The Union government is pulling out all stops to accelerate the active pharmaceutical ingredient (API) production to ensure that Indian companies are now longer dependent on China which is the largest market for the same. In order to achieve this objective, the government has offered a slew of incentives like easy access to land to set up API parks which will give a boost to manufacture and create jobs.
The government has declared the year 2015 as the year for API, and in the same year the first step taken by the government was to set up the ' Katoch Committee ' to suggest remedial action so as to deter the over-dependence on China for APIs and intermediate.
In a year of slowdown and with the visible slowing down of the Chinese economy, the Department of Pharmaceuticals (DoP)is now making an effort to ensure quicker implementation of the Katoch Committee, which recommended setting up of large manufacturing zones (LMZs)/mega parks for APIs with common facilities maintained by a separate special purpose vehicles (SPV).
According to reports, the sector is valued at around US$ 120 billion and projected to grow at a CAGR of 6.5 per cent to US$ 185.9 billion by 2020. Globally, there are around 7, 000 APIs of which US share is 45 per cent. India has over 2,000 API manufacturing units producing nearly 1,500 APIs, which is estimated at US$ 9 billion. Out of this nearly 50 per cent is for export. The Asian contribution to the API industry is shared between India: 33 per cent, China: 61 per cent and others: six per cent.
Advantages of India
India has the opportunity to grow this business and increase its global market share. Indian pharma industry is the front runner in science sectors. The key strengths of the Indian industry are the sound knowledge of chemistry, access to competent and technologically sound work force, which has enabled it to gain a strong foothold in the global API market. In 2014-15, the export revenues that ensued from the pharmaceuticals is estimated at around US$12 billion and is seen to increase to around US$20 billion by 2020.
According to DoP, the government has already examined the recommendations of the committee in detail and will go ahead with that to establish mega parks for bulk drugs in the country. Sources also said that several state governments have shown interest in setting up mega bulk drug manufacturing units and are waiting for the green signal from the central government.
The Katoch report called for immediate establishment of six large API intermediate clusters in five to six states are expected to revamp pharmaceutical activity. To begin with DoP is now looking to commence at least two fully financed clusters. While one will focus on fermentation and other on APIs. The efforts to materialize this could be driven by an Empowered Committee An average cluster will require about 1,000 to 2,000 hectares of land and will require about Rs. 750-1000 crore investment for common facilities/services if all requisite schemes are developed and implemented in near future within 3-6 months.
These parks could be allotted to large bulk, medium and small manufacturers on the basis of a formula to be specified in the guidelines which may be prepared by the DoP. Because of similarities in technologies for chemical or fermentation technologies, separate parks for such manufacturers will be desirable. One such functional cluster can bring benefit of around US$one billion dollar per year. It is felt that three clusters may succeed in wiping out dependence in the area of APIs, the DoP panel recommended.
To begin with, such facilities will need to be provided at a concessional rate and preferably free of cost. This will help in competing with the other countries and also generating large employment. Such mega parks need to be provided with common facilities such common effluent treatment plants (ETPs), testing facilities, captive power plants/assured power supply by state systems, common utilities/services such as storage, testing laboratories, IPR management, designing, guest house/accommodation.
These zones will need to be supported with power plants and solvent yards. These zones could be set up in National Manufacturing Investment Zones in Petroleum, Chemicals and Petrochemical Investment Regions (PCPIRs) in states that have the requisite facilities or systems in place. These cover Gujarat, Andhra Pradesh, Tamil Nadu and Odisha. Efforts to allocate the land in the vicinity of mega complexes where chemicals meant for further stages in producing APIs could be produced.
Since API is known for its pollution emission, the government sees mega parks as the best way to protect environment. The cost of the pollution control is very high as it requires highly capital intensive technology to treat pollution. It is, therefore, necessary to have proper rules and regulations to have check on the pollution level and the quality of the output. But at the same time there is a need to come out with procedures of implementation which are efficient and effective which include aligning the provisions of the Acts and Rules regarding not just pollution control but customs and excise duty, export bodies like Directorate General of Foreign Trade (DGFT), coal allocating bodies, electricity authorities to have a cell in the mega complexes proposed for the bulk drugs, said the DoP panel.
Time-bound efforts needed
The focus on API support is long pending and this Katoch Committee report should have been a part of the National Pharma Policy which is also long overdue, pointed out Kaushik Desai, Hon. General Secretary, Indian Pharmaceutical Association.
According to Manoj Palrecha, managing director, Lake Chemicals, the initiative is long overdue but the implementation and execution should not take a long time. The industry is looking for time-bound efforts. As it stands, the action is missing and we are unsure of how the government will take this forward.
While the report is impressive and interesting, we should learn from China about their manufacturing prowess in intermediates and API along with the backward integration efforts. Now our government is reacting late as China is now seen to face a serious decline in growth. Our government needs to speed up for a quick implementation of Katoch report and reduce dependence on imports from China, stated the Lake Chemicals chief.
Sunil Attavar, president, Karnataka Drugs and Pharmaceutical Manufacturers Association said that the major development for the state pharma industry is the Karnataka government identifying Hassan and Mangaluru for the Pharma Park. But action is yet to take off.
In the recent past, drastic in-house manufacturing cuts implemented by the pharma giants because of poor cost viability and increased productivity issues coupled with other key parameters such as high-end R&D costs and pricing issues on finished formulations have resulted in a thrust to outsource API production.
The highly profitable biological API segment is experiencing positive spikes driven by an interest evinced by the Big Pharma. Similarly oncology API comprising of high potency active pharmaceutical ingredients (HPAPIs) are expected to be a major growth drivers worldwide. There has also been a paradigm shift in the use of innovative drugs to that of low-cost API drugs after the economic recession, thereby causing a positive impact on the overall growth of the API market.
Industry to show more traction
Furthermore, the API scenario is likely to show more traction in response to the evolving regulations in the markets of North America and Europe. Consequently, the growth opportunity in API manufacturing segment is shifted from local markets to the second in-line emerging markets of India and China.
Given their overall dominance in intermediates and API manufacturing, Chinese players can pose a serious competitive threat to their Indian counterparts, much beyond the APIs for essential drugs.
In order to keep abreast with these changes, API manufacturers are adopting novel technologies to reduce the processing time in order to yield more production. The HPAPI compounds are highly effective due to the targeted therapy. Hence, its application for cancers is a major driver. The market of North America is the largest and accounts for major share followed by Europe. But Asia is growing at a higher CAGR as compared to North America & Europe.
Indian pharma industry sees this as an opportunity as the country is known for its economical pricing and expertise supported by the large plants which have global regulatory compliance, stated industry observers.
Globally, the API industry is entering a new growth phase. From new regulations to patent expiry and Para IV focus, the API industry is experiencing unprecedented growth due to the escalation in market dynamics of competition and consolidation.
API companies will need to focus on manufacturing efficiencies and building partnerships with customers in order to succeed, according to a section of industry manufacturers across all markets of US, EU, Japan and the Asia-Pacific region.
Indian API companies like Aurobindo, Hetero Drugs, Granules, Lake Chemicals, Lupin, Divi Labs, Mankind Pharma, Shilpa Medicare, Hetero, Malladi, Dr. Reddy’s, Micro Labs, Bal Pharma, RL Fine Chem, Biocon among others are realizing and exploiting the potential of the US and the European market with a slew of products.