Markets: How will the Biosecure Act affect Indian pharma companies? Aditya Khemka explains

“There should be an alternative supplier who can support you even if it is at higher prices or at a higher cost. So, I think that is where Indian players come in. Remember, last time we checked, India’s API exports were around $4 billion and that figure compares to China’s API exports of around $40 billion,” he says. Aditya KhemkaInCred Healthcare Quality Management System.

I just wanted to start by getting an overview of what the opportunity looks like for India. Pharmacy players due to the Biosecurity Law.
Aditya Khemka: I think the Biosafety Act will benefit many Indian pharmaceutical companies that actually do this. business with global innovators. It can also benefit those API manufacturers who do business with global generic pharmaceutical companies. But our money At InCred Healthcare, the PMS falls on companies that do more business with global innovators. The reason behind the Biosecurity Law is that China had become too monopolistic a source of raw material for pharmaceutical products.

And as we have seen historically, we have seen Russia weaponize gas. We have seen China weaponize the COVID vaccine. So, I think the Western world got nervous about the over-dependence on China as the sole source of raw materials for pharmaceuticals. And it will definitely benefit all the contract manufacturers and CDMOs in India, specifically those who do business with the global innovators.

How long do you think it might actually take for global players to truly transcend China?
Aditya Khemka: So I don’t think that in the next decade or so they will be able to completely abandon China. The idea is not to completely abandon China, but to develop an alternative supplier ecosystem in case China tries to use its capabilities in the pharmaceutical raw materials sector.

There should be an alternative supplier that can support you, even if it is at a higher price or at a higher cost. So, I think that is where Indian players come in. Remember, last time we checked, India’s API exports were around $4 billion and that figure compares to China’s API exports of about $40 billion.

China is ten times bigger than India, so even if they end up diversifying to 20-30%, Indian API revenue could triple or quadruple in that period, but this will take ten years. The pharmaceutical sector being a regulated sector, you cannot just decide overnight to change the supplier ecosystem or develop an alternative supplier ecosystem. There are a lot of regulatory hurdles, approvals and red tape to overcome, so it is not something that can happen overnight, but it is a long-term trend that will definitely develop over the next five to ten years.
And what is the impact on generic players who actually source raw materials from China and those who are also highly dependent on it? For example, companies like Aurobindo.
Aditya Khemka: So, I don’t think Aurobindo falls within the scope of the US Biosecurity Act in that regard. I think the Biosecurity Act is more for companies that are on US soil, specifically companies that have manufacturing capacity on US soil. And Aurobindo has a couple of facilities, but most of their production is done in India, so they can continue to source raw materials from China. However, Aurobindo or any other Indian pharmaceutical company that sources raw materials from China will still be dependent on China and will be subject to some difficulties in case China flexes its muscles or tries to weaponize the API raw material manufacturing capacity.

Let’s look at a company that has a presence in the United States. Can I give you a hint so that our viewers understand? Maybe a company like… Piramal Pharmacy Would they be the biggest beneficiaries because they have a presence on US soil and would benefit from China plus one?
Aditya Khemka: Of course. So, you can say that any Indian pharmaceutical company that has manufacturing capacity outside India, specifically in Europe or the US, will be, I think, the first beneficiary of the Biosecurity Act. Let me give you an example.

We have an action here called Pharmova jubilantThe company received a grant from the U.S. government to set up a manufacturing plant on U.S. soil, and the U.S. government would have the right of first refusal over production at the plant. And when the U.S. government does not want to obtain material from that plant, the company would be free to manufacture other materials and sell them to whomever it wishes.

When I say developing an alternative supplier ecosystem compared to China, I mean they obviously want to develop manufacturers on Indian soil, India being a geopolitically friendly country towards the US, but they also want some onshore capacity and therefore players like Jubilant or Piramal or any other player who can have capacity on foreign soil, specifically the US and Europe and can manufacture and execute the capacity, will definitely be the first beneficiary.

The second group of beneficiaries will be similar companies but with facilities in India, because then there will be an ecosystem of alternative suppliers to China and that will also benefit. So, I think these are the two groups of beneficiaries that we will see in the next five to ten years.

There are two levels of beneficiaries: one, as you mentioned, are the local manufacturers who have a presence on the ground and who actually cater to this category, i.e. CDMOs. Now, let’s break it down into complexities, i.e. companies that deal with complex products or specialty products and injectables. Lupine is in specialty drugs. Aurobindo is in injectables. Divi is up there as far as CDMO is concerned. So in terms of complexities, which chain would benefit the most? Will it be oral generics? Will it be CDMO? Will it be injectables?
Aditya Khemka: You see, unfortunately, I don’t think complexity equals higher profitability. I think that’s a common mistake when people try to evaluate contract manufacturing organizations. Complexity, coupled with limited competition, makes for a more profitable business. Without complexity, but with limited competition, it’s still a higher-margin business.

And complexity with high competition is a low margin business. So from that perspective, if you ask me, companies that do business with innovators have a competitive advantage in the sense that the innovator is willing to share their intellectual property and the patent is still valid, it is still in force and therefore they cannot face any further competition from anyone else and therefore the companies that have that exclusive agreement with the innovators have their trust, they have the ability to meet their high requirements for quality and timely deliveries of inventory and so on, these are the ones that will make more money.

And if you ask me, I think Aurobindo or Gland or some other players of that kind, they mostly do business for generic pharmaceutical companies, maybe even for Western generic pharmaceutical companies.

Generic pharmaceutical companies are not going through a very good moment in terms of prices for their final products in the United States or Europe and, therefore, their capacity to pay their ecosystem of suppliers is much lower.

Compared to innovators, they are highly profitable in the US and Europe and have the ability to pay more to their suppliers as long as they can meet their standards for quality and delivery, etc.