India and China: Complementary Pharma Power

“From volume to value”

“From volume to value.” That’s how Indian Pharmaceutical Alliance (IPA) Secretary General Sudarshan Jain described the trajectory of his country’s booming pharmaceuticals industry. But I think it tells us something bigger about tomorrow’s pharmaceuticals supply chain.

Since the pandemic, when demand for drugs outpaced supply, pharmaceuticals stakeholders have started questioning whether we should concentrate so much of our drugmaking capabilities in China. Supply chain issues during Covid made it dangerously difficult to get certain drugs and the ingredients necessary to make them. Now, ongoing political tensions make producing in China, or exclusively in China, look like an increasing liability.

Some drug makers have left China (or adopted a “China plus one” strategy) and moved production to India (or added production there). However, most of India’s pharma companies are homegrown, taking advantage of abundant talent and a government eager to support this $40 Billion industry, which accounts for 2% of India’s total GDP. That is to say, the exciting growth of India’s pharmaceuticals industry wasn’t driven by people leaving China – it was something India built on its own.

Which is apparent from the symbiotic relationship between drug makers in both countries. For instance, India depends on China for over 80% of the APIs used in essential medicines. And while India has become a significant exporter of APIs itself, many of the constituent ingredients still come from China.

It’s for this reason, among others, that I don’t see an exodus happening from China. I’ve estimated no more than 15% will leave. China will remain a pharmaceuticals powerhouse for many years with an extra-large loop in the global supply chain. Anyone hoping that will change anytime soon should think differently.

I do, however, expect big changes to occur in India that will shift the pharmaceuticals industry not just there but everywhere.

India – From Competitor to Complement

Let me start by putting the size and strength of India’s pharmaceuticals industry into context:

• 13 out of the top 30 listed generic companies have India as key sourcing hub
• 1 in 3 pills consumed in the US and 1 in 4 consumed in the UK came from India
• India accounts for the highest number of US FDA approved FDF / CMO sites outside the US.

India produces lots of pharmaceuticals—they’re the third-largest producer in the world. But India is only 14th in terms of value, meaning many of those drugs are low margin. The Indian government has announced plans to grow the pharma industry to $65 billion by 2024, and double that by 2030. And to hit those ambitious targets, they plan to emphasize value over volume.

Indian customers’ analysis shows that if a drug does not have a 30% advantage over the competition – meaning the ability to make it for 30% cheaper or sell it for 30% more – the value isn’t considered high

enough to proceed with production. No longer content to make as much as possible, India is starting to think more strategically about what it manufactures and how.

It took a major step in that direction two years ago when it began manufacturing 35 APIs in factories across India. Over $2 billion in earmarks are available to help companies increase that list to 53 APIs. As more key ingredients begin to originate inside India, it will gain the ability to produce drugs faster and cheaper or, alternatively, at higher quality and cost. Either way, volume matures into value.

Positioning for the Future of Pharmaceuticals

Let me reiterate my earlier point that India will not uncrown China. Keep in mind that many drugs are still estimated to be 20% cheaper to produce in China compared to India. China still has a major advantage along with a decades-long lead. And in many products, India can’t yet compete.

With that caveat out of the way, though, the most exciting (and I would argue important) developments happening in the pharmaceuticals industry are happening in India. That’s apparent from the numbers and forecasts; it’s clear when talking to customers that want more supplier security; and it’s an energy that’s obvious when you’re actually on the ground in India talking to the movers and shakers.

The vision there is infectious. More importantly, the value that India is striving to deliver is real, giving India opportunities in APIs, generics, vaccines and more. Replacing total dependence on China with a more diverse approach to drug making is good for the entire pharmaceuticals ecosystem, and with it every person on earth. I see so much upside here and so little downside that India’s continued ascent seems all but assured.

I would suggest going there and go get a view for yourself. See as much as possible, do a lot of listening, and keep progress in perspective: things don’t happen overnight in India, nor is trust automatic. But for those visitors willing to invest time building relationships, the potential on tap in India is immense.

For everyone in pharma waiting and wondering what China will do, I would encourage you to broaden your gaze. India is where the action is.