Last Updated on Mar 24, 2021 by Manonmayi
While the coronavirus pandemic and its resultant lockdown has been harsh to most sectors of the economy, it has come as a boon in disguise to the Indian pharmaceutical sector. Apart from certain issues such as a disrupted supply chain and heavy reliance on China for the import of active pharmaceutical ingredients, COVID-19 has bestowed quite some opportunities in the pharmaceutical sector in India.
In this article, we shall see how COVID-19 has impacted the Indian pharma sector and what are its prospects after the pandemic.
Overview of the pharma sector in India
India is the world’s 3rd largest drug producer in terms of volume. It manufactures 60% of vaccines globally, which accounts for 40% to 70% of the World Health Organization’s (WHO) demand for Pertussis, Bacillus Calmette Guerin, Tetanus, and Diphtheria vaccines. India also contributes 90% of the global demand for the vaccine to treat measles.
As such, the pharma sector in India has made a significant contribution to the global demand for generics in terms of volume. Drugs made in India and supplied worldwide are known for safety and quality. However, India has been facing high competition from China on the API front for years as China supplies active pharmaceutical ingredients (API) at a much lower cost.
Banking on this cost advantage, India gradually turned to China for its API needs. Today, India imports 70% of its API needs from China. As a result, domestic pharmaceutical companies manufacturing certain key APIs have been suffering. Besides, such heavy dependence on China coupled with a shortage in the supply of key APIs also causes a severe threat to the country’s health security. Because, certain APIs that we import are crucial to mitigate the burden of accelerating disease burdens such as diabetes, tuberculosis, and cardiovascular diseases in the country.
What is China doing differently on the active pharmaceutical ingredients (API) front?
India’s bulk API manufacturing segment suffers on many fronts:
· Complex approval procedure to set up manufacturing plants
· Lack of API-focused infrastructure
· Inadequate government support
· Absence of price control regime and regulatory
· Delayed pollution clearances
· High cost and scarcity of utilities
Comparatively, China is in a much better place on this front:
· It is developing economies of scale
· It has low-cost utilities
· It offers subsidies and incentives to API manufacturers
· It charges low taxes to the manufacturers of active pharmaceutical ingredients
This shows that if India wants to step up the ladder, it has to do better than China.
Impact of COVID-19 on the pharma sector in India
While the pandemic has significantly impacted the pharmaceutical industry, it has also exposed problem areas of the industry that we can note and work on. We discuss some of them below.
Further, while network connectivity issues and poor cybersecurity hampered those working from home, marketing personnel struggled to promote products as they couldn’t make in-person sales calls.
Varying lockdown guidelines
Since every country around the globe has had different rules and guidelines for lockdown, pharma companies operating from across the globe found it difficult to operate seamlessly.
Labour shortage and supply chain constraints
After millions of labourers walked back home, pharma manufacturing units operated at reduced capacity and warehouses were underutilised. To add to this, a disturbed supply chain also did no good to the Indian pharmaceutical sector and hampered the availability of resources such as raw materials and packing resources.
The rise in the prices of drugs
The lockdown in China has had a significant impact on India’s drug price as well. Paracetamol, vitamins, and penicillin cost higher than before since the nation-wide lockdown. To elaborate, the slow production of APIs translated into scarcity, which increased the costs of materials required to produce generics. At one point in time, the cost of paracetamol shot from Rs 250-300 kg to 400-450 kg. That’s not all. In the absence of a vaccine to treat COVID-19 coupled with India’s heavy dependency China for the import of active pharmaceutical ingredients, the situation may get worse.
Inter-state transport challenges
A considerable chunk of medicine is supplied across the country from Baddi, Goa, and Sikkim. Restricted transport during the lockdown made it difficult for the movement of drugs and affected the distributors and retailers alike.
How can the pharmaceutical industry sector survive now and thrive in the post-COVID era?
One good thing about the pandemic is that it has exposed the shortcomings of the pharma sector. If the industry takes cues from these and acts accordingly, the pharma industry can turn adversities into opportunities and thrive. Here are some areas where the industry can work on.
Bridge the demand-supply gap
The pandemic has shot the demand for healthcare and personal hygiene products dramatically. However, the shortage of labour has disrupted the production function of pharma companies and resulted in a demand-supply mismatch. Pharmaceutical companies can overcome this by adopting ample safety measures and offering incentives to employees to get them back to work.
Merger of small companies with bigger players
Since many small pharmaceutical companies are cash-strapped due to disrupted income and supply chain, small and stressed pharma companies can be potential candidates for large pharmaceutical companies looking to expand or seek additional capacity. This would be a win-win situation for both parties.
Sort out finances
Like all other sectors, pharma companies can also ramp up their finance by avoiding discretionary expenses, revisiting their capital expenditure, adding new products to their portfolio, renegotiating rentals, and using the digital medium to conduct meetings and carry on suitable operations.
Reimagine supply chains in the pharma sector
A major chunk of the pharmaceutical industry in India uses Chinese APIs as raw materials for their drug compositions. But an extended lockdown in China severely impacted India’s bulk imports of key active pharmaceutical ingredients. If not anything, the pandemic has taught businesses that minimising the reliance on a particular geographical location is key to survival. Ergo, the Indian pharmaceutical sector should look at diversifying its supply chain to avoid such a situation in the future.
Capitalise on government’s support to the pharma sector
The government has earmarked Rs 10,000 crore of investment with an aim to incentivise the production of active pharmaceutical ingredients within the country. Businesses can up their game by capitalising on such schemes. This would not only minimise their reliance on China but also attract foreign pharmaceutical companies looking to import APIs. The only concern here is that other countries too have learned similar lessons taught by COVID-19 and are incentivising the manufacture of APIs. Therefore, it would serve us well to come up with better measures to survive the competition.
The government has also been supporting the pharma industry in other ways. It had restricted Hydroxychloroquine’s sale and distribution as the drug was found to be essential to meet emergencies arising due to COVID-19 pandemic. In addition, the government also restricted the export of diagnostic kits and regulated the price of medical devices, surgical masks, and sanitizer.
Virtual Healthcare & Hygiene Expo 2020
Industry body FICCI held a 5-day Virtual Healthcare & Hygiene Expo 2020, which began on the 22nd Jun to target Central American nations in the post-COVID era. The focus of the expo, which aims at promoting trade opportunities for Indian companies, is on critical sectors including pharmaceutical that has good potential. The participants included El Salvador, Guatemala, and Honduras. Pharma companies can make the most of such initiatives and grow.
What is the way forward for the pharma sector?
A threat to national health security due to high dependency on China led the government to set up a task force to review India’s API sector. NITI Aayog and other representatives from the pharma industry suggested the following to reduce the dependency of the pharma sector on China and promote the domestic industry:
· Promoting approvals of pharmaceutical infrastructure and development
· Getting clearance from the environment ministry
· Offering subsidies and tax exemptions
Post pandemic, consumers would spend more on healthcare and personal hygiene products, which the pharma sector can capitalise on. Experts say, though the pharma sector has been impacted now, its prospects in the medium- to long-term period look good, but for that to turn into reality, the weaknesses and challenges within the industry should be addressed.