Active Pharmaceutical Ingredients (API) manufacturing
Active Pharmaceutical Ingredients (API) manufacturing
Business Model Description
Manufacturing of APIs for affordable drugs for high-burden disease categories, such as Cardiovascular diseases, Diabetes and Tuberculosis and drugs included under the National List of Essential Medicines (NLEM) to improve drug procurement and the relevant supply chain.
Expected Impact
Improve access to affordable drugs for high burden disease categories and reduce dependence on imports by increasing domestic manufacturing of APIs.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- India: Countrywide
Sector Classification
Health Care
Development need
India ranked 145 among 195 countries in a Lancet study measuring Healthcare quality and access. (2.1) India's progress on SDGs 3 (Good Health and Well-Being) was given a score of 61 on 100 on the SDG India Index as many States still lag behind on their health-related targets (2.2)
In 2017, India's Government Health Expenditure on healthcare was just 0.96% of GDP compared to the world average of 5.9% (2.5) While the expenditure increased to 1.28% of GDP in 2018, it still lags behind comparable countries (2.6) As a result, the private sector is the dominant healthcare provider in India (2.2)
Due to low government healthcare expenditure (2.5), and low insurance penetration (total insurance penetration in India was 3.69% in 2017 according to Insurance Regulatory And Development Authority Of India) (2.7), out-of-pocket expenditure accounts for 62.4% of healthcare expenditure in India compared to the world average of 18.2%. (2.8)
According to the NITI Aayog's State Health Index Report 2019 (Healthy States, Progressive India), the overall health index score of India's best-performing state is more than two and a half times as that of the bottom-most performer (2.2)
Policy priority
National Health Policy 2017 was introduced to lay out specific targets to increase life expectancy, reduce mortality rates and disease prevalence, ensure universal coverage of health services, increase healthcare financing, infrastructure and human resources and improve disease prevention and health information management efforts (2.11)
The Government of India (GOI) approved the continuation of National Health Mission with a budget of USD 4.88 billion under Union Budget 2020-21 (IBEF) The Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana (PMJAY), the largest government-funded healthcare programme targeting more than 500 million beneficiaries, was allocated USD 919.87 million (2.12)
Gender inequalities and marginalization issues
A lack of clear regulations has led to variation in quality and costs of private sector services. (2.2) As a result, out-of-pocket medical expenses were estimated to have pushed 55 million into poverty in 2011-2012 (2.9)
Investment opportunities introduction
Impact of COVID-19: COVID-19 has further highlighted the inadequacies of the healthcare system with respect to a lack of delivery capacity. As a result, healthcare has emerged as a priority area for the country is likely to remain a policy priority for the Government. Global disruptions in supply chains have also impacted the sector. As the country looks to "Make in India", there are likely to be a number of opportunities for local companies (2.13)
Key bottlenecks introduction
Low purchasing power among target communities and lack of insurance penetration
Biotechnology and Pharmaceuticals
Development need
63.5% of the total Out-of-Pocket Expenditure (which in turn constitutes 62% of all healthcare expenditure in India), is on outpatient care. Of this, the largest expenditure (71%) is on medicines (7.1)
Policy priority
NITI Aayog recognizes access to drugs and medical devices at affordable prices as an essential ingredient of Universal Health Coverage and highlights "access to affordable drugs and medical devices" as a target (5.4) It also calls for boosting domestic production of APIs by setting up six large API intermediate clusters (7.1)
Gender inequalities and marginalization issues
A significant proportion of the country’s population lacks access to essential medicines (7.1)
Investment opportunities introduction
India's bulk drugs market (APIs and intermediaries) is worth USD 13 billion, of which the domestic consumption market forms USD 9 billion. India’s API industry is ranked the third-argest in the world, and the country contributes approximately 57% of APIs to the prequalified list of the WHO (7.2)
Key bottlenecks introduction
Low availability of resources such as lack of large-scale fermentation capacity, low availability of feedstock and key starting materials, leading to higher cost of production compared to imports (7.2)
Biotechnology and Pharmaceuticals
Pipeline Opportunity
Active Pharmaceutical Ingredients (API) manufacturing
Manufacturing of APIs for affordable drugs for high-burden disease categories, such as Cardiovascular diseases, Diabetes and Tuberculosis and drugs included under the National List of Essential Medicines (NLEM) to improve drug procurement and the relevant supply chain.
