Indian Pharmaceutical Industry

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Indian Pharmaceutical sector has come a long way to become the Pharmacy of the World. Now its future progress would be dependent on the shift from volume to value. India is great with production (volume) but this is the lowest value chain and it has to focus on innovation, branding and unique way of new marketing to reach to consumers. To retain its leadership in global generics business India has to invent cost leadership strategy and to increase product value and the companies must develop an innovative mind set.

India has a proven track record of entrepreneurship. The country also has some strength in technology development that has not been fully leveraged. Its chemical industry has a long way to go in forging intercompany and academic partnerships to drive innovation, although some pharmaceutical companies have nurtured internal capacities to meet their own business requirements. Long-term research is still lacking and even companies that like to be counted in global rankings have only made tentative forays.

India must make wise investment choices, and fine and specialty chemicals hold particular promise because they do not expose the economies. Developing a fine and specialty chemicals business will provide significant opportunities for India’s chemical companies.
The Indian pharmaceutical industry’s success, however, hides some disturbing trends. The industry relies heavily on imports of active pharmaceutical ingredients (APIs) and intermediates, mostly from China. APIs and advanced intermediates imports increased from US$800 million in 2004 to US$3,461 million in 2013, with China’s share rising from 39% to 58% during that time. In volume terms, China’s dominance is even more glaring: In 2014, Chinese imports accounted for 75% of API and intermediates tonnage. For most of India’s ten largest pharmaceutical companies, Chinese imports accounted for 30–50% of total imported raw materials, with some companies importing more than half their needs. Even for APIs where India has a formidable global presence, dependence on imports for intermediates is a matter of concern. Promoting domestic manufacture of APIs and their intermediates will require a balancing act that does not jeopardize the hard-won global competitiveness of the Indian formulations industry.

The Katoch Committee
The Katoch Committee was appointed in 2013 to recommend steps to encourage domestic production. The most interesting aspect of its recommendations is its suggestion to strengthen industry-academia collaborations besides several fiscal and financial supports for investors. In its report the Committee stressed the need to establish several “API Parks” with shared facilities, including common effluent treatment plants, captive power plants, testing facilities, and services such as testing laboratories, storage, and intellectual property rights management. Interestingly, the committee has also recommended creation of fee-based special-purpose vehicles to offer these services to park participants.

Indian chemical industry
The Confederation of Indian Industry (CII) has set a target to triple the size of the Indian chemical industry between 2015 and 2025, which, if achieved, will take the industry to about US$430 billion by 2025. This ambitious target will not be achieved if business runs as usual. It will require a coordinated blend of policy interventions and company-level initiatives plus greater international market access. The industry will need to recognize paradigm shifts in technology. The growth drivers for the Indian Chemical industry are raising demand in end-use segments, expanding exports fuelled by increasing export competitiveness, in addition to global shift towards Asia as the World’s chemicals manufacturing hub. Moreover, the Chinese chemical industry is stagnating due to tightening pollution control, labour costs etc.

The Way Ahead
In India high demographic dividend, health consciousness and disposable income is creating a voluminous market. Proliferation of hospitals at cities across different tiers is building capability to treat patients; and to top it Aayushman Bharat – the government promoted health insurance. By a conservative estimate, the industry as a whole is on the growth path with atleast 12-15 per cent growth. The recent replacement of multiple indirect taxes by a single goods and services tax (GST) has positively impacted manufacturing. With long value chains, the chemical industry will be a significant beneficiary, as taxes impact pricing of products and services, supply chain optimization, IT, accounting and tax compliance systems, and more.

India ranks among the top five fastest-growing pharma markets and one of the world’s biggest suppliers of generic drugs and complex formulations. It accounts for 20 per cent of global generics exports volume. The industry is at an important inflection point. Indian life sciences or pharma companies are facing the twin challenges of declining top-line growth and decreasing profitability which is caused by rise in manufacturing, employee and compliance costs besides heightened US FDA scrutiny and pricing pressures. Between March 2017 and 2018 alone, the EBIDTA margins of life sciences companies in India dropped from an average 18.7 per cent to 15.2 per cent. With an estimated size of about USD139 billion, the chemical industry is a key constituent of the Indian economy.

