This trend did not last, reports Rajendra Kumar Sahu, Chief Executive Officer at Navin Molecular; concerns regarding patient safety, quality, intellectual property protection and data security led to the tightening of regulatory oversight.
In India, there was a subsequent reduction of new CMOs entering the market, combined with consolidation between others.
The companies that remained focused on offering exporting services, under the more modern contract development and manufacturing organisation (CDMO) nomenclature, or as generic drug manufacturers.
Conversely, in China, the growth of new CDMO companies continued — alongside the emergence of its own biotech sector — with innovator companies developing proprietary drugs and some CDMOs building independent therapeutic pipelines in parallel with their service divisions.
COVID-19 pandemic
The impact of the COVID-19 pandemic on the pharmaceutical industry led many companies, particularly those based in the US, to scrutinise, evaluate and take stock of their supply chains.
In doing so, it became evident that there was an overreliance on outsourcing to overseas suppliers. China was seen as being dominant within the market for both final drugs and strategically important raw materials, leading several organisations to focus on ensuring strategic partnerships with suppliers in diverse geographical regions to ensure security and transparency of supply.
The modern supply chain model relies on multiple sourcing options from different companies and geographic locations to prevent disruption … but also to ensure that traditional influences such as delivery time, quality and cost remain key.
Current supply chain management must balance all these factors and, at the same time, meet the ever-increasing demand from companies to advance programmes to the clinic and through to commercial launch as quickly as possible.
COVID-19 saw how rapidly the industry can adapt and accelerate projects under extreme conditions. As a result, this is now seen as the norm, rather than the anticipated, extended timeframes previously experienced.
Geopolitical uncertainty
Post-pandemic geopolitical turmoil has seen costs rise in terms of energy and consumables. Furthermore, tensions between China and the US have led to a reticence to outsource to the former as concerns abound about the potential influence of major CDMO companies within the pharmaceutical supply chain.
The proposed BIOSECURE Act cited specific businesses to be “foreign adversary biotech companies of US national security concern.”
And, although this legislation has not been included in the final list of amendments to be considered in the National Defense Authorization Act (NDAA) for Fiscal Year 2025, this uncertainty has driven companies to review supply chain integrity and look for potentially alternative development partners and secondary/tertiary suppliers to ensure that drugs in development were not adversely impacted.
India as an alternative
This uncertainty, coupled with the state of global supply chain security throughout the industry, means that — once again — India is positioned as a country that is very much open for business to support pharmaceutical development.
However, Indian companies have learned from their previous experience — being preconceived as merely low-cost providers — and know that to maintain their position as trusted partners, any economic benefits must come with an internationally recognised quality service to satisfy their customers.
The Indian global pharmaceutical market is expected to grow from $40 billion in 2021 to $130 billion in 2030, with projections hitting $450 billion by 2047.
This reflects both growth in its internal market and its position commanding more than 20% of the global pharmaceutical supply chain. It currently boasts the highest number of US FDA-approved facilities outside the US.1
The 2023 CPHI Annual Report cited a large degree of confidence within Indian executives regarding the country’s position and outlook for 2024, with 61% being “highly positive” and a further 37% being “moderately confident.”
This result contrasts with a global average of just 37% (highly positive) and 54% (moderate) in all executives.2 A further report from Mordor Intelligence showed that the Indian CDMO sector is forecast to overtake the Chinese one by 2028 and is expected to show the highest growth rate in the world during this period.3
Challenges
Despite this growth, there are still challenges for Indian companies, with many being based on perception issues from sponsors that are unfamiliar with the advances and investments being made by CDMOs.
Previous reports about quality issues have tainted the opinion of some and the lack of innovator companies within the country has been viewed by many in the West to indicate that India lacks creative thinking (comparing them unfavourably with Chinese competitors).
The supposed issues with quality have also been applied to India’s internal infrastructure; transport in India is seen as a major weak link despite major investment in the country’s rail and road network.
This does not necessarily extend to export by air as most Indian CDMOs are export-only units; they generally have significant experience when it comes to shipping to Europe and the US in this manner.
Benefits of India
India remains economically advantageous when compared with its competitors, although costs have been rising because of intense pressure from Chinese CDMOs. Companies are looking to absorb as many of these hikes through efficiency and being more selective about the nature of projects that they take on.
Salaries of employees, even at managerial levels, are significantly lower than European or US companies and on a par with — or less than — China.
Similarly, construction costs are lower in India than other areas of the world, with comparisons showing that new-build GMP facilities are approximately two-thirds of the average price in the UK.
