COVID-19 Lesson: India Earmarks $1.3bn To Reduce Dependence On China

In a bid to ensure long-term medicines security, the Indian government has earmarked $1.32bn to promote domestic production of 53 APIs, including lopinavir and ritonavir currently being evaluated to treat COVID-19 cases, as well as antibiotics, for which India is highly dependent on China.

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India Aims To Reduce Its Supply Chain Vulnerability Post The COVID-19 Crisis

The COVID-19 pandemic has proven to be the wake-up call that India, heavily dependent on China for pharmaceutical raw material supplies, needed to build its defense. As the world fights a massive health challenge that has so far affected over 170 countries and territories, forcing several into lock-downs and making "social distancing" part of daily life, India has acted on a long-standing problem.

In a INR99.4bn ($1.3bn) stimulus, the union cabinet recently approved incentivizing the production of 53 critical active pharmaceutical ingredients (APIs) as well as key starting materials and intermediates related to these, while also sanctioning funds for setting up three bulk drug parks in the country. India imports nearly two-thirds of its APIs by value from China.

In a two-pronged de-risking strategy aimed at reducing this dependence, the Indian government will promote setting up of API parks to offer Indian producers operational ease as well as cost benefits. It will also incentivize manufacturers via a production linked incentive scheme to improve the economic viability of producing 53 critical drugs that have been identified as being essential to India’s medicines security.

Of the total INR 99.4bn, INR69.4bn has been earmarked to incentivize API production and INR30bn to set up pharmaceutical parks in collaboration with state governments.

With common facilities like solvent recovery plant, distillation plant, power and steam units and effluent treatment plants, the parks are expected to lower a company’s investments in fixed assets as well as operating expenses, thus lowering the cost of manufacturing APIs in the country. Besides, common environmental clearances for the entire park will mean that individual companies won’t have to approach government authorities for approvals.

Financial incentives will be given to eligible manufacturers of the 53 identified APIs on their incremental sales over the base year (2019-20) for a period of six years, scheme details reveal. While the duration of the scheme is eight years, some time is expected to be spent in working out the finer details and setting up a  project management agency to be nominated by the Department of Pharmaceuticals that will oversee implementation.

The scheme intends to attract large investments in the sector that will in turn ensure sustainable domestic supplies of critical medicines. The government estimates incremental sales of INR464bn and significant additional employment generation over the life of the scheme.

Sub-Committee To Clarify Finer Details

While industry has hailed the move, it is awaiting clarity on whether the incentives will only be given to new manufacturing units set up after notification of the schemes. An official on the policy committee at the Department of Pharmaceuticals told the Pink Sheet, “A sub-committee is finalizing the finer details and that activity has still not concluded. We were to meet the industry around March 21 but due to restricted movements, that has not happened.”

India has been under a nationwide lock-down since midnight of 24 March after Prime Minister Narendra Modi announced the move to prevent further spread of COVID-19 among its 1.3 billion population.

“It is a step in the right direction. While the schemes have been notified, studying the details will take some time. The finer details are yet to be specified,” said Daara Patel, secretary general of the Indian Drug Manufacturers Association, an industry body.

“The new schemes will definitely be successful. Already, a pharma park is being set up in Telangana where an API cluster can develop. Whenever incentives have been given like in the states of Himachal, Uttarakhand and Sikkim, the industry has responded. Even this time there will be investments as this is being done with good intentions and in national interest. Once our dependence on China reduces to 30-40%, we will also be in a better position to negotiate with Chinese producers so they cannot suddenly or sharply increase prices,” said B R Sikri, vice-president of the Bulk Drug Manufacturers Association of India, a leading industry body of API producers. He is also chairman of the Federation of Pharma Entrepreneurs India.

An industry expert told the Pink Sheet that the government’s initiatives will work only if the entire chain from the API manufacturer to the formulations producer is compelled to buy products made in India. Business imperatives will otherwise mean that formulations manufacturers will continue buying from China as it makes economic sense.

“Else, import tariffs will have to be imposed which will not go down well in the international community. And what if China drastically drops prices tomorrow. Then how will Indian API manufacturers survive?” he asked.

