Centre mulls bulk drug policy

First draft of policy aimed to tap global market; might be part of Narendra Modi government's 100-day agenda

The Centre intends to revive the country's active pharmaceutical ingredient (API) or bulk drug market by formulating a separate policy, which will promote the industry internationally, apart from catering to domestic requirement.

The Department of Pharmaceuticals (DoP) will soon hold discussions with various stakeholders to prepare a White Paper for the policy, a senior government official said.

"Formulating the draft API policy is a priority for DoP and the work in that direction has already started," the official told Business Standard, indicating the first draft of the policy may be part of the new government's 100-day agenda.

ACTIVE INGREDIENT

• API or active pharmaceutical ingredient is the active raw material chemical used in a drug
• Currently, API accounts for around 10 per cent of India’s Rs 79,000-crore pharmaceutical market
• In 2007, APIs accounted for 15-20 per cent of the Rs 35,000-crore domestic pharma industry
• Companies like Sun Pharma, Lupin and Dr Reddy’s Labs manufacture APIs mostly for captive usage
• API sales of most domestic drug manufacturers have dropped significantly over the past 10 years
• Most Indian companies are importing API from China at 15-20 per cent lower cost

API is the main ingredient or active raw material chemical used in a drug. The proposed policy will address the concerns of bulk drug manufacturing by way of incentives and creating infrastructure through bulk drug parks, etc. The proposal will also evaluate other issues related to anti-dumping duties and environmental clearances .

While India was once a favoured destination for sourcing low-cost, good quality API for manufacturing pharmaceutical formulations, the global bulk drug market was globally taken over by China in the past few years by creating huge capacities. Also, the landed price of API from China in India is 15-20 per cent less than its production cost here, making it more viable for companies to import.

The domestic API manufacturing industry, mostly based out of Hyderabad and Ahmedabad, currently accounts for 8-10 per cent of India's Rs 79,000-crore pharmaceutical market. The rest comprises formulations. In 2007, when the total domestic pharma market was around Rs 35,000 crore, APIs accounted for over 15-20 per cent.

"Low margin in API business compared to formulations is merely one reason for Indian companies to shift their focus. There are other concerns such as environmental obstacles and lack of infrastructure to dissuade domestic manufacturers from the business," said the government official.

The idea is to facilitate the industry by ensuring adequate power and water supply, providing logistics and helping companies in capacity building to bring down the cost of production.

The government believes this policy can also be a potential tool to address the rising manufacturing-related concerns in the sector as it will ensure a controlled supply chain.

In the past few years, leading Indian drug makers such as Ranbaxy, Sun Pharma, Aurobindo Pharma, Lupin and others moved up the value chain making a shift from API to formulations. While most of these companies were earlier manufacturing both APIs and finished products, now API manufacturing is largely limited to captive usage.

For instance, Lupin, which had around 40 per cent of its sales coming from APIs in 2004-2005, now gets only 10 per cent from the segment. The company utilises 80-85 per cent of its API production for captive usage.

"The policy could be a shot in the arm given the timing. The demand for Indian APIs is getting bigger and stronger in the US and Europe given the focus on quality and compliance," said Lupin spokesperson Shamsher Gorawara.

API sales for some of the companies such as Dr Reddy's Laboratories Ltd (DRL) have also witnessed a decline in the past few years. During FY14, DRL's revenues from pharmaceutical services and APIs declined 22 per cent year-on-year to Rs 2,400 crore. Some of the multinational companies such as Swiss drug maker Novartis have also pulled out of the segment in India. Sandoz, the generic drug division of Novartis, closed its API development unit near Mumbai in 2012.