India’s pharmaceutical industry has indeed emerged as a force to reckon with. A recent KPMG report states that the country’s pharma exports add up to $13.7 billion (while imports stand at $1.99 billion) and it meets 50% of the global demand for generic drugs. The problem is we import an estimated 70% of active pharmaceutical ingredients (APIs) from China. Understandably, the Covid-19 crisis and the consequent lockdown served a gut-punch to the industry. There have been freight shutdowns, non-availability of labour, and a spike in cost of a few imported raw materials. However, there is a silver lining, especially for this industry. Kiran Mazumdar Shaw, CMD, Biocon, certainly thinks that the pandemic could be a blessing in disguise.
How do you think the world is going to emerge post this pandemic?
It all depends on how long the world will take to recover from Covid-19. Organisations such as the IMF have already declared a global recession. In India, we could lose 30-40 million jobs by the end of the year if we are unable to bring the economy back on track. The world economy, which was estimated at $90 trillion, was already under a $260 trillion debt burden, and it will get worse. Many believe it will take at least another year to see anything close to normalcy. China is trying to get back to business as fast as possible, and the country that contributed 16% of global GDP will surely consolidate its position further. Although the US had 24% of global GDP, it is going to be hit badly. I think we need to look at the geopolitical dynamics and see how the world is going to shape up after Covid-19. It is not going to be a consumption-driven economy because demand will take a hit.
How has the outlook for Indian pharma changed?
Focusing inwards is going to be on every country’s agenda and India needs to figure out a way to become globally competitive. That’s where I believe that India’s biomedical industry has a lot of potential because not every country can be self-reliant and export biomedical products. We have a mature pharmaceutical industry due to our generics and are also developing strengths in biopharmaceuticals with companies such as ours.
India had ceded ground to China in terms of antibiotics and APIs, which should be ramped up with the capacity that we have. We have seen during this crisis that we are strong in terms of equipment manufacturing. India also has capabilities in diagnostics because of the ability to quickly assemble kits. We may celebrate some of the indigenous kits but these are assembled using components coming from outside. So, the focus should be on expanding and scaling the manufacturing of these sectors in a self-sufficient way.
Similarly, with vaccines, there should be more focus on innovation. There are a lot of opportunities in the biopharma and biomedical segments, where the government could step in and emulate what happened to the IT sector during Y2K.
Indian pharma companies get almost 70% of their APIs from China. So, has there been a supply disruption in this area?
While China will not stop exporting these materials to countries such as India, we are importing at inflated prices now. This gives us an opportunity to repurpose businesses and create a stronger ecosystem. Before the crisis hit, we were discussing with NITI Aayog on how the petroleum sector can repurpose some of its businesses and give us materials that we import heavily. I think we must revisit that idea. Industries must start working in a more cohesive manner, not in silos of pharma, petrochemicals or chemicals. One of the things we need to do is dismantle the regulatory silos that separate these industries and work in mission mode towards building strategies.
The pharmaceutical industry comes under the Ministry of Chemicals and Fertilisers but it’s bucketed into pharmaceuticals. We could take advantage of chemicals from the chemical, agro and textile industries, which can form the basis of many starting materials. It is for the Ministry of Chemical and Fertilisers to sit down and see what can be done with the pool of capabilities that we have.
We need to save our dollars and our current account deficit needs to be contained. Oil accounts for nearly 30% of all imports, so you need to ensure that along with reducing oil imports, you must also minimise other imports and increase exports. The only way to do that is to have an import-substitution model and have economies-of-scale that makes you competitive for exports. At the same time, we should not cut out China completely, but keep them as a trade partner and negotiate better prices for ingredients.
How is Biocon stepping up?
Our small molecules business is fermentation-based, which needs 10-25% of its starting materials from China. When it comes to our biologics/biosimilars business, the dependence is hardly anything. For Syngene, we import combinatorial chemicals from several countries including China. But as an organisation, Biocon’s 25-30% inputs come from the neighbour, and we believe this is the time to reduce this figure. To that effect, we have been developing indigenous chemicals as well for many of our starting materials.
