In the age of generics, globally there is an increased demand for cost competitive APIs. The Chinese pharmaceutical companies with its quality and low cost drugs are expected to attract the global players and take hold of a large chunk of the market. The driving force behind the success of Chinese pharmaceutical sector is collaboration between the private and state run industries. According to 2005 estimates, Chinese pharma companies have filed as many as 75 drug master files, up from 51 in the prior year. Also, there is an increase in Abbreviated New Drug Applications (ANDA). Currently, the China's pharmaceutical sector is ranked seventh in the world and is expected to become fifth largest by 2010. According to sources, sales have been estimated at around US$12 billion in 2006, while exports registered over 25 per cent annual growth.
The fact that out of the 194 API units in the international market, 71 units are located in China spells the country's dominance in the field. The India in turn houses 67 API units.
India and China are known for their volumes in APIs. But now, Indian API and excipients manufacturers have been hit by imports from China. Although the threat is for certain products segments like analgesic-antipyretic drug (paracetamol), antibiotics (penicillin), anti fungal (Metronidazole) and vitamins, China has captured a substantial part of the Indian market, industry sources pointed out.
Rishikesh-based Indian Drugs and Pharmaceuticals Limited and Hindustan Antibiotics Limited with two leading products, penicillin and vitamins, were forced to shut down operations because of the cheaper imports from China, industry sources said.
The domestic market scenario which holds more gloom than boom with excise duty on MRP and low value imports from China has seen the medium and small industries suffer to an extent, said RS Iyer, pharma consultant.
The China's entry into the Indian pharma space is a big blow. Formulations and API manufacturers have been affected, and the overall impact is a negative growth, said Jatish N Seth, director Shrushti Pharmaceuticals and secretary, Karnataka drugs and Pharmaceutical Manufacturers Association (KDPMA).
Referring to the factors that have helped Chinese pharma sector gain an edge over the Indian counterparts, Iyer said, "The Chinese APIs industry has benefited from low cost environment, removal of anomalous disparities in the tax structure and tariffs in the utilities, an income tax holiday of 100 per cent for the first two profit making years and a tax holiday of 50 per cent for the next three years and duty free capital equipment imports. These factors have enhanced productivity, while allowing companies to bring down prices. There is no such encouragement from the Indian government."
Another factor favoring Chinese manufacturers is the low labour costs, which is estimated to be 40 per cent lower than India. Since 1992, the country has also implemented intellectual property laws and data exclusivity rules taking it one step ahead of India.
The low value imports from China has forced Indian Ministry of Commerce and Industry to enforce the anti dumping laws, which has not been entirely effective. According to Shailesh Siroya, managing director, Bal Pharma, anti dumping programme requires cumbersome paper work and this has been a serious deterrent for the companies.
While the anti dumping laws protect drugs like paracetamol and a few excipients included under the purview of levies, there is no protection for Gliclazide, an oral hypoglycemic, anti-diabetic drug. According to Siroya, Bal Pharma is the only company manufacturing Gliclazide in India. Worldwide there are only a few players. The company has also received "certificate of suitability" issued by European Directorate for the Quality of Medicines for Gliclazide. But now it is facing a serious threat from the Chinese counterparts.
Gliclazide has no protection against the anti dumping law because it is the lone manufacturer in the market. But products with several players in the fray have some hope to survive if the complaints received for such imports are proved by the Directorate General of Anti Dumping, Siroya added.
There are serious problems with imports from China. While drug pricing is the biggest issue another grave situation is the delivery schedules, which are made with no commitment, Siroya noted. "The prices are almost 30-40 per cent lower than Indian products and the undercutting has affected the industry," he added.
Though the Union government through the Drugs Controller General of India (DCGI) has called for mandatory registration of all imports under the Foreign Trade Policy, with submission of DMFs, there are several instances of unregistered products entering India with registered labels, revealed sources on condition of anonymity.
In China, the volume capacities for drug production are concentrated in few hands. This leads to a situation where there is no guarantee for the Letter of Credit or signed deal for the product with a Chinese supplier.
The pharmaceuticals sector in China has also devised a strategy to grab the maximum sales in a year. The country has introduced a period of declining prices for seven months and a phase of increasing prices for the remaining five months. The basic parameters, which govern the future prices, are the applicable inflation rate that permits upward costs to compensate for the rising prices. This factor also plays on the productivity which reduces prices based on expected productivity improvements including increases in economies of scale that result from spreading fixed costs over increasing demand, said sources from the Institute of Economic and Social Change.