India’s Pharma Boom — A quest to become ‘Atma Nirbhar’
Happy Independence Day! It is my way of wishing everyone the significance of Independence. No more than Independence Struggle, have we realised the importance of becoming Independent. In this era of globalisation, it’s quite hard to zero down on the fact whether vying for Independence is a good demand?
Although it has also been a global trend in recent months and years to become more self-reliant and introspect one’s trade, after the humungous spread of Corona Virus, disrupting most of the supply chains, Countries forced to rethink whether the preexisting model of business and supply the right way for them going ahead especially in critical sectors like Pharma, Defence and Electronics. There is an increasing demand from democracies around the world to ensure the safety of their citizens in digital and physical space.
Considering the recent rally between the countries for procuring the vaccine for their citizens first has made many countries sign contracts and agreements with a variety of Pharma companies. More on this can be found here in this article.
So coming to the topic of our discussion, to sum it in one go you can say the Pharma Industry, in general, is on a cloud nine and these days are going to stay for a long time now. The Indian pharma sector explicitly speaking, is booming. The Nifty Pharma Index — a proxy representation of India’s pharmaceutical industry is at a 4-year high. Domestic manufacturers are in high demand, and we can’t do anything wrong this time.
A little background on how this works, success in Pharma Industry depends on the research and development process that characterises it. It might take five years to develop the drug and maybe another ten years down the line to gain clinical approval. So the whole process of development is quite expensive, and it requires a higher risk appetite. So there are not many companies that can compensate for this process. So the company that initially develops the drug calls it innovator drug and the only way the companies can remunerate the cost is by protecting the drug rights through patent protection. So when the patent expires, the companies around the world can recreate their version of the drug. This copycat version of the drug is called Generic Drug, and Indian companies happen to be the market leader in this segment.
The reference to being market leader leads back to the Pre-Independence era when in 1947 almost 99% of the patents were owned by Multinationals, and this made the price to rise extensively despite manufacturing taking place in India. So the government in the 1970s tweaked the patent law to ensure the prices stay within control for commoners. So the new patent law was restricted only to new drug production.
So a manufacturer could manufacture the drug provided they reverse engineer the product and use some different manufacturing process to produce. So this made manufacturers built their muscle and become a behemoth. By 2005 we were forced to comply with product patent and streamline with global standards to increase the business and revenue. But by then, Indian manufacturers had already scaled up and had developed a bigger appetite.
However, our expertise was restricted only to Formulations. Formulations speaking simply means to combine few drugs in some proportions to make something useful, pack them in capsule, tablets and emulsions. So this business was already drab. Chinese already had a strong foothold in API’s(Active Pharmaceutical Ingredients) and Indians went ahead with this status quo and imported API’s from China at cheaper rate and manufactured the drugs back in India and soon become the ‘Pharmacy of the world’.
However, all this changed in 2020.
After Coronavirus spread throughout the country and the world, the whole system started collapsing. Suddenly, the Indian Manufacturers began realising that they need to make API’s on their own. But we had been importing 70% of API’s from China, and this sudden change wasn’t easy.
Even other countries which imported from China started looking for alternatives. Also, India began to revamping their muscle power and adjusting to this global change. The government started promoting the Industries to readjust to this need. However, while domestic pharma companies were taking stock of the situation, Divi’s was all ready to step up to the plate. Unlike most Indian pharma manufacturers, Divi’s never focused on formulations. Instead, their focus was exclusively on APIs. They were always the leaders in APIs, and 60% of all their sales could come from this segment. Which also meant they could extract a better margin and stay in business for this long.
However, with the sudden interest in APIs, Divi’s was looking to expand and make the most of this once in a lifetime opportunity. Their numbers speak for themselves. They are riding a purple patch.
This doesn’t mean it would be a walk in the park. Majority of sales of Divi’s comes from the US(80%), which happens to be a quite lucrative market. But this also happens to be a market which has quite stringent and tough rules and regulations.
As cheap drugs started coming in the US to support affordable medicines for all, the departments like US Food and Drug Administration (US FDA) started scrutinising the cheap imports to ensure the quality and standards are maintained. There were frequent surprise inspections. They paid great attention to minute details. And when they did find discrepancies, Form 483s were issued laying down specific observations regarding violation of manufacturing practices and quality control norms. And in the event the pharma company failed to furnish a response, they’d soon dispatch warning letters. Between 2010 and 2015, FDA inspection of Indian companies more than doubled from 108 to 270. Around 25–30% of the total warning letters issued by the FDA could be attributed to India alone.
These letters can have massive implications.
Companies spend thousands of millions of dollars on researching, setting up manufacturing and productionizing the drug and a single letter from USFDA can take them years to come back into the business and make the business profitable. And a single letter can scuttle their plans entirely. The USFDA can impose crippling restrictions on manufacturers, including banning imports from individual plants altogether.
Also, as the pandemic unravelled India’s dependence on China, the United States was having second thoughts about its reliance on India. The virus led disruption affected supply and pushed prices higher, and the US began to feel the pinch. President Donald Trump only recently announced the ‘Buy American’ program to end the country’s dependence on India and China in a bid to become Atma Nirbhar.
So although Divi’s and other Indian pharma companies are booming right now, we never know what’s around the corner. Hopefully, it’s another stretch of “purple patch”.
Until then, it’s a long way going ahead and time has shown us one thing, nothing last permanently and it’s all made for change so that the future can leave its mark on the past on the canvas of history and till then we can be prepared, have grit and see what fate has to offer for us.