Why do you think China have such clout in production and what is the cost differential?
Businesses in China get a lot of subsidies that we don’t, which is why they can become so cost-competitive. We are not a control-and-command economy; thus, market forces dictate business. So, it is not a level playing field. For starting materials, APIs and antibiotics, the cost differential is about 30-50% depending on the item.
What are the other challenges that Indian pharma companies face and has the lockdown affected Biocon’s production?
Biocon is functioning at 50% of its manufacturing capacity. We hope to ramp it up to 75% by the end of April and 100% by May. One of the biggest challenges for the sector is our cumbersome regulatory process. We have drugs controlling organisations at both the levels — Central and state. That means you have to take the long route for approvals, which requires nods from both the bodies, and spend more in the process. That goes back and forth a couple of times, leading to double the time taken as compared to competitors in other countries. For instance, companies in Europe and China are able to work faster.
So, how can Indian companies compete with global players?
To make India competitive, one of the main factors we need to address is capital cost, which is really high, especially in the biopharma sector. You have to go through regulatory costs even before you can reach commercial supplies. You lock up your capital and sit on idle capacity for almost two years before you finish testing and get a regulatory nod. That makes it an expensive and inefficient model. Instead of two years, if it comes down to six months, it would help companies in being competitive.
Then there is compliance. The number of compliances that Indian pharma companies need to go through is crazy. Every time a company needs anything, there is a compliance imposed. If the cost of compliance is reduced, Indian companies will be so competitive that we will be unbeatable.
Why can’t there be some form of self-compliance and self-certification in the industry?
There is also the high cost of logistics and energy. The problem is we don’t have the cash to invest in automation and upgradation. The other costs are so high that we decide to do our processes semi-automated or manually. If we benchmark each of these with the global best, I have no doubt that we will be globally competitive because we are the lowest-cost producers and manufacturers.
One mandate I would like to have for the local regulators is one quality for the world. When a company is being assessed by European agencies, Brazilian agencies, or the USFDA, you know that unless they are satisfied with the quality, it will not be allowed to export. De facto, you will be forced to have robust quality systems in place. But the local units here have one quality for domestic, and another for the global markets. Our regulators are lenient with small businesses in terms of their quality systems and quality adherence. That’s wrong and ridiculous. These are life-saving medicines and you cannot afford to compromise on quality.
Will we see a new normal for the industry post COVID-19?
In India, the pharma sector is going to be extremely important because the world will need low-cost medicines. A lot of countries, big and small, are going to depend on generics and biosimilars. In terms of volume, India accounts for nearly 50% of generic drugs globally. So, we have to build on that further. For instance, vaccines have enormous potential and we must try and develop one for COVID-19 indigenously.
We might see a world where everybody is always wearing masks. So, why should we not focus on an industry that makes protective equipment and apparel, be it masks, gloves or plastic glasses?
For how long could this crisis disrupt life and business?
It is anybody’s guess, but the popular belief is that it may take years. However, limping back to normalcy will commence by the end of this calendar year. You cannot start from normal again because you have lost so much. If uncertainty around the infection remains, confidence will stay low and revival will take time.
Are you happy with the way the Indian government is dealing with the pandemic?
The government has done an excellent job when it comes to quarantining. Where they are lacking is in testing. We should not be worried about the surge in positives, but instead focus on the severity. Moreover, we need more data points to track the infection.
Our research is not great because we do not have access to enough viral material. Without that, you cannot develop a vaccine, an indigenous kit, or even an antibody therapy. I would like to see the government trusting the private sector, which would lead to access to essential material for research.
What would you prescribe to the government to combat the virus?
First, there should be close partnership between public and private entities. You cannot expect the health ministry or the government to come up with all the ideas. Even states are coming up with new ideas such as the Bhilwara model in Rajasthan (rigorous lockdown, delivery of essential supplies to doorstep). The Brihanmumbai Municipal Corporation is doing some excellent work with mapping and tracking COVID-19 patients. Karnataka and Telangana are doing a good job of controlling the cases. So, there are various models that states are experimenting with. We need to focus on a lockdown that helps us be better prepared, which includes a lot more testing.