Specialty Chemicals Market
The specialty chemicals market in India is around 20% of chemical industry which is around $163 bn. It is estimated that from current market of around $32 bn, specialty chemicals market is expected to grow at 12% p.a. to reach $86.5 Bn by 2025 driven by growth in end use industry. Specialty chemicals cater to different applications. The global specialty chemicals market is driven by number of factors such as growing demand for high-performance coatings, rising demand from end-user industries, etc.
Some of the major markets for chemicals are North America, Western Europe, Japan and emerging economies in Asia and Latin America. The US consumes approximately one fifth of the global chemical consumption whereas Europe is the largest consumer with approximately half the consumption. The US is the largest consumer of commodity chemicals whereas Asia pacific is the largest consumer of agrochemicals and fertilizers.
Further, it is expected that the country’s chemical industry will grow at around 9 per cent per annum. The growth is likely to be driven by rising demand in end-use segments for specialty chemicals and petrochemicals. The country’s chemical industry is one of the fastest growing in the world, currently ranked the third largest in Asia and sixth globally with respect to output after the US, China, Germany, Japan and Korea. Sector modernization of existing technology through foreign collaborations could further enhance growth.
Specialty chemical companies in India have witnessed a sharp increase in demand of their products over the last few years. Thus, profit margins are likely to remain robust in the next couple of years due to improved demand. Sometime back the data compiled by SBICAP Securities showed that India’s specialty chemical companies are set to invest the highest ever on capacity expansions in the financial year 2019 and continue capital expenditure to cater to rising demand from domestic and overseas markets, following plant shutdowns in China, the world’s largest producer and exporter. They have lined up more than Rs9,200 crore for FY20 compared to Rs1,400 crore for the previous financial year.

Face to Face

Supriya Lifescience Ltd.

“We’re gearing to hit the IPO market”

With a degree in Chemistry and Economics Indian Pharmaceutical Industry 1which signifies a perfect blend of technical knowledge and business acumen, the first generation entrepreneur Satish Wagh began his entrepreneurial journey in 1987, when Supriya Lifescience Ltd. was born with a modest investment of Rs35,000.

But the journey was not smooth. To start with, the Company began manufacturing a wetting agent used in textile industry. But the wheel of time was fast changing and within four years of its existence, textile industry in Mumbai went through its worst crisis with widespread strikes shutting down textile mills in the city. The wide spread troubles in the textile industry hit Supriya Lifescience very badly.

However, Satish Wagh was determined to make his venture successful. He changed the track a little and Supriya Lifescience soon ventured into manufacture of active pharmaceutical ingredients (APIs). After initial hiccups, the pharmaceutical company was able to build a loyal set of customers across Europe and other global markets.

And this is what differentiates the Chairman and Managing Director of Supriya Lifescience from others. In the last 32 years Mr Satish Wagh has gone through lots of ups and downs and the sector has virtually developed before him. He is an entrepreneur who has seen it all. This is a quality investors try to search in a promoter these days when uncertainties are flavor of the day. They need someone who could rise from near extinction, and resurrect the business like a Phoenix rises from its ashes. Mr Wagh fits the bill well. A very down to earth and too simple and humble Satish Wagh is still very proud of his first vehicle – a motorcycle which he still rides whenever he finds time to indulge in such activities, although there are some of the finest and costly vehicles parked in his garage.
Satish Wagh was elected Chairman of the Chemical Export Promotion Council (CHEMECXIL), first time in 1994 when total exports were a mere USD17 billion. He captained the industry body for 22 years and today the exports are currently valued at over USD 47 billion. Leading from the front, Satish Wagh has set very high standards of dedication and never took a single rupee from the council, often spending his own money for the benefit of CHEMECXIL. His leadership and clear vision has been much appreciated by Chemexcil Committee of Administration.

He is still a very much part of the Council and his voice is heard across the industry and at the highest government level. He is the recipient of numerous awards including the prestigious National Award for Best Entrepreneur.

In a free-wheeling chat Satish Wagh, the ex-Chairman of CHEMEXCIL and CMD of Supriya Lifescience discusses about the pharmaceutical industry and future plans of Supriya Lifescience.

Let’s start with China. Reportedly, many plants have either shut down or being shifted to some other place, leading to a breakdown in the production.
Yes, that’s correct. Chinese companies have been closing down in the last one year as the Chinese government announced closure of various chemical companies involved in environmental degradation. The government has asked many manufacturing plants to shut down or shift to another province. This has led to supply disruption. Due to this sudden regulatory change they have not been able to keep their commitments. So, Chinese companies have started losing buyers in USA, Europe, Japan and even in India. Another misconception is that China is a low-wage market whereas the truth is Chinese products turn out to be cheaper simply because the government there has always subsidised its industry with cash incentives. Secondly, the manufacturers play in volumes whereas our capacity is not of that scale and that affects the cost of production.

