The Re-Beginnan | Vol.2 | Issue 13
Indian Bulk-drugs Sector in Turmoil — All-New Schemes (2020)& Forecast
Current Stock of the Situation
The export of bulk drugs and intermediates has gone down to 20 per cent in the fiscal year 2018 from 42 per cent in the fiscal year 2008. Bulk drug exports worth INR 303 billion are expected from India in FY20. This is 20 per cent of what India earns from exports of formulations. Presently, the bulk drugs/API sector only contributes 20 per cent of the whole Indian pharmaceutical market while the rest is dominated by formulations.
The pandemic has been a wake-up call for the domestic bulk drug sector of India due to India’s high dependence on China for APIs (Active Pharmaceutical Ingredients), KSMs (Key Starting Material) and DIs (Direct Intermediates). India’s import dependence on China has risen steadily from 63 per cent in FY12 to 68 per cent in FY20. API dependence on a single nation (China), has made India vulnerable to many externalities like commodity fluctuation, policy changes, etc.
Impact of dependency on China:
Unpredictable Chinese Policies: To reduce the concentration of hazardous fine particulate matter, China has taken a proactive approach to be compliant with international environmental standards by enforcing stricter regulations. This has resulted in the closure of 150 API manufacturing plants in China. The closure of API plants has in turn translated into a 50–200 per cent rise in the price of most commonly sourced APIs and intermediates from China.
This unpredictability of Chinese regime can have a detrimental impact on India’s Health Security.
Consequences of the Pandemic: Due to the pandemic, there has been a shortage in the supply of APIs/KSMs/DIs from China. Formulations manufacturers also faced high price volatility posing a threat to India’s drug security.
India imports 50% of its critical APIs from China. If the pandemic situation aggravates, it can potentially lead to an increase in price volatility, impact exports for most pharma companies, and ultimately result in essential medicines becoming unaffordable and inaccessible to people. Domestic API production suffices ~50% of the total requirement. However, key starting materials (KSMs) for most APIs are still sourced from China.
The pandemic situation coupled with the India-China face-off at Galwan Valley has created distrust and uncertainty between the two countries and calls for immediate self-reliance.
Why are We Highly Dependent on China for Bulk Drugs?
India depends on China due to its competitive pricing. China can supply APIs at a cheap cost due to value chain integrated clusters, low-cost utilities, high capacity utilization, access to low-cost capital, logistics and infrastructure, cheaper labour with high productivity, upgraded technology and conversion efficiencies, high availability and cheap cost of raw materials, government facilitation and land reforms and economies of scale.
Government’s roadmap towards Self-reliance
To deal with the current situation and attain self-reliance in the bulk drug sector, the government has come up with many schemes amid the pandemic to give impetus to domestic manufacturing of bulk drugs. The schemes that have been rolled out by the government currently have a stark similarity with the recommendations made by the Katoch Committee in 2015. Following are schemes rolled out by GoI to promote domestic manufacturing of bulk drugs:
1) Production linked incentive (PLI) scheme for promotion of domestic manufacturing of critical key starting material KSMs, drug intermediates DIs & APIs — The objective of the scheme is to boost manufacturing of KSMs, DIs & APIs by attracting large investments in the sector. The Department of Pharmaceuticals has identified critical 53 APIs for which the country is heavily dependent on imports. 41 products have been identified which cover all of the identified APIs. Under the Scheme, financial incentives shall be given based on sales made by selected manufacturers for 41 products. KSMs/DIs/ & API manufacturers registered in India will only be eligible for the scheme.
This scheme will only be applicable for greenfield projects. The application window for the scheme is 120 days. The total financial outlay of the scheme is INR 6940 crore.
The financial incentive under the scheme on sales of 41 identified products will be for six (06) years at the rates given below:
– For fermentation-based products, incentive for FY 2023–24 to FY 2026–27 would be 20%, incentive for 2027–28 would be 15% and incentive for 2028–29 would be 5%.
– For chemical synthesis-based products, incentive for FY 2022–23 to FY 2027–28 would be 10%.
2) Scheme for promotion of bulk drug parks 2020 — The objective of the scheme is to promote setting up of bulk drug parks for providing easy access to world-class common infrastructure facilities to bulk drug units located in the parks to significantly bring down the manufacturing cost of bulk drugs and thereby make India self-reliant in bulk drugs.
Financial assistance under the scheme will be provided for creation of common infrastructure facilities in three Bulk Drug Parks proposed by State Governments and selected under the scheme. Financial assistance to a selected Bulk Drug Park would be 70% of the project cost of common infrastructure facilities. In case of North Eastern States and Hilly States (Himachal Pradesh, Uttarakhand, Union Territory of Jammu & Kashmir and Union Territory of Ladakh) financial assistance would be 90% of the project cost. Maximum assistance under the scheme for one Bulk Drug Park would be limited to INR 1000 crore. The total financial outlay for the scheme is INR 3000 crore.
3) Some Sub-schemes of the Scheme for Development of Pharmaceutical Industry that facilitate domestic bulk-drug production
a. Support to Bulk Drug Industry to establish Common Facility Centre (CFC) — A sub-scheme will provide financial assistance for creation of common facilities in any upcoming Bulk Drug Park promoted by State Governments/State Corporations. Some of the indicative activities under the Common facilities include Effluent Treatment Plants, Captive Power Plants, Steam and Cooling systems, Incubation facilities, Common logistic facilities, Advance common testing Centre, Regulatory awareness facilitation Centre and Emergency Response Centre.
INR 200 Crore has been earmarked for the scheme. The maximum limit for the grant in aid under this category would be Rs. 100 Crore per Bulk Drug Park CFC or 70% of the project cost of CFC whichever is less.
b. Pharmaceuticals Technology Upgradation Assistance Scheme — The objective of the scheme is to assist small and medium pharma enterprises (SMEs) to upgrade their plant and machinery to world health organization (WHO)/good manufacturing practices (GMP) standards. Assistance is in form of interest subvention against loan sanctioned by bank/financial institution in either public or private sector. Assistance will be provided to 250 pharma companies of proven track record. INR 144 crore is deployed for this scheme.
The upper limit of interest subvention on loans shall be restricted to 6 per cent per annum for a period of three years on a reducing balance basis. The upper cap for the loan will be INR 4 crore.
Take Away for Pharma Companies
Now is the right time for existing KSMs/DIs/API players to develop a feasible backward integration strategy and take advantage of government support. It is also a good time for new entrants to enter the market. Existing manufacturers of critical KSMs/APIs/DIs can take full advantage of the PLI scheme as the scheme is valid for only 120 days.
Scheme for promotion bulk drug park 2020 & Support to Bulk Drug Industry to establish Common Facility Centre (CFC) can be majorly used by SMEs and new entrants. They can take cost advantage and optimize their resources due to economies of scale.
Taking advantage of the Pharmaceuticals Technology Upgradation Assistance Scheme SMEs can upgrade their technology and meet Good Manufacturing Practices as per WHO standards.
The Way Forward…
These schemes coupled with the growing pharma market will give impetus to existing domestic manufacturers to increase their production and motivate newer players to enter the market. The government aggressively intends to reduce India’s dependence on China for bulk drugs and maintain the sanctity of India’s drug security.