You don’t have to scratch very far under the surface of India’s pharma industry before you detect a hint of defensiveness. Have pharma companies in India had some run-ins with quality issues? Sure. But, as many in India’s pharma sector point out, when your industry is this big, that’s bound to be the case.
While India manufacturers address ongoing quality concerns, Sriram Shrinivasan, the global generics leader and India health sciences leader at EY, says that clickable headlines about U.S. Food and Drug Administration (FDA) warning letters for Indian pharma plants have cast a potentially unwarranted cloud over the country’s drug sector. According to Shrinivasan, there’s a bit of “hype” involved with how the outside world views Indian pharma manufacturing.
From an insider’s point of view, India has a strong track record of successful drug manufacturing with plenty of quality wins to boast about as well.
Home to the world’s second largest population, India has more than 3,000 pharma companies and 10,500 manufacturing facilities dotting its landscape, including the largest number of FDA-compliant pharma plants — more than 260, including API facilities — outside of the U.S.
The globe’s third-largest exporter of drugs with its success rooted in generic drug production, India is oft referred to as the “pharmacy of the world” — a moniker the industry there takes seriously. And despite becoming a generics giant, India’s pharma industry has proven to be nimble on its feet as it meets emerging challenges head on.
Market size
India’s pharma industry wasn’t supposed to swell to its current size. Starting in the 1970s, growth in India’s pharma sector was fueled by the Patent Act, which recognized process — but not product — patents, allowing pharma companies to reverse-engineer and produce drugs that were still protected by patents.
But in 2005, India signed on to the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), which sought to harmonize patent laws across member states. The new agreement forced India to recognize product patents, giving rise to concerns that growth in the industry would ultimately falter.
Rather than losing its edge, India’s pharma industry adapted to a more globalized structure and has continued to flourish.
According to Shrinivasan, India’s pharma industry was valued at about $4 billion just two decades ago. Today, it’s worth more than $41 billion. India’s pharma sector is also unique in the sense that its industry is evenly divided between drugs manufactured for export and those made for domestic use by the country’s 1.3 billion citizens.
Much of the growth continues to rest on generic drugs. Shrinivasan says that about 40 percent of the FDA’s approvals for Abbreviated New Drug Applications — or ANDAs, the applications for new generic drugs — come from Indian companies.
The lower cost of production — about 40-60 percent less than in the U.S., according to EY’s estimates — coupled with a steady stream of skilled STEM workers has also made India an attractive destination for pharma manufacturing.
Yet, India’s pharma space has also found room to grow by adopting advanced technologies and breaking into rising sectors of the industry — all while navigating what Shrinivasan calls a “perfect storm” of problems.
New threats
Price erosion
“A major issue [for India’s pharma industry] is U.S. pricing,” Shrinivasan says.
Within the last decade, significant consolidation among buyers in the U.S. has taken pricing leverage away from Indian pharma companies. The consolidation among major retail pharmacies, drug wholesalers and health care institutions has amounted to a situation where three buyers now control about 90 percent of the market for Indian drugs, Shrinivasan says.
As a result of the consolidations, Shrinivasan notes that pricing on generic drugs from India has been decreasing “quarter by quarter.”
“This has reduced the ability for Indian pharma companies to make margins,” Shrinivasan says.
More competition
While prices continue to fall, the number of new entrants into the industry is on the rise, partly due to a side effect of the FDA’s Generic Drug User Fee Amendments law (GDUFA).
Enacted in 2012, GDUFA was designed to speed the approval of new generics to help the U.S. address rising concerns over drug shortages. Prior to GDUFA, Shrinivasan says it could take two to three years to get a new generic drug onto the U.S. market. Now, the timeframe has shrunk to a matter of months.
While the country’s major pharma manufacturers — Sun Pharma, Dr. Reddy’s, Cipla and others — still dominate the scene, a swath of new and smaller players have sensed the opportunities created by GDUFA and elbowed their way onto the market.
The pharma industry in India is also facing rising competition from other countries, such as Bangladesh, looking to expand high-volume commodity manufacturing for generic drugs.
Supply chain hiccups
Similar to countries around the world, pharma companies in India have found themselves a bit more beholden to Chinese imports of active pharmaceutical ingredients (APIs) and key starting materials (KSMs) than they would like. This reliance on China for the needed ingredients to produce generics has been heightened during the COVID-19 pandemic.
“During the last few months, most countries — including India — have experienced disruptions in the pharma supply chain because of the dependency on China for APIs and KSMs,” Shrinivasan says.
Yet, like many countries with a large generic drug production infrastructure, the reliance on Chinese imports has also become a catalyst for change.
Growth factors
API production
Already one of the largest generic drug companies in India — and the world — Dr. Reddy’s has set a new, ambitious goal for itself. According to Marc Kikuchi, CEO of Dr. Reddy’s North American Generics unit, the company is now looking to become the globe’s leading API supplier by 2027.
The pandemic was a needed wake-up call for the industry, Kikuchi says. Although Dr. Reddy’s, which sells over 150 different product families in North America alone, was able to keep about 90 percent of its portfolio in stock during the pandemic, the company has sharpened its focus on further securing its supply chain in recent years.
One strategy has involved diversifying its sources for APIs to companies in the EU and India — a trend that Kikuchi is seeing throughout the pharma industry in India.
“There are unexpected partnerships emerging in India right now,” Kikuchi says. “Evidently companies have been buying APIs amongst each other for a long time, but now some of these companies have progressed to commercializing finished dosage forms in the U.S.”
