De-Risking Supply Chains: Big Pharma Turns To India To Reduce Reliance On China

Pharmaceutical companies are aiming to reduce their dependency on Chinese suppliers that manufacture drugs for clinical trials and initial-stage production, a move that is proving beneficial for rival firms in India.

For almost two decades, China has been the favored destination for various pharmaceutical research and manufacturing services. This preference is primarily due to the affordable pricing and quick turnaround times provided by contract drug manufacturers in the country.

Despite the US-China trade war under the Trump administration and the supply chain chaos other industries faced during the COVID-19 pandemic, the relationship largely remained stable.

However, escalating tensions with China have led more Western governments to advise businesses to minimise their supply chain exposure to the Asian powerhouse.

This is prompting several biotech firms to contemplate partnering with manufacturers in India for the production of active pharmaceutical ingredients (API) for clinical trials or other outsourced tasks.

This year, four of India's leading CDMOs - Syngene, Aragen Life Sciences, Piramal Pharma Solutions, and Sai Life Sciences - have reported a surge in interest and inquiries from Western pharmaceutical corporations, including several major multinationals, Reuters reported.

Sai said that there has been a 25-30 per cent increase in sales in the recent years. Meanwhile, the rest of the companies reported a significant increase in profit growth in the latest quarter.

Senior executives at the companies reported that certain clients are considering India as an additional manufacturing source alongside China. Meanwhile, others are looking to shift away from China entirely, expressing interest in establishing their supply chains in India.

Peter DeYoung, CEO of Piramal Pharma Solutions, stated that Indian manufacturers will not see the complete advantage immediately.

He stated that treatments currently in the early stages of development will require time to reach the market. At that point, contracts would become increasingly profitable for outsourcing companies such as his own.

Helen Chen, the Greater China Managing Partner at LEK Consulting in Shanghai, stated that Chinese CDMOs are recognised producers of biologic drugs. These drugs necessitate a more stringent regulatory approval process compared to traditional medicines.

She further explained that the process of engaging a new company for intricate tasks like biologic manufacturing could span between three to five years. She emphasised that it's not as simple as moving shoes, implying that companies can't just abruptly change their operations.

India is aiming to expand its presence in the pharmaceutical services sector in order to enhance the sales and reputation of its pharmaceutical industry, which is worth $42 billion.

However, worries about insufficient supervision continue to exist. According to executives cited in the Reuters report, Indian CDMOs must improve their efforts to ensure that their reputation for quality standards is on par with those of the West and China.

In February, a warning was issued by the US Food and Drug Administration (FDA) against the use of an eye drop product originating from India. This product was associated with an outbreak of drug-resistant bacteria in the United States, which resulted in one death.

Mordor Intelligence, a research firm based in India, projects that the revenue from India's CDMO industry will be $15.6 billion this year, which is less than China's $27.1 billion.

However, the firm predicts that India's industry will experience an average annual growth of over 11 per cent in the next five years, outpacing China's estimated growth rate of 9.6 per cent.

Indian Contract Development and Manufacturing Organisations (CDMOs) told Reuters that the FDA regularly inspects their facilities.

This year, Piramal Pharma has been approached by clients with requests for "backward integration to India". This implies that they want to source even the most fundamental raw materials from India instead of China, according to DeYoung.

Currently, Piramal purchases approximately 15 per cent of its raw materials from China, but it is making efforts to decrease that percentage.

Sai Life Sciences said that they have nearly doubled their manufacturing capacity since 2019 and plan to increase it by an additional 25 per cent in the upcoming year to cater to the growing demand.

Ramesh Subramanian, the Chief Commercial Officer of Aragen, a privately-held Indian company that expanded its workforce from 2,500 to 4,500 in the last five years, revealed that a 21 per cent increase in revenue last year was partially fuelled by new agreements with Western biotech companies. He further stated that seven of the world's top 10 pharmaceutical companies are clients of Aragen, though he refrained from disclosing their names.

The change is especially noticeable in the field of drug discovery for traditional pharmaceuticals.

"New biotechs are deciding to put eggs in both the Indian and China baskets from the start," Subramanian said.