Indian drug manufacturers can take advantage of shutdown of Chinese pharma companies

There is a huge demand of APIs and Intermediates in China and Indian manufacturers should be in a position to fulfill the demand-supply gap created in the Chinese market writes Punit Rasadia

According to a research report titled “The Effect of Environmental Regulation on Employment in Resource-Based Areas of China—An Empirical Research Based on the Mediating Effect Model” published in the journal of National Center for Biotechnology Information (NCBI), the economy of China grew rapidly in resource-based areas, but the existence of “extensive” growth has engendered severe population, resource and environment related problems.

When Xi Jinping came to power in China in 2013, the ambitious new general secretary claimed he would usher in an era of stricter enforcement of pollution control. Along with his highly publicized agenda to root out corruption, Xi declared that Chinese industry would be brought into line with global standards of environmental

Punit Rasadia, Managing Director, Anlon

performance, significantly reducing smog and water pollution in and near major cities.

Going by the declaration to enforce stringent pollution control norms, the Chinese government has enacted a series of laws and regulations to protect environment such as the Administrative Regulation on Levy and Use of Pollutant Discharge Fee (2003), the Law on the Prevention and Control of Environmental Pollution by Solid Waste (2004), the Law on Conserving Energy (2007), the Measures for the Disclosure of Environmental Information (for trial implementation) (2007), the Circular Economy Promotion Law (2008), the Measures for Environmental Administrative Punishment (2010) and the Atmospheric Pollution Prevention and Control (2015 Revision) leading to closure of many polluting heavy industries gradually lowering down the GDP (Gross Domestic Product) of the country.

In its online edition, Chemical & Engineering News (C&EN) wrote that a major push to root out polluters more systematically began in 2017.  Chinese Government inspectors fanned out through industrial areas, closing plants, fining companies, and in some cases jailing plant operators for air and water pollution. It is widely reported that operations at nearly 40 per cent of Chinese factories in 30 industrial provinces have been interrupted as a result of these inspections, which began in 2017.

According to C&EN report, the plants involved range across industries, affecting energy production, finished product manufacturing, and essential raw materials. Among companies on edge over China’s crackdown are producers of active pharmaceutical ingredients (APIs), many of whom claim the sector is on high alert for supply chain disruption.

During my recent visit to China to attend recently concluded CPhi, I can very well sense that Chinese API manufacturers have been buffeted by plant shutdowns. The shutdown of APIs and Intermediate manufacturing units has created a total chaos and the survivors are on the run to line up alternate raw material sourcing.

Quality Issues faced by Chinese bulk drug manufacturers

Apart from violating pollution norms, Chinese drug manufacturers are not fulfilling norms of GMP (Good Manufacturing Practice).

According to a report published by Pacific Bridge Medical, in some Chinese pharma factories, there are no organized or centralized quality manuals that employees can readily access. There may be poor document control and reporting inconsistency in Chinese factories.

Even after a factory is GMP compliant and a good quality system is set in place, problems will still arise if employees are not engaged in the process forcing U.S. FDA to conduct quality inspections in Chinese pharmaceutical manufacturing facilities to ensure that GMP standards are met. Those who refuse inspection or fail to meet these standards are put on the FDA import alert list. Many Chinese drug manufacturing companies have already been placed on this list for violations such as falsifying or deleting data.

Facing the quality issue, the Indian government has also issued showcause notices in January this year to, and may soon blacklist, eight Chinese pharmaceutical companies found to be supplying poor quality raw material to Indian drug manufacturers. The notices were issued after a special inspection team of the Drug Controller General of India (DCGI) inspected the eight companies in China.

According to documents available with news agency IANS, the eight companies are M/S Qilu Tianhe Pharmaceuticals, M/S Hinan Xinxiang Pharmaceuticals, M/S Zhuhai United Labratories, M/S Guangzhao Baiyunshan Pharmaceuticals, M/S Shouguang Fukang Pharmaceuticals, M/S Qilu Antibiotics (Linyi) Pharmaceuticals, M/S Qindao Brightmoon Seawoods and M/S Shanghaoi Xiandia Hasen (Shangqiu) Pharmaceuticals.

According to sources in the DCGI, the companies on the verge of getting blacklisted are currently supplying a huge chunk of raw material to the Indian drug manufacturers.

According to senior DCGI officer, the allegations against the companies are of providing poor quality products and the action against them will soon be decided by the government. This will be harsh as we don’t want the quality of drugs in India compromised.

India’s dependency on bulk drug import from China

In reply to a question in the Indian Parliament on March 13, 2018, Union Minister of State for Chemicals & Fertilizers Mr. Mansukh L Mandaviya said that China accounted for 66 per cent of India’s total active pharmaceutical ingredients (APIs) imports in 2016-17 at Rs 12,254.97 crore. Bulk drug import from the neighbouring nation stood at Rs 13,853 crore in 2015-16, accounting for 65.2 per cent of the total import.