Business Case
Market Size and Environment
> USD 1 billion
5% - 10%
India's bulk drugs market (APIs and intermediaries) is worth USD 13 billion, of which the domestic consumption market forms USD 9 billion. India’s API industry is ranked the third-argest in the world, and the country contributes approximately 57% of APIs to the prequalified list of the WHO (7.2)
The Indian bulk drug industry has grown at a compound annual growth rate (CAGR) of around 8.6% over 2016–20. It is further expected to expand and grow at a CAGR of around 8.6%t during 2020–24 (7.2) The import value of bulk drugs reached USD 3 billion in 2019, rising at a CAGR of 8.3% from 2012 to 2019 (7.2)
Indicative Return
15% - 20%
80% of the investors surveyed reported a median IRR of 10-20% in healthcare investments in India according to Praxis Global Alliance's Healthcare Investor Sentiment Spotlight 2019 (7.7)
Benchmark steady-state pharmaceutical companies had an average annual return on capital employed (RoCE) ratio of 10-20% (7.9) (7.10)(7.11)
Investment Timeframe
Medium Term (5–10 years)
For setting up API manufacturing units, the approval timelines are lengthy (takes about two– three years) and there are often delays in land acquisition and environmental clearances (7.12)
Despite high upfront capital expenditure, API manufacturers cannot charge higher prices from drug manufacturers due to high competition and pricing controls. Therefore the business is a high-volume and low price business, which can only break-even when they build significant scale (7.12)
Ticket Size
For the healthcare sector, data from Praxis Global Alliance, 2019 shows that early stage investments stood at USD 41 million, growth stage investments stood at USD 359 million and late stage investments stood at USD 1,486 million. (7.7)
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Market - Highly Regulated
Impact Case
Sustainable Development Need
63.5% of the total Out-of-Pocket Expenditure (which in turn constitutes 62% of all healthcare expenditure in India), is on outpatient care. Of this, the largest expenditure (71%) is on medicines (7.1) A significant proportion of the country’s population lacks access to essential medicines (7.1)
According to estimates by the Central Drugs and Standards Control Organization, around 84% of the active pharmaceutical ingredients (APIs) for drugs manufactured in India are imported, driving up the cost of drugs. This dependence on the import of APIs has gone up more than fourfold between 2004 and 2013 (7.1) Some of these imports are for medicines used to treat high-burden disease categories, such as Cardiovascular diseases, Diabetes and Tuberculosis and some are also included under the National List of Essential Medicines (NLEM). The Coronavirus related supply-chain interruptions have further highlighted the vulnerabilities in the drug supply chain. (7.2)
NCDs such as heart disease, diabetes and respiratory diseases are expected to comprise up to 75% of all diseases by 2025, (7.3) increasing the requirements for prolonged medication and consequently, drug requirement and expenditure.
Expected Development Outcome
The business model under this IOA can potentially enable drug manufacturers to manage costs to adhere to the drug pricing caps so they continue production, ensuring a consistent supply of essential drugs.
The business model under this IOA can potentially reduce the cost of drugs thereby, reducing out-of-pocket expenditure on healthcare.
Gender & Marginalisation
Primary SDGs addressed
3.8.2 Proportion of population with large household expenditures on health as a share of total household expenditure or income
3.b.3 Proportion of health facilities that have a core set of relevant essential medicines available and affordable on a sustainable basis
3.4.1 Mortality rate attributed to cardiovascular disease, cancer, diabetes or chronic respiratory disease
Secondary SDGs addressed
Directly impacted stakeholders
Gender inequality and/or marginalization
Indirectly impacted stakeholders
People
Outcome Risks
Due to the lack of raw material availability, it may not be possible to produce APIs at globally competitive rates.
