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Will COVID-19 Make Pharmaceutical Industry Sharks To Look Beyond Profit?

It is now almost 45 years since the high-profile Hathi Committee recommended the urgent need for manufacturing active pharmaceutical ingredients (API) or bulk drugs in India for the country’s future health safety. The size of India’s pharmaceutical market at that time was less than ₹500 crore, dominated by multinational companies from the US and Europe. Time has vastly changed. India’s pharmaceutical market grew sharply over the last four decades. The production is now worth over ₹2,50,000 crore. And, India’s drugs export, mostly generics, in 2018-19 stood at US$ 19.13 billion or worth ₹1,40,000crore and reached US$ 9.36 billion (₹70,000 crores) in 2019-20 (till October 2019). It is expected to grow by 30 per cent to reach US$ 20 billion by this year end. What did not change is India’s import dependence of APIs or bulk drugs. Only the key import sources changed — originally from western countries to a new Asian entrant, Communist China.

The Hathi Committee report — then debated hotly inside and outside Parliament — was ignored. What really went wrong? If China can, why can’t India? Why didn’t India’s drug manufacturers show enough interest to set up necessary production units of basic drugs? Some drug firms in India are producing APIs for domestic consumption and also export. But, that’s hardly enough. The domestic basic drugs and ingredients production covers barely 20 per cent of the requirement. The reason is simple: API manufacturing is a low-profit area. On the contrary, generic or finished drugs production generally ensures a very high margin.

Ironically, now the Coronavirus epidemic in China promises to alter the situation for India’s gigantic pharmaceutical industry to pay attention on increasing local production of APIs, the recent shortage of which has severely impacted India’s generic drugs and formulations market. If API imports from China don’t get restored within the next few months, the Indian drug manufacturing industry is going to take a hit of several billions of dollars in terms of export and domestic production.

The Coronavirus (Covid-19) crisis may achieve what the Hathi Committee recommendations failed so many years ago. The Indian drugs industry is visibly shaken by the global Covid-19 scare. The country now looks to become a bulk drugs major itself, cutting dependence on China. The chances are that the government could soon set up a separate department offering a host of incentives to boost domestic manufacturing of raw materials for medicines to cut the pharmaceutical industry’s dependence on Chinese imports. Coronavirus has disrupted the domestic drug production. To protect the domestic market against the big shortage of China-made APIs, the authorities have banned the export of 26 key drugs pharmaceutical ingredients without explicit government permission. The government action may also adversely impact the rest of the world as India accounts for about 20 percent of the world’s exports of generics by volume.

Hopefully, the latest government action will find favour with the hitherto shortsighted Indian drug makers and exporters depending on imports of raw materials or APIs from China. The lately formed official committee to monitor the availability of raw materials, led by joint drug controller Eswara Reddy, recently submitted a report to the department of pharmaceuticals impressing upon the need for boosting the domestic production of bulk drugs or APIs. To oversee this exercise, the committee has recommended the setting up of a drug security authority (DSA). “The government should establish DSA not only to make India self-sufficient but also to become a global leader in manufacturing of APIs, key starting materials, intermediate and chemicals for domestic as well as export,” the committee had stated. In 2018-19, the Indian drug industry imported APIs worth $2.4 billion from China. The domestic production will save foreign exchange worth at least ₹30,000 crore annually at the present rate of imports. The panel is believed to have suggested one percent cess on imports and an equal value of government financial support to meet the overall requirement of the industry, including research. It is not that India does not manufacture bulk drugs. It does and even exports some. But, the production is not simply enough to support a ₹2.5 lakh crore-industry.

Import of APIs from China is supporting the manufacture of at least 12 categories of essential drugs such as paracetamol, ranitidine, ciprofloxacin, metformin, acetylsalicylic acid, ofloxacin, metronidazole, ampicillin, amoxicillin and ascorbic acid. Drug intermediates are chemical compounds that are used in producing APIs. The government has ignored the industry’s growing dependence on China for bulk drugs. It even sided with the Indian drug industry saying that the imports were mainly under economic considerations, meaning that imports were much cheaper — almost 20-30 percent less than production costs in India. Roughly, India imports close to 80 percent of APIs and intermediates. According to reports, a majority of API production units in India run at 30 percent capacity surrendering its manufacturing initiative and base to more aggressively thoughtful China.

It is shocking to note that the only factor behind Indian manufacturers shying away from the production of APIs is low profit. And, the government surrendered to the industry’s shortsighted approach in view of its huge growth in the domestic as well as the export market and the large revenue it produces for the exchequer. Yet, it must be noted that a number of Indian pharmaceutical firms are leading producer of APIs. Among the top API manufacturers in India are GlaxoSmithKline, Aurobindo Pharma, Cipla, Divi’s laboratories, Teva Active Pharmaceutical Ingredients, Sun Pharma, Pfizer, Matrix, Ranbaxy, IPCA, and Dr. Reddy Laboratories. However, this is too little. China is said to have as many as 1,000 units manufacturing of pharmaceutical ingredients. A government financial support to boost the domestic production of bulk drugs and ingredients may be overdue. The Coronavirus crisis may become a blessing in disguise for India, at least in the area of basic drugs production.-National Herald India