So it must have provided a very good opportunity for Indian companies?
Due to the supply disruption the traditional buyers in the above mentioned countries as well as in India have realised that India is the best source for consistency, quality and supply of pharmaceutical products. Over the years, China has disrupted global chemicals supply by creating bulk capacities with backward integration, subsidized capital funding and low interest debt. However, due to disruptions, the landed cost of Chinese products has increased, making Indian players more competitive. In fact, India is now being considered a major manufacturing base as far as APIs are concerned.

Supriya Lifescience Ltd. is one of the pioneers in therapeutic segments like – Anti-Histamine, Anti-Allergic, Vitamins and Anti-Asthmatic and has a State-of-the-art US FDA and EU GMP certified facility in Khed, Ratnagiri, Maharashtra. It has a global footprint across 105 countries. The Company relentlessly meets the most demanding quality standards and its diverse repertoire of Active Pharmaceutical Ingredients includes over 60 products that enjoy the implicit trust of a loyal global clientele.
Supriya Lifescience was in 2000 conferred the status of “export house” and won national award for excellence in R&D and quality.
It created history in 2004 becoming the largest manufacturer of Chlorpheniramine Maleate in the world. In 2008 it became a Public Ltd. company and renamed Supriya Lifescience Ltd. and in 2009 became the largest producer of Ketamine HCL in the world and got USFDA approval. In 2014 the Company diversified into phytochemicals and commissioned three new manufacturing facilities.
Its facilities are audited and certified by all major Regulatory Agencies. The Company has a competent and experienced team of regulatory affairs specialists, who are entrusted with the task of timely filing of dossiers as well as handling regulatory queries from both authorities and customers.
Today, Supriya Lifescience – with four modern facilities at Lote Parshuram Industrial Area in Maharashtra is the largest producer of antihistamines in the world. Continuously increasing its API product base the pharmaceutical company employs more than 500 people and has won several awards and accolades for excellence and outstanding performance across several parameters.

Do you feel the Indian companies have taken up this challenge and the opportunity?
The Indian government, long back, had indicated in very clear terms that the industry would not get any subsidies which though was not liked at that time, but this sent a clear message that if the industry wished to survive, it would have to be cost effective, increase its capacity and maintain quality. And that’s why the Indian companies have focused to be competitive despite all odds. Having been associated with the trade body for last 22 years I feel I can proudly say that we have reached to a certain level where Indian companies can’t be ignored by big players around the world. Out of shift in supply from China to India specialty chemical players have certainly reported a major boost in volumes and earnings. In view of this various specialty chemical companies have announced capex plans to increase the existing capacities and set-up greenfield projects.

Your take on the future outlook of Indian pharmaceutical industry?
The Indian pharmaceutical industry has a great future and India is destined to be one of the favorite sources of chemical supplies due to various reasons. First I should say the kind of transparency we have. Being a democratic country we are more open. The developed markets also now prefer to have an alternative chemical supplier apart from China to ensure uninterrupted supply for forward products.

You had been actively involved with the industry body Basic Chemicals, Cosmetics & Dyes Export Promotion Council (CHEMECXIL). Are you happy with the government’s approach?
Our efforts have resulted in Department of Commerce and Industry considering important issues for MAI scheme which were the concerns of many of our member-exporters like increasing the ceiling of reimbursement of registration charges from Rs50 lakhs to Rs2 crore per annum per exporter. This decision will no doubt be beneficial for our member-exporters to meet part of their major registration costs incurred to them abroad which will eventually boost not only their exports but the country’s export also.

As an industry leader are you happy with the government policies?
To a certain extent, the government is certainly listening to our demands but there is a long way to go. The Industry Minister has shown his willingness to look at our grievances. Some problems are specific to states, like Maharashtra has no policy about common affluent plant at its industrial areas which has created enormous problems. It is discouraging industrialists. Gujarat in this matter provides a lot of facilities and many companies have shifted to Gujarat. Getting environment clearance takes three to four years and till the time the acquired land is kept unused mounting a huge burden on the company. These are some basic problems that we wish the government to look into.
Then government incentives are also inadequate. It reimburses exporting MSMEs (micro, small and medium enterprises) Rs5 lakh on each of their registered product with a cap of Rs25 lakh for five products per year. We have requested the Ministry of Commerce to review the USFDA audit of plants which costs Rs55 lakh per year – irrespective of whether you export to the USA or not. There are numerous small- and medium-scale industries that have registered with the USA by spending about Rs5 crore for their plants and factories. We want the government to refund them this registration fees. Today, our total exports amount to around $350 billion. Even if 1 per cent of the country’s total exports are reimbursed to exporters through various incentives, it will be a great financial help.

