Frédéric Kahn is Generic APIs Commercial Head at Seqens.

Frédéric Kahn

India has taken to calling itself the “

.” That distinction came about after India’s heroic contribution to the global fight against Covid-19, when it shipped 65 million vaccines to 100 other countries and provided medical equipment and medicines to 150 countries. The pandemic highlighted India’s impressive capacity for making vaccines, generic drugs, active pharmaceutical ingredients (APIs), and other essentials — but the maturation of this industry started much earlier.

 back in 2019 that of all the plants registered to supply the US with APIs, 18% were in India compared to 13% in China. India’s pharmaceutical industry picked up steam following China’s environmental crackdowns of 2017. And it gained even more momentum during the pandemic when India proved more resilient to supply chain disruptions than elsewhere.

All signs suggest this upward trajectory will continue. India’s government recently pledged 

 to promote domestic drug production. Meanwhile, shakeups in the global pharmaceutical supply chain are making it look less appealing to have production limited to China. It seems that India has everything it needs — supply and demand — to become a global leader in pharmaceutical manufacturing.

So I was eager to see the world’s pharmacy for myself.

I recently visited three cities in India and met with 12 of our customers there. It was a whirlwind trip of meetings, tours, facility visits, and no shortage of amazing food. It was also an eye-opening experience for someone like me who has been following the ascendance of India’s pharma sector with great interest for many years. I learned a lot, I was impressed and surprised by much of what I discovered, and I came away with some big impressions about what India means for the future of global pharmaceutical production. Here’s a few that I think will evolve in interesting and important ways in coming years.

India is not just an alternative to China but a superior option in many ways, especially around quality. The quality of the products themselves, the ingredients going into them, and the supply chains around them are, in many cases, better than what China has to offer and on par with anything in the US and Europe. My conversations in India confirm that quality is seen as both a priority and a competitive differentiator.

Adding a New Intermediary to the Ecosystem — 

As India consumes more of the APIs it produces for domestic drug production, it has boosted production of N-1 and N-2 intermediary products. The intermediary industry was concentrated in China before, creating a supply chain choke point. So having a new intermediary in the ecosystem should help to streamline API production for everyone.

India’s pharmaceutical sector has undergone 

 in the last 20 years, with the fastest expansion coming in the last five. It has added significant new capacity to the global supply of APIs and raw materials, making the global supply chain more resilient, lessening dependence on China, and promoting the growth of India’s domestic drug companies. The global dynamics of pharmaceutical manufacturing need to be reconsidered in light of what India has become.

I doubt that China will fight to win back the API production that has (and will) move to India. More likely Beijing, given its track record, will skip a generation of product and move from API production to something more advanced: biotech, continuous manufacturing, digitalization — anything and everything innovative. China could become a leader at the cutting edge. But, in so doing, they will cede many opportunities to India. That fact that was not lost on many of the people I spoke with.

As India continues to climb, it will become a greater strategic partner to companies in the US and Europe. But the West is also in the midst of a broad push to inshore production and reduce dependence on other countries for API requirements. It will take years and billions in investment for this strategic realignment to unfold, and the consequences will be complicated for all involved, but everyone should be prepared for a landscape that looks drastically different than it did in the past.

My biggest takeaway from my time in India is the sense of ambition and excitement that permeates everything. Everyone I met with seems to have a shared sense of optimism about what the pharmaceuticals sector in this country can become. More importantly, they have detailed, long-term plans to get there, along with ample government support. I think we will soon see India not just as a supplier to other countries but as a trailblazer in quality, R&D and overall value that rivals everywhere else in the world.

The future of pharmaceuticals has arrived early, though some might say it was overdue. For insight into what this future looks like — and how to get ahead of it — I would encourage anyone to take a closer look at what’s happening in India right now.

Articles

Guest contributor Frederic Kahn discusses the state of the Indian pharmaceutical manufacturing industry.

I Saw the Future of Global Pharmaceutical Production in India

In the words of Bill Gates, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”

That quote has been on my mind as I watch what’s happening in pharmaceuticals manufacturing right now. Drug makers, especially API producers, are leaving China in increasing numbers, motivated in part by the pandemic but also by forces that predate COVID. Change is in the air. But, as Gates warns, we often inflate what will happen now and misunderstand what will happen later. I think the present is a prime example.

The pandemic highlighted a long-existing issue in pharma manufacturing: the heavy reliance on China, which produces almost half the APIs used in the world. Many countries rely on China for their entire supply of critical ingredients. Europe, for example, closed its last Paracetamol factory in 2008 because it could not compete against China (and to a lesser extent India) on cost.

As a result, that supply became vulnerable to the same issues with compliance, tariffs, IP protection, and geopolitical uncertainty that have been complicating Chinese manufacturing in recent years. Then, when COVID hit and important medical supplies, including paracetamol, became scarce, the wisdom of outsourcing production was called into question.

Now we are seeing a swing in the opposite direction: governments and drug makers are exploring ways to bring production back to North America and Europe so that recent history doesn’t repeat itself. How much production will actually leave China, however, remains to be seen.

I estimate that a maximum of only 15% of current production will actually leave. It could be much less in the end. Suggesting it will be higher, however, falls into the trap of overestimating short-term change, especially, with the world still in the throes of COVID-19. But in another year or 18 months, when we will have learned how to live with the pandemic, market dynamics will prevail. By then, I’m skeptical that we will witness a mass exodus of pharmaceuticals companies from the Chinese market.

Why? Because there are huge hurdles facing even the drug makers who feel most motivated to leave China. They will first need to secure financing to set up a domestic or proximate production facility. Then they will have to meet massive compliance requirements (and rely on slow-moving inspectors) before they can start production. The amount of time and money it takes to inshore production looks somewhere between unrealistic and impossible. Therefore, most will stay in China while an intrepid few will leave.

It will be important to see how many global drug makers exit China and how they negotiate the reshoring effort. But it will also be important to keep this minority in context: they are not rewriting the status quo in pharmaceuticals manufacturing. Not yet, at least.

It would be tempting to observe the ongoing migration from China and conclude that reshoring or dual sourcing will transform drug making as we know it over the next decade. But I think that misses a more important point.

Namely, that China will react. It won’t sit idly by while a quarter of drug production departs. Beijing will respond in ways that will reverberate throughout pharmaceuticals manufacturing.

In one scenario, China takes up a protectionist position behind its own drug companies. It could pull investment out of Europe and the US and erect higher trade barriers, forcing every drug maker to reconsider their production strategy and adapt to a shifting competitive landscape.

In an alternate scenario, China tries to stop the bleeding by raising standards for quality, transparency, and equal treatment between foreign and domestic companies. Those moves would make Chinese manufacturing look like the best option once again, but they would only isolate more production in Asia where it will remain vulnerable to supply chain issues

We should also factor in how regulators in Europe and the US respond in coming years. If they found ways to unleash investment and cut red tape, the decision to inshore production would look more feasible regardless of what China does.

It will take years for these developments to play out. Once they do, however, the landscape in pharmaceuticals manufacturing will look drastically different than it does now. Everyone in the industry must decide for themselves how best to adapt. But one thing is certain: inaction isn’t an option. The transformation happening over the next decade requires everyone to embrace a new set of assumptions and build a fresh playbook around them.

What if we are underestimating China’s response to US/EU inshoring?