Western Drug Makers Pivot Away from China, Favor India in Global Pharmaceutical Landscape

China for years has been a favorite for drug manufacturing and research due to its low cost and speedy contract drug manufacturing services. Big pharma companies had set up their manufacturing plants in China despite ongoing US-China trade war and onset of COVID-19 pandemic. But now many western countries have prompted their companies to de-risk their operations and slowly move base out of China.

The West has now become wary of China’s strangulating policies and measures to control business establishments on its soil. The crumbling infrastructure and constant trade war with the western countries have brought many businesses to standstill and the drug manufacturing sector is one of them that has borne the brunt. China on the other hand has shown its displeasure to West’s push by using terms like de-risking and de-coupling from China as means to disrupt normal operations of the global supply chain.

Wang Dongwei, China’s vice-minister of finance, while addressing a conference in Egypt in September this year said that Beijing hoped to see a world with enhanced industrial global chains, which are “necessary for an open and inclusive global economy” – especially after the Covid-19 pandemic.” Wang further added, the “actions of some countries” had thrown global industrial chains into disarray. In his obvious attack on the US and its European allies, Wang said that the countries are weaponizing the concept of national security and were misusing the idea of de-risking.“We should firmly oppose such actions,” Wang said during a panel discussion at the Asian Infrastructure Investment Bank’s annual meeting in Sharm el-Sheikh, Egypt.

Valdis Dombrovskis, the European Union’s trade chief, said in a speech at Tsinghua University that the EU had been forced to take a hard look at its economic dependencies. “Our answer is: economic diversification and de-risking,” Dombrovskis said, stressing that the EU had no intention of decoupling from China.” “I understand that in China, de-risking is sometimes viewed as a synonym for ‘protectionist’ or ‘China-sceptic’. Our strategy is not protectionist. And it is country-agnostic,” he said.

Meanwhile, it is India which is destined to gain the most as the Western drug makers are looking for options outside China. India intends to establish a strong foothold in the pharmaceutical services sector to boost sales and reputation for its US$42 billion industry.

Major biotech companies from the West would now consider using Indian manufacturers to research and produce active pharmaceutical ingredients (APIs) for clinical trials or other outsourced work.

“Today you’re probably not sending an RFP (request for proposal) to a Chinese company,” said Tommy Erdei, global co-head of healthcare investment banking at Jefferies. “It’s like, ‘I don’t want to know, it doesn’t matter if they can do it for cheaper, I’m not going to start putting my product into China’.”

Dr Ashish Nimgaonkar, the founder of Glyscend Therapeutics, a US-based biotech firm testing treatments for type 2 diabetes and obesity in early trials, agreed. “All of the factors over the past several years have made China a less attractive option for us,” he said.

Nimgaonkar said that when Glyscend issues an RFP later in the development stage of the medicines it has in trials, the Indian contract development and manufacturing organisations (CDMOs) would have a preference over the Chinese ones. But Nimgaonkar is also worried about Indian CDMO’s ability to match standards set by Chinese counterparts.

India’s big four CDMO companies – Syngene, Aragen Life Sciences, Piramal Pharma Solutions, and Sai Life Sciences – have witnessed a boom in business with multiple requests coming in from Western pharmaceutical companies, including major multinationals. As per an estimate these companies have reported a growth of 25 to 30 percent in the recent quarter.CEO of Piramal Pharma Solutions, Peter DeYoung, suggests that full benefits coming India’s way would not be an overnight phenomenon. He feels that it will take time for the contracts to become more lucrative for the outsourcing companies like his.

Helen Chen, Greater China Managing Partner at L.E.K. Consulting in Shanghai, while presenting her side of the story, said, “Chinese CDMOs are established makers of biologic drugs, which require a higher threshold of regulatory approval than conventional medicines.”She feels that employing new firms outside China would be a complex task for western biotech companies as it generally takes three to five years to settle.

Piramal Pharma is high on demand from the Western biotech firms and are asked to manufacture basic raw material in-house earlier outsourced from China. Sai Life Sciences too is facing high demand and has doubled its manufacturing capacity since 2019 and is adding 25 percent more to boost production.

Ramesh Subramanian, chief commercial officer of Aragen, a privately-owned Indian firm has witnessed tremendous growth in manpower from 2,500 to 4,500 employees in the past five years, as the profits are on an upsurge largely thanks to new contracts coming from the Western firms. Aragen today stands tall among biggest pharmaceutical companies in India.

Even though the growth in the Indian pharma sector looks all rosy, new biotech companies are still hesitant towards a quick shift from China to India and want to take baby steps.