What is the USP of Supriya Lifescience, which makes it different from its peers?
The best thing is the Company has a very less attrition rate right from the beginning. So most of the employees are with us since more than two decades. That itself speaks a lot about our work culture, the team spirit and the attachment with the goal the management has set for the Company. Secondly, we have maintained a very professional approach towards all our activities – be it client servicing, consistency on the delivery side and the commitment to fulfill the obligation with the best possible terms and conditions. Besides this our unmatched quality and following the time frame is our another USP which makes our clients stick to us. Even in situations where manufacturing costs have gone up, we try to continue to fulfil our obligations to the buyer at the previously-agreed rates as he is dependent on our product.

Tell us about your R&D facility and its achievements?
This is mainly research driven industry and our R&D division is approved by the Department of Scientific and Industrial Research (DSIR), Ministry of Science and Technology. A highly qualified and motivated team of Scientists and Research Specialists strive ceaselessly to set the bar of excellence in terms of product quality, productivity, cost-effectiveness and delivery. The Company has State-of-the-art analytical equipment and a small Pilot Plant to support the development programmes. The division has made sure our continuous and sustainable growth. This division has some of the best minds and their capabilities are proven. Our R&D team has developed more than 30 commercially viable processes which have now been implemented consequent to our meeting the necessary regulatory protocols.

Unlike others our R&D team has partnered with Institute of Chemical Technology, Mumbai and already developed 10 new products which are being scaled up and will realise their maximum potential in the next 3 years. A whole range of Chemistries such as Friedel Craft’s Acylation, Claisen Condensation, Grignard Recation Mannich Reaction, Ritter Reaction, Eschweiller Clark Reaction and more have been handled on a commercial scale. The R&D team is continuously targeting on cost and quality improvement of existing products beside process development of generic APIs and intermediates.

What are the future plans? Do you feel the time has come for a new vertical to get a shape?
We have a very extensive plan to diversify. For this purpose we acquired land sometime back but due to red-tapism and the delay in getting environmental clearance we had to abandon the original plan. A huge investment was done. Besides the land the equipment and machinery – in fact the whole plant we brought which we are shifting and thus expanding the main plant itself. The land acquired will be used for other products, which we will announce soon.

My aim has always been at reaching out to the mass market. Today, we have presence in 126 countries. We want to expand further globally with focus on antihistamines in one basket and vitamins in another basket.

Any plan to list the Company?
We have already started the process to list the Company at the bourses. We are going to select a merchant banker very soon and hopefully the listing will be done this year itself. Earlier we had planned to go in for private equity worth Rs120 crore for expanding our existing facility. We had plans to come out with an IPO after three years so that the strategic private equity investor could be given an exit. But we have abandoned the idea and cleared all the loans. The company has decided not to borrow any money due to heavy burden of interest. We have repaid all the bank loans. Now Supriya Lifescience is a completely debt free company.

What are going to be your focus areas for growth?
My aim has always been at reaching out to the mass market. Today, we have presence in 126 countries. We want to expand further globally with focus on antihistamines in one basket and vitamins in another basket. This way, therapeutic category-wise, we can put in more and more products in our existing portfolios. Things are happening very fast. By December 2019, we will be coming out with an anti-HIV drug, which is being indigenously developed in our R&D facility with 14 researchers working on it. We have spent a good amount of money on the drug so far. The huge capex plan that we have will change the very base of our operations and that we hope to fully complete within five years. We will close this year with turnover of Rs310 crore, 70 per cent of which will come in through exports. We are sure that by March 2020, Supriya Lifescience will be a Rs500-crore company.

Last, what Mr Satish Wagh wanted, but could not do and will do it now?
I believe that one should be able to manufacture in large quantities to be cost effective while also ensuring consistency and quality in supply. That’s the only thing I wanted to do and gradually gearing up to do that. I feel after the expansion plan is accomplished and the company gets listed I will fulfill that dream also.

About the author: IE&M Team

Indian Economy & Market is an Indian media and information platform producing data-backed news and analysis on all the vital elements at the intersection of the economy, stock markets, mutual fund, insurance, commodities, currency, technology, startups and business.

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