India and the World
Competition with China
One of the prevailing sentiments shared across the broad sector of India’s life sciences is the need to decrease reliance on China as a source of pharmaceutical materials, primarily APIs.
The country has come a long way in recent years, thanks in large part to efforts made by the national government under its Make in India scheme, by investing billions into boosting domestic manufacturing capabilities. “The federal government is contributing to this effort by setting up free trade zones and large API parks,” said Maulik Sudani, executive director of Farbe Firma. “The government also provides capital subsidies to pharma companies, and there are subsidized or reduced interest rates for pharma companies taking out loans from banks.”
As a result, the landscape has changed over the past few years. “Today, India’s dependence on China is still high but is significantly less compared to four years ago and we will continue on this downward trend for the years to come,” commented Rajiv Maniyar, CEO of Aligns International. According to him, much of this has to do with the shift many companies have taken to backwards integrate. “Instead of companies manufacturing 20 products, importing the N-1 or N-2 stages from China, and doing the final steps in India, they are starting to look to manufacture fewer products, but from the basic stage all the way through to final API.”
“While many Chinese companies have greater profit margins, when it comes to smaller volumes, India can edge China out in many cases.”
Arun Sehgal, Managing Director, Chempro Pharma
As an example, Ahmedabad-based CORONA Remedies had been importing the gynecological API progesterone from China when the company decided to look for a local supplier instead. “This is how we discovered La Chandra PharmaLab in Palanpur, Gujarat, a science-driven pharmaceutical company focused on manufacturing hormone APIs, and we completed a strategic deal,” explained the company’s president and CFO, Bhavin Bhagat. “We acquired a 33.5% stake in this company as a part of backward integration to build our product portfolio and to strengthen our presence in the market.”
The potential financial gain from further decoupling the pharmaceutical supply chains is immense. Salim Shaikh, founder and executive chairman of Symbio Generrics, likes to use gabapentin as an example: “Gabapentin, a product used in diabetic neuropathy, has a value of approximately US$1.6 billion in the global market. From that, an intermediate that historically comes from China accounts for US$144 million. If the PLI scheme took on Gabapentin, we could reduce that US$144 million import to less than US$1 million.”
When it comes to attracting foreign business away from China, one way Indian companies have carved out a strategic edge against their Chinese counterparts is through the adoption of more environmentally friendly practices. “In the past 10 years, India has done tremendous work in terms of environmental responsibility,” acknowledged Arun Joshi, managing director of Surya Life Sciences. “Across India there is good awareness, and most companies are adopting environmentally friendly and green chemistry. Because of this, India is now dominating certain product categories that the country historically relied on Chinese supply for.”
Dinesh Khokhani, managing partner of J. B. Khokhani & Co., has noticed a similar trend, and he attributes much of it to conscious efforts made by the Indian government. “World-class standards and best practices are being encouraged by the government, and in our facilities, we have been mandated by local governments to reduce discharges and pollution,” Khokhani commented. “Licensing is becoming more stringent with every passing year. In terms of quality and dependability, there is globally more trust in Indian products over Chinese products.”
Benzo Chem, an exporter of pharmaceutical and agrochemical products, has spent the past few years undergoing a carbon disclosure program after fielding requests from European and US-based customers to have more detailed information on the carbon footprint of their operations. The program has provided Benzo Chem with more accurate information on the company’s emissions, thereby making it easier to identify areas for improvement. “For example, we recently switched our stackers from diesel to battery powered,” said the company’s director, Gaurav Mohatta. “India has set a goal to be carbon neutral by 2070, which is still pretty far away. Many European countries have set the same goal for 2030. By assisting our European clients on this objective, we are settings ourselves up to be ahead of the game domestically with regards to our environmental footprint.”
According to Srinivasan Subramaniam, managing director of Srikem Laboratories, the shift towards India that is in part due to environmental concerns is already starting to be felt by Chinese competitors. “Now, even China has realized that they are losing money in overseas markets, and they want to go back to the domestic market for price-related reasons,” Subramaniam said.
This transition within the global pharma sector is, of course, part of a broader macroeconomic shift of Western companies moving away from doing work with China. “We are seeing increased interest from foreign companies; particularly as global manufacturers are paying more attention to the China-plus-one strategy,” commented Jay Bhatt, director of strategic business development at Vital Chemtech Limited. “Contract manufacturers in the US and Europe are looking for intermediates being manufactured in India, and this is a powerful trend for our country’s markets. In chemicals, with advanced intermediates we have seen more inquiries from MNCs because of macroeconomic instability.”
Despite the headway, certain limitations remain when it comes to weaning India off Chinese supply. Certain materials naturally occur in abundance in China, making it virtually impossible to compete in their production. For others, the East Asian country already has such expansive manufacturing capabilities that it would not be cost beneficial for India to attempt to replicate the scale. For this reason, while future relations between the two pharmaceutical powerhouses remain uncertain, the likely truth is that a degree of dependence will never fully disappear.
“Nowadays, even China has realized they are losing money in overseas markets, and they want to go back to the domestic market for price-related reasons.”
Srinivasan Subramaniam, Managing Director, Srikem Laboratories
Are MNCs helping India, or is India helping the MNCs?
As pharma players from around the world make moves to take advantage of India’s robust pharmaceutical sector, disagreements abound over the role these multinational corporations play within the development of the industry and the impact this has on indigenous companies.
