The coronavirus pandemic has laid bare the need for an API manufacturing hot-spot other than China, and India has the potential to be one. While the production of gerenric drugs is bound to see some significant transformation as different countries are evolving to become active producers, India can step up and develop infrastructure for large scale manufacturing of APIs, thus enabling the India pharma sector to dominate the world market in future, writes Suhayl Abidi, Research Advisor, GOG-AMA Centre of International Trade
The API business is a rare pool of profitability. Margins remain attractive even in the most commoditised categories, because supply is much more concentrated in APIs, and suppliers have achieved greater scale by operating globally rather than regionally – Boston Consultancy Group
Although one should not gloat over a massive calamity such as spread of coronavirus, it has presented India with a golden opportunity to build world-scale API industry and compete successfully with China in the global markets. It is my assessment that if we build a world-class and world-scale API industry, its export which is presently around $5 billion (25 per cent of total 2019-20 exports of $19-20 billion), can be scaled up to ultimately reach and exceed generic drug exports within 10 years.
Our political and industry leaders have been advocating increasing the size of India’s API industry for a long time to reduce dependence on Chinese imports. The time has come to view ourselves as not only as global number one generic suppliers but also number one API suppliers.
India already has one of the world’s largest specialty chemical industries and produce over 70,000 products. According to IBEF, India is the sixth largest producer of chemicals globally and third largest producer in Asia in terms of output. The country ranks third globally in the production of agro-chemicals and contributes around 16 per cent to the global dyestuff and dye intermediates production. The chemical sector is expected to double to US$ 300 billion by 2025, clocking an annual growth rate of 15-20 per cent with exports also rising at the same rate. No other country outside of advanced countries, besides China, can build such a diverse industry. If we decide to build a world-scale API merchant export industry, I have no doubt that it can not only rival formulations exports but can overtake generic exports and prove to much more profitable.
The supply chain disruption caused by coronavirus pandemic in China has proved to the world’s generic producers that they cannot depend upon one source for their supply and in future, that they would like to maintain ties with additional source of supply and no other country fits the bill except India.
Even prior to Coronavirus, world’s second-largest economy had been closing chemical plants on tightening safety and environment laws. An estimated 40 percent of all China factories have been shut down in the last one year resulting in disrupted supplies and increased costs.
Limit to Generic Exports
There is a limit to generic exports as many countries in Asia, Middle-East, Easter Europe and Latin America are engaged in building up or expanding their generic pharmaceutical industry. In Middle-East itself, from 30 plants in 2013 to 47 in 2016, and is expected to reach 75 in 2020. The new plants which are coming up are all in billion tablet/capsule size category. The Gulf Cooperation Council (GCC) countries will spend $12 billion on pharmaceutical production. In Oman itself, world-scale plants are operating and a new $365-mn pharma plant will be commissioned this year which will manufacture 100 types of drugs and plans export to 20 countries in the region. At present, GCC imports 80 per cent and Oman 93 per cent of its requirements. Jordan and Turkey already have thriving pharmaceutical industries which export throughout the Middle East and African region.
In Africa too, with the launch of giant African Continental Free Trade Area (AfCFTA) after signing by 52 out of 54 countries, the stage is set for large scale formulation production and export within the continent to take the lion’s share of the $45 billion market (McKinsey & Co estimate).
Egypt hopes to reduce import of generic drugs from $1.46 billion in 2018, to $700 million in 2020 and nil in 2030. North African countries such as Morocco, Tunisia and Algeria are all in the process of expanding their generic production to reach 60-80 per cent of their demand and also increase export to French speaking West African countries.
In Sub-Sahara Africa too, there is a renewed effort to indigenise production of pharmaceutical products to ensure that the $45 billion African market stays within African hands. East African countries from Ethiopia to Kenya, Tanzania and Uganda all have announced plans for large scale generic industry. Even Chad is building a pharmaceutical plant with Egyptian assistance. Kenya is building a greenfield billion tablet/capsule capacity HIV drugs plant. Tanzania has announced plans for five plants.
However, Ethiopia is positioning itself as the pharmaceutical hub of Africa by 2025. Its national market will grow to $1 bn. by 2020 from present $650mn. at a rate of 15 percent annually. Only 20 per cent drugs are manufactured locally. China has built a pharmaceutical manufacturing Zone and already two Chinese companies have invested over $200 million. Sansheng plant has a capacity of 10 billion tablets, 5 billion capsules and 40 million parenterals. Such large capacities have only one objective, that is to export throughout Africa.