Impact Risks
The business model under this IOA can reduce the cost of medication, but given the existing price caps and 30% higher cost of production of APIs in India domestic manufacturing may not have the desired impact.
Impact Classification
What
Domestic manufacturing of APIs in an affordable manner can ensure consistent availability of drugs by offering a resilient supply chain to the pharmaceutical industries and generate employment.
Risk
Due to the lack of raw material availability, it may not be possible to produce APIs at globally competitive rates.
Impact Thesis
Improve access to affordable drugs for high burden disease categories and reduce dependence on imports by increasing domestic manufacturing of APIs.
Enabling Environment
Policy Environment
NITI Aayog recognizes access to drugs and medical devices at affordable prices as an essential ingredient of Universal Health Coverage and highlights "access to affordable drugs and medical devices" as a target (5.4) It also calls for boosting domestic production of APIs by setting up six large API intermediate clusters (7.1)
The GOI approved a package of USD 1.3 billion in 2020 to boost the domestic production of bulk drugs and exports. It includes establishment of bulk drug park with common infrastructure facilities and a Production Linked Incentive (PLI) scheme to promote domestic production of 53 critical key starting materials (KSM), drug Intermediates and APIs (7.2)
GOI released the Draft Pharmaceutical Policy 2017 which proposed a shift in the focus of DPCO ‘from price control to the monitoring of drug prices, their availability and accessibility. It also suggested that formulations based on indigenously produced APIs and intermediaries would be exempted from price control for five years (7.2)
Financial Environment
Fiscal incentives: A 15-year tax holiday for cluster developers/ participants (7.2) Income tax benefits for an initial period of 10 years for each product from the date of launch of the product (7.2)
Other incentives: Single-window environmental clearance to API manufacturers for all drugs once the plant is approved by the environment ministry A proposal had also been submitted to provide venture capital funding with a corpus of around USD 66 million to aid pharma SMEs (7.2) The Department of Pharmaceutical devised a cluster scheme specific to bulk drugs. It proposed a public-private partnership (PPP) model with government funding up to 70% of the project cost, subject to a ceiling of USD 2.6 million, to set up a cluster (7.2)
Regulatory Environment
Complex regulatory environment with lengthy (takes about 2-3 years) and voluminous (about 20–25 approvals) approval process with multiple stakeholders. However, the GOI is taking measures to increase the ease of doing business such as by introducing the Draft Pharmaceutical Policy 2017 (7.2)
GoI has liberalised FDI policies in the pharma sector with 100% FDI – 74% under automatic route for brownfield projects and 100% for greenfield projects under the automatic route.(7.2)
Marketplace Participants
Private Sector
Investors: Caisse de dépôt et placement du Québec, Aranda Investments, TA Associates, Morgan Stanley Private Equity Asia, Eight Roads Ventures , Ascent Capital Advisors, Enai Trading & Investment, Khorakiwala Holdings and Investments, Pronomz Ventures, Pinky Ventures, TPG Capital, Pantheon Ventures, ChrysCapital, Capital International, Cairnhill MOPE Investment Advisors, Rosewood Investments, MACE, True North Managers LLP, Tata Capital Private Equity; Alpha TC Holdings, Beta TC Holdings, HBM Private Equity, Ascent Capital Advisors, Steadview Capital, Malabar Funds, Carlyle, Warburg Pincus have invested in companies developing and manufacturing APIs in the past 5 years. There have been >15 public offerings and significant M&A activity in companies developing and manufacturing APIs between 2014-2019 (7.13) International companies such as Fosun Pharma have also invested in this space (7.13)