Citing data from DGCIS Kolkata, the minister said total bulk drug imports in 2016-17 stood at Rs 18,372.54 crore. The other four major countries from where India imports bulk drugs are Germany, the US, Italy and Singapore. Bulk drug import from the US was at Rs 820.18 crore, from Italy was at Rs 701.85 crore while the same from Germany and Singapore was at Rs 485.11 crore and Rs 422.01 crore respectively.

Is India leading to drug shortage?

With the crackdown of bulk drug manufacturers of China by the Chinese government followed by low quality issue, the question obviously arises – is India leading to drug shortage?

While the imports from other countries are mainly carried out for economic consideration and fulfilling import commitment under the bilateral agreements signed by India with many countries, there are various pharma manufacturers who could substitute in case of interrupted supply of bulk drugs from China.

Also the government of India has taken up measures to reduce import and to make India self sufficient. According to Union Minister of State for Chemicals & Fertilizers Mr. Mansukh L Mandaviya, the Standing Finance Committee (SFC) on February 7, 2018 approved a scheme for development of pharmaceutical industry under which one of the components is financing common facilities in bulk drug parks. The common facility would obviously reduce cost of production and result in better availability of cheaper medicines for Indian patients.

Is it a boon or bane for Indian Pharma?

As 40 per cent of Chinese factories in 30 industrial provinces in China have been forced to shut down and many Chinese bulk drug manufacturers have been issued warning letters for violating quality norms, pharma companies which are into formulations are facing a severe shortage of raw materials and other ingredients. The domestic supply chain in China has gone for a toss. US FDA is keeping a close vigil on operational factories forcing Chinese manufacturers to adopt international GMP norms.

To meet up the demand of formulated drugs in Chinese market, very recently in May of this year China has removed import duties on as many as 28 medicines, including all cancer drugs, from May 1, a move which would help India to export these pharmaceuticals to the neighbouring country.

In a message on Twitter, Chinese Ambassador to India Luo Zhaohui said that China has exempted import tariffs (duties) for 28 drugs, including all cancer drugs, from May 1st. Good news for India’s pharmaceutical industry and medicine export to China. I believe, this will help reduce trade imbalance between China and India in the future.

Apart from trade imbalance between China and India, the sudden exemption of import duties is to be read in the context of market dynamics.

While bulk drug market is undergoing a chaotic situation in China, I strongly feel, this is a very good opportunity for Indian bulk drug manufacturers to encash the situation in their favour. My gut feeling says that this situation would continue for the next four to five years.

There is a huge demand of APIs and Intermediates in China and the demand would even increase in coming years. Indian manufacturers should be in a position to fulfill the demand-supply gap created in the Chinese market. But I must say, the quality should be ensured and we should not compromise on quality while exporting.

Innovate or perish – mandate for Chinese drug manufacturers

If you ask me how long India will enjoy this advantage? Advantageous position to export bulk drugs or formulated products to China would remain for the next four to five years. So, what would happen after four to five years?

Before I answer the question, let me take you through some quick facts of pharmaceutical growth in China.

China has targeted pharmaceuticals as part of their five-year national economic growth planning cycle and is aggressively advancing its strategy to become a global leader in drug development, commercialization and distribution. With annual pharmaceutical sales growth rate of more than 21 per cent for 2007-2012, China is the second largest market behind the United States. Even with China’s economic slowdown in 2015, the annual growth rate of pharmaceuticals is a healthy 6.6 per cent versus a 1 per cent global average, and is projected to grow at up to 9 per cent through 2020.

In late 2015, the China Food and Drug Administration (CFDA) undertook major reforms involving the way new pharmaceuticals are evaluated, approved, manufactured, and commercialized. Collectively, these reforms represent a fundamental change in the way the Chinese pharmaceutical market will operate going forward. The new mandate for Chinese pharma companies is very clear – either innovate or else perish.

Among the most important changes, the CFDA has redefined and broadly expanded the categories that an innovative drug might qualify for approval under the new Fast Track Drug Approval pathway. In general, drugs considered for approval via Fast Track must be truly innovative and address serious public health threats. Of the six categories, there is only one fully objective criterion for meeting Fast Track qualification: foreign innovative drugs manufactured in China. Coupled with this policy change is the ability for drug companies to engage the services of a contract manufacturing organization to bring approved innovative drugs to market, an option which did not previously exist.

Under the Made in China 2025 plan, China is also planning to make best use of automation and Artificial Intelligence in pharma manufacturing. During my visit to China, I have visited one factory which is fully automated and huge plant is being managed by only four persons and my fear is, that would be the future. The advantage of full automation of factories is obvious. It can cut down the production cost heavily making the cost of production is very price competitive.

Thus, may be today China is under the stage of cleaning up and under pressure due to environmental and quality norms. But within next four to five years down the line, China would emerge as a pharma superpower and would possible rule the pharma market world.

(The author of this article is the Managing Director of Anlon and can be reached at media [at] anlon [dot] in. To know more about Anlon, please visit: www.anlon.in)

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