In a notable shift within the pharmaceutical industry, companies are actively seeking alternatives to Chinese contractors for drug production, driven by concerns related to geopolitical tensions and supply chain vulnerabilities. A recent Reuters report indicates that there is a growing inclination among industry executives and experts to favor Indian manufacturers over their Chinese counterparts.
For nearly two decades, China has been the preferred destination for pharmaceutical research and manufacturing services due to the cost-effectiveness and rapid production capabilities offered by contract drugmakers. However, this preference has faced challenges from the U.S.-China trade war and disruptions caused by the COVID-19 pandemic.
Increasing tensions with China have led Western governments to advise companies to ‘de-risk’ their supply chains. Consequently, some biotech firms are now considering Indian manufacturers for producing active pharmaceutical ingredients (API) for clinical trials and other outsourced work.
Tommy Erdei, Global Co-head of Healthcare Investment Banking at Jefferies, noted, “Today, you’re probably not sending an RFP to a Chinese company. 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.”
This shift towards Indian manufacturers is becoming a growing trend, with factors over the past several years making China a less attractive option. When issuing Requests for Proposal (RFP) for medicines in later development stages, Indian contract development and manufacturing organizations (CDMOs) are now preferred over Chinese ones.
Four of India’s largest CDMOs—Syngene, Aragen Life Sciences, Piramal Pharma Solutions, and Sai Life Sciences—have reported increased interest and requests from Western pharmaceutical companies, including major multinationals.
While the full benefits for Indian manufacturers may not be immediate, there is a notable surge in interest. India aims to strengthen its position in the pharma services sector, boosting sales and enhancing the reputation of its $42 billion pharmaceutical industry. Despite concerns over oversight, Indian CDMOs are actively working to match Western and Chinese standards in quality.
Regulatory scrutiny and growth projections
The U.S. Food and Drug Administration (FDA) raised concerns about an eye drop made in India in February. However, Indian CDMOs emphasize routine inspections by the FDA. Mordor Intelligence estimates India’s CDMO industry revenue to be $15.6 billion in 2023, with a projected annual growth rate of over 11% for the next five years.
Some clients are now requesting ‘backward integration to India,’ where even basic raw materials are sourced from India instead of China. Piramal Pharma Solutions has received such requests, indicating a broader shift in the supply chain.
Sai Life Sciences reports almost doubling its manufacturing capacity since 2019 and is set to add another 25% in the next year to meet growing demand. The industry shift is particularly evident in drug discovery work for conventional pharmaceuticals.
In conclusion, the pharmaceutical industry’s move to diversify its manufacturing sources marks a pivotal moment, with Indian manufacturers poised to significantly reshape global supply chains. As tensions persist and the industry navigates geopolitical uncertainties, the landscape of pharmaceutical manufacturing is undergoing a transformative shift.
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