Private Sector
Corporations: The bulk drug industry is highly fragmented with around 1,500 plants that manufacture APIs. In FY18, the top 14-16 companies (including large formulation companies) comprised just 16-17% of the total market share. (7.2) Hetero, Aurobindo, Dishman, Divi’s, Jubilant Concord Biotech, Shilpa, Laurus Labs, Virchow, SeQuent Scientific are a few prominent companies. (7.2) A number of large pharma companies are active in this space including Sun Pharma, Abbott Laboratories, Dr. Reddy's and Mankind Pharma (7.14)
Government
Organisation of Pharmaceutical Producers of India, Indian Medical Association (IMA), Nathealth - Healthcare Federation of India
Target Locations
India: Countrywide
References
- (2.1) https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(18)30994-2/fulltext#seccestitle190
- (2.2) https://niti.gov.in/sites/default/files/2019-12/SDG-India-Index-2.0_27-Dec.pdf
- (2.3) https://in.one.un.org/page/sustainable-development-goals/sdg-3-2/
- (2.4) https://data.worldbank.org/indicator/SH.MED.PHYS.ZS
- (2.5) https://data.worldbank.org/indicator/SH.XPD.GHED.GE.ZS?view=chart
- (2.6) https://www.financialexpress.com/economy/india-spending-more-on-healthcare-now-but-yet-not-as-much-as-others-heres-how-much-us-china-spend/1922253/
- (2.7) https://data.worldbank.org/indicator/SH.XPD.OOPC.CH.ZS
- (2.8) https://www.irdai.gov.in/ADMINCMS/cms/whatsNew_Layout.aspx?page=PageNo3729&flag=1
- (2.9) https://bmjopen.bmj.com/content/8/5/e018020#DC1
- (2.10) https://www.indiaoppi.com/wp-content/uploads/2019/12/Report-on-healthcare-access-initiatives-For-web.pdf
- (2.11) https://www.nhp.gov.in/nhpfiles/national_health_policy_2017.pdf
- (2.12) Stakeholder Consultations
- (2.13) https://www.ibef.org/industry/healthcare-india.aspx
- (7.1) https://niti.gov.in/writereaddata/files/Strategy_for_New_India.pdf
- (7.2) https://www.mycii.in/KmResourceApplication/65765.IndianAPIIndustryReachingthefullporentialCIIKPMGreport2020.pdf
- (7.3) https://www.advamed.org/sites/default/files/resource/medical_industry_in_india_-_the_evolving_landscape_oppurtunities_and_challenges_white_paper.pdf
- (7.4) https://www.investindia.gov.in/sector/pharmaceuticals
- (7.5) https://niti.gov.in/sites/default/files/2019-12/SDG-India-Index-2.0_27-Dec.pdf
- (7.6) https://www.business-standard.com/article/companies/this-pharma-hub-gets-back-on-its-feet-after-relief-in-locked-down-india-120042600948_1.html
- (7.7) https://www.praxisga.com/press-releases/praxis-global-alliance/praxis-global-alliance-recent-report-healthcare-investor-sentiment-spotlight-2019-uncovers-investor-outlook-and-value-creation-opportunities-in-india
- (7.8) https://health.economictimes.indiatimes.com/news/pharma/chryscap-exits-mankind-pharma-with-10-fold-gain-offloads-stake-to-capital/47453148
- (7.9) https://www.hdfcsec.com/hsl.docs//HSL-Thematic-Pharma-Stock-Picks-280520-202005281521532768561.pdf
- (7.10) http://www.sequent.in/pdf/presentations/SSL_IR_deck.pdf
- (7.11) https://economictimes.indiatimes.com/markets/expert-view/pick-pharma-stocks-that-have-strong-domestic-businesses-aditya-khemka/articleshow/75181511.cms
- (7.12) Stakeholder consultations
- (7.13) S&P Capital IQ data
- (7.14) https://www.fiercepharma.com/manufacturing/india-pharma-manufacturing-hub-back-up-and-