Concern has been expressed over the impact of the COVID-19, or the novel Coronavirus, on supplies in India, particularly the pharmaceutical industry. Is the industry really in trouble?
India’s dependence on China for supply of various imports—raw materials, intermediates, finished products—is significant. The largest Indian imports from China are those of machineries, and components. Various electrical and non-electrical machineries, industrial appliances, machine parts, and components comprise half of Indian imports from China. These are followed by imports of organic chemicals and fertilisers. With a share of around 12% in India’s total imports from China, organic chemicals are the third largest group in the latter. Within organic chemicals, imports required by the pharmaceutical industry are the largest. Heterocyclic nitrogen compounds and antibiotics are the largest organic chemical imports by China from India, accounting for almost 30% of such imports.
Heterocyclic nitrogen compounds typically contain carbon and nitrogen in their molecular structures. Like other heterocyclic compounds that comprise of oxygen and sulphur, nitrogen compounds have extensive therapeutic use. Apart from wide applications in pharmaceutical research and drug discovery, heterocyclic nitrogen compounds are used in antibiotics, anti-cancer, anti-migraine, anti-ulcer, anti-inflammatory, anti-viral, and anti-depressant drugs. Nearly 70% of India’s total imports of heterocyclic compounds are from China. Of these, 80-90% of the entire requirement of some compounds, such as those with unfused rings, is sourced from China only.
On antibiotics, too, India’s sourcing dependence on China is quite high. The most significant among these are penicillin and its salts, rifampicin and its salts, 6-APA, and various other antibiotics. More than 90% of penicillin and its salts is imported by India from China, whereas practically all 6-APAs are imported from China. Around 70% of rifampicin salts are imported from China, too.
India’s reliance on pharmaceutical imports from China reflects a particular character of the organisation of the pharma industry. Indian pharma companies have achieved great proficiency in the downstream end of the pharma value chain. This essentially pertains to preparation of formulations, and their packaging and marketing. The specific success of Indian pharma firms in this regard has been in manufacturing generic drugs. The proficiency has enabled them to quickly pick up branded drugs once their patents expire and produce generic versions of the same. The latter are sold at much cheaper prices than the branded drugs in both domestic and international markets. However, the success of this process depends heavily on availability of bulk drugs. The latter provides Indian formulation makers the critical drugs that can be used as active pharmaceutical ingredients (APIs) in formulations. Both heterocyclic nitrogenous compounds as well as various antibiotics like penicillin and rifampicin salts are used in different pharmaceuticals formulations that are sold as capsules and tablets through retail stores.
The dependence of the Indian industry on bulk drug imports from China is critical in this regard. The upstream of the Indian pharma industry value chain is critically connected to sourcing from China. And, this is the part of the pharma production that is likely to get disrupted as a result of the outbreak of COVID-19. The disruption would inevitably have some impact on the ability of Indian pharma firms to produce formulations. Such impacts, in turn, might influence the availability of formulations, both for domestic consumers as well as for generic exports.
COVID-19 was an unexpected development. Most of the world has been taken by surprise by the scale of the pandemic, particularly its ability to travel fast across borders. The Indian pharma industry, too, has been taken by surprise. As an industry that is at the forefront of tackling public health situations, it had not been able to anticipate the internal problems that would occur in China as a result of the outbreak. As a result, the formulation-makers have not been able to go long on stocks of imported APIs. Most pharma companies retain bulk drug stocks of up to six weeks. Beyond this period, if supplies dry up, the formulation production would be affected. The disruption is likely even if supplies are physically shipped from China. Containers arriving from China are lying unloaded in Indian ports as there are server delays in the necessary documents for obtaining cargo clearance at Indian customs reaching from China. By getting stuck in Indian ports, bulk drug supplies are failing to replenish stocks—a problem that would get further aggravated if domestic production within China falters.
India’s immediate short-term option for warding off disruptions for its formulation production is to source the APIs it obtains from China from elsewhere. Other than mainland China and Hong Kong, nitrogenous compounds and antibiotics are prominently exported by some European countries—Ireland, Belgium, Switzerland—and the US. Bulk drugs from China, though, have had their typical cost advantages for Indian formulation-makers. Compensating for the lack of supplies from China by sourcing more from Europe would imply more costs. Costs are expected to rise, as more and more countries turn to other locations to make up for deficient supplies from China.
India has already banned exports of some major formulations to avoid domestic disruptions. But, even then, prolongation of the pandemic, and lack of supplies from China might have their consequences. The extent to which the Indian pharma industry is ‘Made in China’ is far too great to avoid such consequences.
The writer is Senior Research Fellow, Institute of South Asian Studies, NUS. Views are personal for Financial Express