There is an urgent need for creating and increasing capacities of Active Pharmaceutical Ingredients (APIs) and basic chemicals, to maintain exports and affordability in domestic healthcare, according to an Indian Drug Manufacturers Association (IDMA) position paper on APIs seeking support for the Indian API industry from various departments and ministries.
Indian API manufacturers have opportunities to lead the world provided they are supported to seize it. A national direction for attaining world leadership needs to be set involving all aspects like policy, regulatory issues, market dynamics etc, the paper pointed out.
If Indian pharma industry wants to be a leader in APIs, the plants should meet not only 'Schedule M' standard, but should also meet WHO- GMP standard. For this, assured funding at low rate of interest and easy repayment schemes are necessary for upgradation or setting up new units. The support by Central Government for the development of the API industry should be in coordination with state financial institutions, the paper said.
One important aspect which contributes heavily to the cost of manufacture is effluent treatment. It is essential to have more Common Effluent Treatment (CETP) facilities to be created by the Government near the Industrial Estates. At present effluent treatment activities are unnecessarily duplicated at heavy cost, as each industry is obliged to; provide ETP to treat its effluent to the prescribed levels' set by the Pollution Control Board before discharging it to the CETP. The purpose of CETP then becomes only as a collection agency. Instead if CETP accepts only neutralised effluent from each industry and has a centralised treatment plant, there will be tremendous cost saving as duplication will be avoided.
Also the environmental laws are stringent and almost in line with those applicable to the Chemical Industries. We recommend that the laws should be modified taking into account the smaller tonnage of APIs as compared to the Chemical Industry and also the extent to which the API pollute the environment.
Each plant can then be charged based on the basis of quantity and COD of effluent discharged by it. If implemented this would go a long way in reducing the cost of manufacture particularly for SMEs. At present the treatment cost including interest on fixed cost can be as high as 10 per cent of the RM cost which is in many cases more than the profit margin.
Tracing the growth of Indian pharma industry, the paper said that till the '60s, medicines were imported in the country and the pharma industry was dominated by foreign companies. Now, 50 years down the road, the complexion of the Industry is distinctly Indian, and India has acquired a dominant position in the pharmaceutical sector. From depending on importers of finished formulations from the West, India has emerged as a leading exporter of APIs as well as formulations to developed nations.
The growth has been phenomenal and India is today recognized as one of the leading players in the manufacture of generics - both APIs and formulations. India is one of the top five countries producing and exporting APIs and it is estimated that 40 per cent of the world's API requirement is met by India. The national sector of the Industry is a flag-bearer for India's export competitiveness and continues to serve the domestic market admirably with quality affordable medicines. The Industry also continues to invest sizeable amounts in IPR, created largely to target global competitiveness.
Rising Government deficit, reduction in healthcare budgets, high priced prescription drugs, administrative costs, spending on chronic diseases, rise in life expectancy generally and increase in the population of the old is causing Governments worldwide to take great pains to curtail mounting healthcare costs and higher expenditure from respective national health budgets. This is leading them to look for affordable therapeutic alternatives. Generic APIs and formulations from India are seen as an ideal option for their affordability and quality.
However, the recent trends of globalization has seen an erosion of API manufacture in India, mainly due to the unhealthy competition from China due to dedicated large volume production plants sponsored by the state. Moreover the transaction costs in China are far lower than what is prevalent in India.
For instance, provinces in China provide for large areas of land practically at no extra cost or at a nominal cost. Though it may not be possible here , land cost can be subsidised by central to state Govt. who will allocate land at low cost to the industry with extended period of repayment, the paper said.
Extremely low prices of APIs from China have increased our dependence on China to dangerous levels. The Chinese Government has also recently revealed plans to invest more than US$ 750 million to build up capacity to produce APIs mainly for exports.
The growth of the API industry from the 70s to 2000 was due to the pragmatic funding by state & central financial institutions and nationalized banks to first generation entrepreneurs & for subsequent expansion of the successful entrepreneurs. Most of the successful large API manufacturers today were small - scale units promoted by first generation entrepreneurs and were funded by state financial institutes & banks without co-lateral securities.
While the Indian economy is entrepreneur driven, the Chinese economy is government supported. The first generation entrepreneurs in India, whether in pharma, engineering, chemicals, dyes, IT , automobile spare parts or any other industry, had done wonders in last 30 years i.e. 1970 to 1990 due to the government's encouraging policy to develop industries.