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Ethiopia’s Chinese-built Kilinto Pharmaceutical Industrial Park
The scenario is the same in Eastern Europe and Latin America. Russia’s indigenous pharmaceutical products supplies 27 per cent of demand. The government aims to increase domestic share to 50 per cent by 2020.
In Chile, the largest domestic pharmaceutical maker Tecnoquimicas has announced USD 200 million manufacturing investment in two new generic plants which will substitute for USD 110 million of imports, and will create USD 70 million of exports.
This is just a fraction of the manufacturing activity taking place around the world. In addition, Bangladesh is scaling up its industry for large scale exports. From $118mn.in 2018, it aspires to export $1bn. in 2020. In formulations exports, we will continue to face increasing competition from Bangladesh, Turkey, Egypt, Jordan, China, Morocco, Tunisia and later from Ethiopia. All these countries will import APIs. There is no competition in API except from China.
In addition, 29 Drugs will go off-patent allowing generic entry in 2020 – 2021. More will follow every year, thereafter.
According to an article by Daara Patel, Secretary General of Indian Drugs Manufacturers Association (IDMA) in Express Pharma on 20 June 2020, Indian generic industry will see a growth of 15 per cent to $55-bn by 2020 as against global growth of 5 per cent. Besides overseas manufacturing, India too will require increasing quantity of APIs.
Where will the API for all this manufacturing come from? None of these countries can build a significant API industry within the foreseeable future and they will depend on merchant API suppliers primarily from China and India who will jointly supply 80 per cent of the world’s demand according to a study.
The global active pharmaceutical ingredient market is estimated to reach USD 245.2 billion by 2024 from USD 182.2 billion in 2019, at a CAGR of 6.1 per cent during the forecast period. Global Small Molecule API Market is expected to rise from its initial estimated value of USD 151.30 billion to an estimated value of USD 254.38 billion by 2026, registering a CAGR of 6.71 per cent in the forecast period of 2019-2026. (Galus Asutralis).
In 2019, the captive API manufacturers segment is expected to account for the largest share of the APIs market. This can be attributed to the fact that most big pharmaceutical companies possess their API manufacturing facilities and are vertically integrated across the pharmaceutical supply chain. However, this may be about to change. AstraZeneca, which manufacture 85 per cent of its APIs is currently in the process of withdrawing from all API production in favour of outsourcing. Companies in India should seize this opportunity for transfer of technology from AstraZenea and later from other multinational companies to become their dedicated supply-chain partners. This would create a body of knowledge and skilled manpower to be deployed in indigenous API production.
According to Maximize Market research, worldwide rising outsourcing of API/drug molecule formulation from drug manufacturers will take place in order to eliminate the need for heavy investment in manufacturing processes.
R&D
If we have to position India as a global leader in API production, we must strengthen dedicated R&D institution building. More intensive R&D is required to produce chemicals cost effectively, mitigate risk and reduce environment degradation.
Producing pharmaceutical ingredients requires a greater number of reaction and purification steps, meaning designing a suitable process is more complex. In addition, the regulatory requirements surround the manufacturing pharmaceuticals are generally far stricter than those surrounding commodity chemicals.
API production has traditionally been undertaken in batch processes. However, over the last few years, some companies have started to explore the potential of continuous processing, specifically flow chemistry, for producing APIs. Despite its potential to offer safer, faster and more sustainable processes, the production method remains relatively untested by the industry. This is in part because manufacturing pharmaceuticals is far more complex than say, manufacturing commodity chemicals where continuous processing has been widely used for many years. It requires setting up of a dedicated R&D Centre for APIs which can undertake study of synthesis of chemicals through various processes and also produce through green chemistry. We cannot allow degradation of environment as we have seen in the Ankleshwar API cluster in Gujarat. In India too, environmental regulations and control will be stricter in future as we are seeing in China. We must take proactive steps that new plants and expansions must be based on green chemistry. This too requires a major R&D base.
In addition, collaboration with Universities for education and training of PG students and greater output of PhDs to undertake large scale transformation of API industry can help.
The availability of capital finance at globally competitive cost remains a perennial problem in Indian manufacturing. Government should treat API as a critical industry for the growth of value-added exports from India, at a time when our traditional exports are falling and face increased global competition. It should provide funds for Indian manufacturing of APIs as well as for overseas manufacturing of formulations at a competitive rate to enable this vital industry to face the Chinese dominance globally.
India has the capability to build a world-scale and globally competitive API industry. Whether the resolve to do so is also there, remains to be seen. The window of opportunity is now.
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