But, like many in the industry, Dr. Reddy’s is also pivoting towards producing more of its own ingredients.
“We want to have more control of our supply chain and control of our destiny,” Kikuchi says.
Of course, as the entire industry looks for ways to move away from China, Dr. Reddy’s is also seizing the opportunity to become the world’s new go-to source for APIs.
Currently, Dr. Reddy’s manufactures its APIs for North America in Mexico and India. Going forward, Kikuchi says the company could expand its API footprint in India to boost output, while marketing its name recognition and supply reliability to increase its attractiveness over Chinese sources. Even if Dr. Reddy’s doesn’t land in the No. 1 spot on the global API market, Kikuchi says that expanding its API business will be an important pillar of growth for the company in the years to come.
“Worst case scenario, we’re in the top three [for global API suppliers],” he says.
Indian companies looking to expand API production are finding plenty of backing from the local government. As part of a new, two-phased initiative called the Production Linked Incentive Scheme, Shrinivasan says that the Indian government is pouring money into increasing capacity for Indian-made APIs.
“The Indian government has approved a spend of around $2 billion to boost domestic capability in manufacturing APIs and various categories of complex formulations,” he says.
Strict environmental laws, however, could slow the rate of investments into India’s API and KSM space. According to Sujay Shetty, a partner at PwC India, India has environmental laws on par with first world countries. In this regulatory environment, winning a permit for manufacturing can take up to nine months — a wait period that the industry would like to see reduced to one to three months.
“This is bothering the industry,” Shetty says. “They want shorter periods of environmental approval times.”
Going forward, India will have to strike a tricky balancing act between demands from environmental groups and the desire for industry investments — particularly for APIs and KSMs, which are often considered “dirty” products to manufacture.
“There is a way to do it without compromising environmental rights,” Shetty says. “But it’s not a very easy problem to solve.”
Going up the value chain
How can Indian generic drug companies stay competitive with new entrants flooding the industry? With novel delivery systems.
“If something is a tablet, make it into a patch. If it is a capsule, make it into an inhaler,” Shrinivasan says.
Embarking on these kinds of changes costs more in R&D, but Shrinivasan says that Indian companies are turning to this strategy more frequently because they can leverage the enhanced value to keep prices competitive.
Biologics and vaccines
In 2017, Biocon became the first Indian company to usher a new biosimilar across the FDA approval finish line. Developed with Mylan, the drug, Ogivri, is a biosimilar to Herceptin, Roche’s blockbuster cancer med.
Even before that major FDA win, Biocon had already successfully launched biosimilars in other countries — proving that an Indian pharma company can become a big player in this high-growth sector of pharma. Late last year, Biocon Biologics, the company’s biologics subsidiary, also scored a $150 million investment from Goldman Sachs.
“Recent deals demonstrate the confidence that large global institutions have in India’s ability to become a world leader in biosimilars,” Shrinivasan says.
Vaccines are another frontier where Indian companies are showing their prowess. According to Shrinivasan, over 60 percent of the world’s vaccines come from India — and it’s a role that has become more vital during the pandemic.
In January, Indian regulators approved Covaxin, a COVID-19 vaccine developed by Bharat Biotech, a local company that received government backing. Phase 3 trials of Covaxin showed that it was about 81 percent effective and the company has plans to export doses to a number of neighboring countries.
India has also approved the vaccine co-developed by University of Oxford and AstraZeneca, which is being manufactured by the Serum Institute of India (SII), the world’s largest vaccine maker. Prior to the pandemic, SII cranked out about 1.6 billion doses of vaccines annually, distributed in over 170 countries. Now, SII says it is making more than 50 million doses a month of the Oxford/AstraZeneca vaccine.
Innovation
“Every year there are literally millions of engineering grads coming out of the school system, so you have plenty of qualified people,” Kikuchi says about one of the prime benefits of manufacturing in India.
This constant flow of science-minded grads not only helps keep the pharma industry humming, it will also be critical to companies hoping to innovate new drugs — an area of pharma where India has yet to thrive.
“What companies in India haven’t done well so far is discovering and developing new molecules,” Shrinivasan says. “The holy grail now is to get into the innovation game. They haven’t got that right yet, but they are working on it.”
In addition to more companies discussing increased R&D investments, Shrinivasan says the government has also set up a new venture capital fund that provides seed money for drug innovation.
Onwards and upwards
Quality issues may continue to haunt the Indian pharma world, but for the industry there, that challenge has also provided more incentive to push towards the adoption of advanced technologies.
“In the past few years, [Indian pharma companies] have realized that the new nucleus on value creation lies at the heart of digital transformation, which has been further intensified during the COVID pandemic,” Shrinivasan says. “Leading generics companies across India have started implementing automation and digitization across the value chain, including R&D for faster approvals and reach, supply chain planning and optimization tools, and quality planning tools to reduce anomalies.”
For Dr. Reddy’s, which received five Form 483s from the FDA in 2019 for various quality observations, being dinged by regulators has offered more opportunities to fine-tune processes. In particular, Kikuchi says one strategy Dr. Reddy’s has used is closely monitoring what other companies are being issued observations for — such as documentation or cleaning procedures — to stay on top of regulatory trends.
The company has taken steps to beef up its quality management in the last few years by revamping procedures, implementing new analytical methods to better detect impurities, and leveraging artificial intelligence and digital analytics for better data management in the production process.
“It’s all about continuous improvement,” Kikuchi says.