Why These 53 APIs?

A high-level government committee had earlier submitted its recommendations to the Department of Pharmaceuticals (DoP) which then finalized the list of 53 APIs. The APIs chosen for this exercise are not produced domestically or are in short supply, are essential to treat highly prevalent diseases in the country like diabetes, tuberculosis and cardiovascular problems or are in high demand like antibiotics and vitamins.

Some of the APIs that are exclusively imported are ciprofloxacin, potassium clavulanate, ceftriaxone sodium sterile, vancomycin, gentamycin, piperacillin tazobactam and meropenem. A few like lopinavir and ritonavir are being repurposed to treat COVID-19 cases in some countries.

 

LIST OF 53 APIs SPECIFIED BY INDIAN GOVT. FOR ITS INCENTIVE SCHEME
Amoxicillin	Cephalexin	Cefoperazone	Cefixime	Tetracycline	Potassium clavulanate
Oxytetracycline	Doxycycline	Gentamycin	Neomycin	Betamethasone base	Piperacillin tazobactam
Acyclovir	Lopinavir	Ritonavir	Sulfadiazine	Levofloxacin	Ceftriaxone sodium sterile
Telmisartan	Losartan	Valsartan	Olmesartan	Atorvastatin	Streptomycin sulphate sterile
Gabapentin	Levodopa	Carbidopa	Artemisinin	Ofloxacin	Dexamethasone base
Clarithromycin	Rifampicin	Azithromycin	Ciprofloxacin	Norfloxacin	Clindamycin hydrochloride
Vitamin B1	Vitamin B6	Paracetamol	Diclofenac sodium	Aspirin	Clindamycin phosphate
Metronidazole	Tinidazole	Ornidazole	Prednisolone	Carbamazepine	Erythromycin stearate/estolate
Metformin	Sulbactam	Meropenem	Levetiracetam	Oxcarbazepine

 

COVID-19 Proved To Be A Turning Point

A vulnerability to Chinese imports has been causing concern for long, with industry bodies bringing out several reports on the subject and repeatedly petitioning the government to help an ailing part of the pharmaceutical industry.

As the coronavirus crisis, that began in Hubei province in December 2019, caused China’s pharmaceutical factories to temporarily shut down and logistics networks to crumble, India watched the former closely for any impact on supplies of key starting materials, intermediates and APIs. 

Despite having two to four months of stock, Indian industry leaders grew concerned about price increases and hoped the situation would resolve by mid-February. It has taken nearly a month more for a near-normal situation in China though confirmed cases of COVID-19 disease still keep surfacing.

In the meantime the Indian government imposed export restrictions on 13 APIs and their finished dosage forms, which caused its own set of problems for pharmaceutical exporters. (Also see "India Curbs Exports Amid Coronavirus" - Generics Bulletin, 4 Mar, 2020.) (Also see "Coronavirus Fallout: India’s Paracetamol Exports Hit" - Scrip, 24 Mar, 2020.)

However, this isn’t the first time Indian industry has caught a cold when China sneezed. Supplies were reported to be affected during the 2008 Olympic Games in Beijing as industries were shut down in a bid to control pollution and in 2017 when diplomatic relations between the two countries deteriorated over Chinese construction of a road in Doklam close to the India-China border.

It wasn’t always like this. An October 2019 report by consulting firm PricewaterhouseCoopers (PwC) quotes India’s Department of Pharmaceuticals data to show that India’s percentage of API imports from China spiked from 1% in 1991 to 80% in 2018, primarily on account of extremely competitive pricing  made possible by large-scale manufacturing incentives and state-driven subsidies offered by the Chinese government to promote exports. (Also see "Indian Pharma Monitoring Coronavirus Fallout On Production" - Scrip, 7 Feb, 2020.)

As API prices dropped, Indian companies which once used to meet a large part of the domestic requirement moved away from low-margin APIs to those which offered higher returns via exports or by virtue of the finished dosage forms not being price-controlled. India now imports 80-90% of APIs required to produce at least 12 essential price-regulated drugs listed in the country's National List of Essential Medicines.