These lower cost bases give Indian companies more flexibility, such as the opportunity to take on additional work at short notice and the ability to expand and grow as customer demand increases.
Indian companies typically work to lower occupancy levels than would be viable in the West, which means that they often have additional capacity available at short notice.
Similarly, further expansion is usually triggered earlier in the product lifecycle than would be the case in the West.
Supporting customer projects with a skilled workforce is crucial and having well-educated scientists is a priority of the Indian government; the pharmaceutical sector was identified as a prioritised industry by the Indian Prime Minister.
This is to ensure the nation’s future as both an exporter and to meet the expected increased domestic demand for innovative pharmaceuticals as Indian wealth rises. To this end, Indian technical universities have a good reputation internationally.
The locations of key pharmaceutical manufacturing hubs in India are in relatively close proximity, facilitating the recruitment of trained and experienced staff. The Indian workforce has shown to be flexible in its approach to move within the country for employment.4
Flexible capacity is a key strength of Indian companies; to counteract the reliance on Chinese manufacturers, this can be used to economically backfill intermediate supply chains and provide additional security.
Many large pharmaceutical companies employ a “China +1” approach whereby at least one of the material suppliers must be non-Chinese.
A requirement for manufacturing partners to be similarly “China independent” regarding their own supply chains is becoming an important factor in vendor selection to ensure the robust and secure provision of materials.
Having the flexibility and capacity to backfill synthetic steps from basic raw materials is more cost-effective and improves supply chain security.
One of the traditional roles that Indian CMOs and CDMOs have fulfilled in pharmaceutical intermediate manufacturing is the provision of technologies in specialist areas such as hazardous chemistry.
Rising costs and safety legislation mean that these services are almost exclusively outsourced and India has built up a reliable and cost-effective infrastructure to work in areas such as fluorination, high-pressure and highly toxic fields.
Historically, these may have been only single-step projects; however, the reputation of these service suppliers has grown to outsourcing additional stages that support the hazardous steps.
In today’s market, the standard expectations for suppliers to be competitive in areas such as price, lead-time and material quality are taken as a given; increasingly, therefore, additional factors are being used in the selection process.
The supplier’s approach to sustainability is also becoming a critical factor in materials sourcing, with a requirement that they achieve minimum standards in both industry metrics (such as their Ecovadis rating) and reporting.
Indian companies have had to seriously evaluate their sustainability credentials, which has elevated standards in line with the commitments made at the 26th Conference of Parties (CoP26) in 2021.5
The Indian government is investing in renewable energy technologies and trying to make it easier for companies to source a greater share of their electricity from renewable sources.
Currently most wind and solar energy generation is confined to the southern and western states of the country, with the eastern and central regions being dependent on energy from coal-fired power stations.6
Underpinning the entire pharmaceutical industry is quality; and, as previously mentioned, this has been a historical issue and there continues to be a perception — especially among people who have not witnessed modern facilities in India — that standards are not as high as in other regions such as Europe, the US and China.
However, all major Indian CDMOs now operate to international standards and, often, the facilities are at least as good as, or better than, those in the West.
Although there is not as strong a legacy of inspection by Western regulatory agencies, pharmaceutical manufacturers have invested in plant wherein GMP standards are now on a par with those in Europe and the US.
Supply chain advantages
Outsourcing to India has always been attractive in terms of cost. And, although China has been historically economically competitive, the potential risks associated with working with Chinese CDMOs is making companies evaluate their supply chain security, continuity and integrity.
This, coupled with the increased quality levels being implemented by modern Indian suppliers, has led to an increased demand for their services.
Beyond the core customer metrics of value, quality and lead times, the attitude towards criteria for vendor selection — such a sustainability — have changed recently.
Conscious efforts are being made by pharmaceutical manufacturers to reduce their environmental impact. India as a country is maturing within the market and CDMOs have learned lessons from the past regarding how to be key strategic partners for the development of next-generation drugs.
References
- www.maersk.com/insights/growth/2024/02/27/pharmaceutical-supply-chain-in-india.
- www.manufacturingchemist.com/india-pharma-growth-expectations-in-2024-are-the.
- www.fortuneindia.com/long-reads/contract-manufacturing-pharmas-new-growth-pill/116286.
- www.livemint.com/economy/in-charts-how-indians-move-within-the-country-11678642949279.html.
- www.downtoearth.org.in/news/climate-change/cop26-modi-offers-panchamrita-concoction-for-climate-conundrum-at-glasgow-80001.
- www.economist.com/asia/2024/01/04/the-energy-transition-could-make-india-even-more-unequal.
