India’s PLI Scheme To Boost Bulk Drug Output Faces These Hurdles
Tablets of a cold medicine. (Photographer: Kiyoshi Ota/Bloomberg)

India’s PLI Scheme To Boost Bulk Drug Output Faces These Hurdles

India's scheme offering incentives to boost local capacity of pharma ingredients has received a good response in certain categories. Yet, companies and analysts cite multiple hurdles from huge capital expenditure to India's bureaucratic hurdles.

The government received 200 applications, according to RK Baheti, chief financial officer at Alembic Pharma Ltd., one of the applicants. The government is trying to bridge the gap between domestic and import price and it's a "decent incentive”.

First launched in July, the scheme allocated Rs 6,940 crore for domestic manufacturing of critical key starting materials or drug intermediates and active pharmaceutical ingredients—raw materials that go into making medicines.

The government on Nov. 11 extended its Rs 1.46-lakh-crore production-linked incentive scheme to 10 sectors to make India a manufacturing hub, and create jobs in the economy ravaged by the virus. That increased allocation for the pharma sector—the world’s third-largest by volume—to Rs 22,000 crore in incentives over five years. The maximum number of selected applicants for the fermentation-based key starting materials will be four, and two each for all other categories.

Glenmark Pharmaceuticals Ltd., said in an emailed response, said the incentives will definitely help manage costs better and ensure a steady supply of APIs while reducing reliance on imports.

Yet, drugmakers' interest has been lopsided.

Drugmakers Avoid Capital-Intensive Segment

Response has been good in the non-fermentation category, according to Sujay Shetty, partner to PwC India. Such pharma ingredients are less capital intensive and don't involve environmental challenges as fermentation-based products. This category of bulk drugs are entirely based on micro-organisms .

The challenge is primarily for fermentation-based product APIs, where the capital requirement for the process is extensive, Shetty said. "Getting environmental clearances is a challenge and the timelines are can take in excess of six months. These need to be brought to down to at best 60 days."

While fermentation products have their own challenges, other categories too face hurdles.

Capex Requirement Is High

The pharma industry would require onerous capital expenditure to work on this scale, according to Shetty. “The low-cost imports from China push the gestation period for these investments.”

Analysts at Nirmal Bang and Motilal Oswal agree.

“The companies are not comfortable with very large-scale manufacturing, which is more suited for chemical manufacturers,” Vishal Manchanda, research analyst at Nirmal Bang securities, told BloombergQuint. “Incrementally, they may also not be willing to commit too much capital to one product as they are not very sure of how the competitive dynamics would evolve over time in that specific product.”

According to Tushar Manudhane, research analyst at Motilal Oswal, most companies have already booked up the capex, so shifting the capex will be difficult. “Also, economically it won't be viable.” But at the same time, the companies, according to him, that have capital at their disposal may participate.

Regulatory Hurdles Remain

Sudarshan Jain, secretary general at Indian Pharmaceutical Alliance, and Motilal’s Manudhane flagged bureaucratic and regulatory hurdles. “Major time will be taken by environmental clearance approval,” Jain told BloombergQuint over the phone.

The process for environmental clearance is cumbersome and it takes around six months to two years as multiple agencies are involved.

Also, while the government has permitted exports under the scheme, obtaining approvals from the U.S. Food and Drug Administration is another challenge, Jain said.

Cheaper Imports To Remain A Worry

China has been working on a scale that will be difficult for India to emulate in a short span of time. “We have lost the advantage for 30 years and it can’t be changed overnight," Jain said. "An area of concern for a company is the dumping that will take place from China and other global manufacturers and that’s something that we will realise over time. [But] the government is taking this into consideration.”

Price competitiveness will make formulation players drift to low-cost API suppliers, according to PwC India’s Shetty. To address this, he said, the government could look at duties to bring these units on a par with imports.

But there's a limit to which duties can be imposed under the WTO. And these levies have to be imposed at the time of a plant getting operational; otherwise, it will be counterintuitive for existing importers, he said.

Need To Move Fast

While the government has received 200 or more applications till now, according to Baheti of Alembic Pharma, the timeline of completion of the process is not known. “We have made applications for a couple of products but are yet to hear from the government. They need to move fast...else the whole tempo will be lost.”

Jain expects the government to approve applications by March 2021. But setting up a plant and getting other clearances will take a minimum two years.

The industry, however, acknowledges that it's a process to create and ecosystem that will yield results in the long term.

India imports close to 70% of its APIs/key starting materials from China. This PLI initiative is expected to bring this down. “The percentage of reliance will come down over time to around 50%,” Jain said.

The scheme has to be looked at in totality, not just financial incentives, as it will focus on creating an ecosystem and self-reliance, according to Jain. One aspect is a single-point clearance of projects, giving land and power at concessional rate, he said, and the other push is that individual companies are being given incentives to create investments.

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