NEW DELHI – Significant disruptions to supplies of active pharmaceutical ingredients (APIs) from China caused by the COVID-19 pandemic have led India to fundamentally rethink its supply chains and the structure of its pharmaceutical industry, according to industry executives and consultants. Spurred by those disruptions, India has now taken steps to limit its dependence on China for APIs.

As of July 2020, India was importing 68% of its APIs and intermediaries from China, according to the Technology Information, Forecasting & Assessment Council (TIFAC), part of India's Ministry of Science and Technology.

The percentage of APIs India imports from China spiked from just 1% in 1991 to as high as 70% in 2019, as Indian companies stopped making APIs due to low margins, according to a July 2020 report from consultancy Pricewaterhousecoopers (PwC). Before COVID-19 lockdowns took effect in March 2020, India was importing 53 different APIs and key starting materials (KSMs) from China such as penicillin G, levodopa, streptomycin, meropenem, carbidopa, vancomycin, gentamicin and progesterone.

Through 2018 at 2019, Indian pharmaceutical companies imported $2.4 billion worth of bulk drugs and intermediates from China, according to data from the Trade Promotion Council of India. India’s API market is worth more than $10 billion and expected to grow to $15.33 billion by 2024, according to TIFAC.

The dependence on China for APIs can have very real consequences for companies and the industry as a whole. The report by PwC says this dependence has led to significant volatility in prices. The report says “prices of most commonly used APIs have shot up anywhere between 50 percent and 200 percent due to increasing wages and other costs in China, scenarios like the coronavirus outbreak, and impurity-related issues.”

Over the past few decades, Indian companies lost their competitive edge in the manufacture of APIs as costs increased and a lack of tax incentives made it difficult to boost local API manufacturing or build big bulk drug parks.

Now, after the COVID-19 disruptions, there is renewed interest in the products of Indian API manufacturers both domestically and globally, said Saikat Ghosh, a partner at Ernst & Young, speaking during the annual BioAsia 2021 conference held virtually on Feb. 23.

The need for APIs during the early days of the pandemic was significant, especially with a spike in demand for drugs used to treat Covid-19 patients, such as Veklury (remdesivir, Gilead Sciences Inc.). Gaurav Suchak, head of supply chain at Zydus Cadilla Healthcare Ltd., in Ahmedabad, India, said his company faced “back-end supply challenges” from China during that time and was forced to turn to a limited pool of Indian vendors of APIs.

“For the critical API molecules, the idea is to go for a backward integration where you are in control of that pie which is going to make the most impact on your business, and also to make sure that the entire value chain is secure" Suchak said.

Biocon Ltd., of Bangalore, India, used a percentage of revenues independent of imports of APIs from China as a yardstick for reducing import dependence, said Prasad Deshpande, who heads up procurement at the company.

Biocon still uses APIs from China but the company reported that during the last quarter of 2020 it was 50% to 60% independent of China for its APIs supply.

“That does not mean we will not source from China, but we are not dependent on China anymore,” Deshpande said.

Another large Indian pharmaceutical company looking to restructure its supply chain is Cipla Ltd. of Mumbai, India. Swapn Malpani, joint president and global head supply at Cipla, said during the conference that the company had initiated an “API re-imagination” program to expand its manufacturing capacity and reduce dependence on intermediates by opting for contract manufacturing organizations, partly by tapping into Indian government incentive schemes announced in 2020.

Cipla has three research facilities for API process development in India that work on synthetic, organic chemistry, process engineering and analytical development. The company’s API pipeline consists of more than 75 products used in drugs for oncology, hepatitis C, diabetes, respiratory and central nervous system disorders.

Restarting supply chains

In April 2020, the Indian government announced plans for a $1 billion production-linked incentive scheme to boost domestic manufacturing of critical KSMs or drug intermediates, used to make bulk drugs, as well as APIs. The Indian government also announced a $394 million scheme, mainly for infrastructure construction over the next five years, to promote the development of three bulk drug parks that would focus on the manufacturing of APIs and bulk drugs.

Some Indian companies are beginning to invest big in APIs. For example, Aurobindo Pharma Ltd., of Hyderabad, India, is planning to shift some of its focus to manufacturing bulk drugs, especially fermentation-based APIs, for which it plans to invest $414 million (INR 30,000 million) over the next 30 to 32 months.

“Cost is not the only driving factor. Sustainability of supply is also an important factor now,” Deshpande said. “Even in global formulations, attention is turning to India.”

But India has to overcome some hurdles before it can emerge as a key global API player. API manufacturing requires not only complex chemistry, which is one of India’s strengths, but is also an energy-intensive industry that requires lots of land, large factories, good water and steady power supply, all areas in which India lags China.

And PwC says China’s advantages, which also include economies of scale, translate into 15% to 20% lower set-up and production costs. Another advantage China has is government support for R&D that translated into investments over time of $1.6 billion in infrastructure and subsidies.

PwC says that financial incentives of the type India has put in place can help as short-term measures, but that “in the slightly longer term, the (Indian) government may look at the Chinese model and work on developing clusters for API and fermentation” along with looking at alternate sources.”