At present first generation entrepreneurs, scientists or technocrats will find it difficult to start manufacturing without deep pockets. The land price is extremely high. Even a small land of about 2000 meters costs anywhere between Rs. 40 lakhs to Rs.100 lakhs. The question is who will fund the first generation entrepreneur with a vision to be a large manufacturer in 20 years. Similarly if a large scale unit wants to procure 20 to 50 hectares of land, it will have to do so at a prohibitive cost, whereas in China, the government supports the procurement of large areas of land for the pharma industry at affordable costs.
There must be a concerted move by the Government, both central and state, to focus on the economies of scale, providing land at economical rates, strengthening of R&D & manufacturing and funding. Lately, the structure of the industry has become capital intensive with stringent requirements to set up dedicated manufacturing and R&D facilities for different varieties of drugs to ensure drug safety and quality. Further, importing is far cheaper than revamping manufacturing for several product classes. As the infrastructure is technology and human skill intensive, the cost of setting up and running such facilities to serve small volumes becomes uneconomical.
Till 2003, a level - playing field was provided for local manufacture and imports of APIs. Dumping of APIs and basic chemicals was dealt with severely to protect local manufacturers. From January 1, 2003, mandatory registration of all manufacturing sites was implemented under the provision of Drugs & Cosmetics Act and Rules, to ensure the availability of quality APIs for our booming formulation market and exports.
The DCGI should follow regulatory procedures of USFDA and EDQM by sending inspectors for site inspection at Overseas manufacturing units; thereby the number of Chinese manufacturers dumping APIs in Indian market will be curtailed. The present timeline for getting approval of our API formulation from Chinese SFDA is minimum two to three years.
The API industry requires whole-hearted support from the Government in terms of realistic costing and price controls. Also strong support from Indian formulators in sourcing their API requirements indigenously will make a lot of difference to our hard hit API manufacturers.
Whilst low prices of Chinese Origin APIs is attractive, this phenomenon could only be temporary as nothing would stop them from increasing prices once they are aware of the fact that Indian Manufacturers of APIs have closed down due to cut throat competition. This could be a death knell for the pharmaceutical Industry in India as some of the key APIs required for formulation manufacture would not be available.
It is the government's duty to protect the industry from such arm bending tactics of China.
To sum up the paper seeks the following support from the Government:
- Government must reconsider the proposed wide spread cost based price control and keep all APIs out of price control.
- NPPA must be requested to be transparent in their working and requested to involve industry while fixing prices.
- Indigenous manufacture through fiscal and other methods need to be encouraged. A lower tax regime for locally produced APIs is perfectly TRIPS compatible.
- Setting up a dedicated API & Basic Chemicals Fund (ABC Fund) of about $ 700 million to develop small & large API manufacturing facilities.
- Land should be provided at cheap rates for large dedicated API plants as small- scale industry and the first generation entrepreneurs require support from governments, both central and state, to procure land at reasonable prices on long lease.
- Payment against allocation of land to start only after five years. This will encourage scientists, technocrats to set up API manufacturing units, which are highly capital-intensive. Similarly large scale units should also be assisted in procuring land at subsidized rates with easy payment terms in instalments of 15 years, to begin, as mentioned above, only after five years.
- No co-lateral security by banks or financial institutions to be demanded from entrepreneurs. Land and manufacturing facilities i.e. stocks can be hypothecated to financial institutions and banks.
- Entrepreneurs must be encouraged to tie up with universities and research institutes for development of APIs . Simultaneously these institutes must be provided with incentives to put up incubators & pilot plants to enable first generation entrepreneurs either small or big to successfully complete their R & D projects at a pilot plant level at small cost which will reduce their risks and encourage them in putting up facilities confidently.
- Excise free mega industrial parks may be set up in all the states for manufacturing basic chemicals and APIs.
- A fast track single window needs to be set up for refunding all the duties paid. This can be by way of immediate credit in the exporter's bank account once the export is made, as is done in Korea.
- Anti - dumping duties should be notified and implemented as and when required to support local manufacture and provide for level - playing field.
- All these will be best achieved by forming a task force of all groups of secretaries (from concerned ministries) and association representatives under the chairmanship of the cabinet secretary, so that a concerted effort is made to revive and boost the API industry in India.
Understanding industry issues and a focused move to resolve them will go a long way in improving the health and confidence of indigenous pharma companies. With government's active support and incentives, and removing the few roadblocks listed above, there will be no holding back
the Indian pharmaceutical Industry from achieving near self-sufficiency in APIs and basic chemicals, the paper concludes.