address the environmental issue. As per the order the chemical plants that do not comply with safety and environmental regulations have to either relocate or shut-down their operations. Thus, in order to enforce the law, the Chinese authorities have shut thousands of chemical ingredient plants gradually during FY-17 and also during FY-18. The above conundrum has resulted in acute demand - supply gap for Key Starting Materials (KSM) and intermediates. Notwithstanding the rise in input raw material prices on one side and obligation to honour the contractual orders at predetermined price on the other side has hit the profitability margins of Indian Pharmaceutical companies.

Considering the fact that IPI is relying heavily on import of raw material from China, it pellucid the vulnerable state industry is exposed in the event of any dissension between the two countries. The current article delineates on some of the factors wherein both the countries weigh similar and the factors in which they weigh strong or weak specifically concerning to pharmaceutical industry. While both India and China have some resembling factors, India eventually has emerged as one of the leading generic formulations manufacturer and China has emerged as leading low-cost raw material (such as KSMs and intermediates) provider.

Some of the key resembling factors of the two countries pharmaceutical markets which made primary choice for global drug companies to source raw materials and formulations or to outsourcing their contract research and/or manufacturing work are their technical capabilities, ability to observe global regulatory standards and to provide relatively low-cost services and/or products as compared to those of regulated markets.

Although there exists few resemblances as mentioned above, a large number of differences between these two countries exist in various factors of which primary ones are presented below:

Factor of Government support:



Following charts illustrates the comparison of various parameters in terms of ease of doing business



Factors effecting operational efficiency:



Conclusion

From the above deliberations it can be ascertained that in majority of the parameters, Chinese bulk drug industry outweighs due to various factors such as government support in the form of incentives and subsidies, sprawling industrial parks with necessary facilities, benefits derived by their enterprises due to large economies of scale, etc. Indian bulk drug industry on the contrary lags in most of the factors especially from government support front. As per World Bank report on ease of doing business, India has jumped 23 positions, ie, from 100th position as per report in 2018 to 77th position as per report in 2019. Nevertheless, the Indian government have to synchronize to provide ease of approval process by way of singlewindow clearance, incentivise the critical API's, provide conducive regulatory environment, encourage capacity additions and to set-up and promote R & D investment with various sops, lest the headwinds can detrimentally effect on the performance of bulk industry, thus in turn affecting the formulations industry. Apart from above if the chronic problems are not addressed, the sequel consequences can also create a concern for nation's security.