India has proven itself to be an attractive destination for foreign pharmaceutical companies, particularly those looking to conduct clinical trials at reduced costs, given the low fees when compared to the US, Europe, Japan, and even China. According to Nilesh Thosani, CEO of Rihim Pharma Consultancy, it is also the flexibility of the country’s regulators that appeal to an international crowd. “The regulatory framework is practical with regards to documentation, processing, and fees,” Thosani explained. “In terms of documentation, India focuses only on what is necessary to ensure the safety, efficacy, and quality of products.”
Additionally, Thosani, who has extensive experience providing regulatory consulting services to importers, manufacturers and suppliers within the life sciences, believes the speed at which Indian regulators operate makes a difference. Unlike other countries where the timeline to obtain an approval can take years, in India, it is approximately six months. While the country’s regulatory framework attracts a fair number of foreign companies looking only to outsource abroad, it also entices many to set up their own operations on Indian soil.
The effort of the regulators does not go unnoticed by industry members themselves. “Our regulators have done a great job, particularly during Covid-19, to control and support the life sciences sector,” said Dharmesh Shah, chairman and managing director of BDR Pharmaceuticals International. “There is a strong degree of collaboration and respect between regulators and life sciences companies.”
Opening or expanding operations in India can also be a strategic move for overseas companies looking to expand their presence within Asia more broadly. Azelis, a chemical manufacturing company headquartered in Belgium with over 3,000 employees across 57 countries around the world, announced in November 2022 the inauguration of its first pharmaceuticals and healthcare laboratory in India. “Equipped with state-of-the-art equipment, the India Pharma lab will be able to support customers, and the Asia Pacific region, with advanced projects,” said Aparna Khurana, managing director of the company’s India operations. “Thanks to the lab, our technical expertise and innovation resources will be accessible to a wider audience within the pharma industry, allowing us to further grow our business in the region.”
While it is clear that foreign players stand to gain from tapping into the Indian life sciences ecosystem, MNCs may also pose a benefit to the domestic market. For its part, the US-headquartered pharma giant Merck, which has had a presence in India for over 55 years, believes global players play an important role in introducing new technologies into India, particularly when it comes to the manufacturing of vaccines. Additionally, MNCs can help provide the right platforms for collaboration. “MNCs that have a presence in India are able to provide great platforms for the domestic industry to collaborate and exchange knowledge to produce the right medicines, drugs and vaccines,” commented Aditya Sharma, leader of the BioProcess business at Merck Life Science, India.
The company’s head of science and lab solutions Dhananjay Singh pointed to a specific point in the drug development process that MNCs can be of particularly help to Indian companies: “To launch a new product, phase three is the real challenge because that is where a lot of funding is required. This is an area where collaboration opportunities between MNCs and domestic players is particularly helpful.”
Singh explained that as part of Merck’s CSR strategy, the company is funding a company working on a diagnostics kit for five different diseases including Covid-19, chikungunya, dengue, malaria, and typhoid.
Sanjay Shah, managing director of Sakar Healthcare, observed that his company’s connections with foreign players provided exposure to developments being made in other parts of the world that Sakar could then implement at home in India. “Our relationships with diversified multinationals grant us exposure to their preferences based on the cultures they come from,” Shah said. “We are able to customize our offerings and provide timely delivery based on their specific needs. Through these partnerships, we advance alongside our clients. Plus, we can build more meaningful relationships through this partnership model.”
Perceived benefits notwithstanding, entering the Indian pharmaceutical market is no easy feat, and many MNCs face limitations to the extent they are able to make their mark on the subcontinent. Mitanshu Shah, SVP of finance at Alembic Pharmaceuticals, believes there is a reason that the companies experiencing the most growth in the domestic branded business are Indian companies, not foreign entities. “Foreign companies did not invest as much as they should have in creating a strong presence on the ground in terms of product offerings and manpower, and it is too late to do this now,” Shah said.
“The major challenge in India is not the regulations themselves but rather the fact that it is much cheaper for local manufacturers to register their products than for multinational manufacturers, and importing products remains extremely costly. This can create a barrier to entry for international companies to enter the Indian market.”
Parth Thosani, Business Development Manager, Rihim Pharma Consultancy
From his perspective, companies hoping to succeed in India must have an entire product range rather than just their own line of researched products. This is where the distinction is made. “For example, GSK will not sell a Novartis researched products in India, but Indian companies can very well do so,” Shah explained. “From Alembic’s perspective, a generic is a generic. Once it is off patent, it does not matter who originally formulated it. Multinationals do not come with that mindset, and that is why they are unable to capture the kind of market share as top Indian players like Sun Pharma, Glenmark, or Lupin.”
The resilience of India’s pharmaceutical sector means it is often in the strategic interest of MNCs looking to enter the sector to partner with local industry to license out patented products to Indian companies in order to tap into the domestic market. In India, marketing and selling take priority over product and price, and local companies can bring down the price to where multinationals cannot operate. It is in this way that India’s business culture works to its advantage: the complexity in navigating the crowded environment forces a system of mutual benefits in which foreign entities introduce innovative technologies and processes into the Indian ecosystem in exchange for access to an immense market that is otherwise far too complicated to navigate as a non-Indian.
Image courtesy of Annie Spratt from Unplash