Report from India

India is setting out to woo China in an effort to improve its own pharmaceutical-manufacturing sector. Although China is one of the largest trading partners of India, relations between the two nations have not been completely amenable, and China continues to stand ahead of its neighboring nation statistically. Government data show that bilateral trade was $61.74 billion in 2010. The same year, India's trade deficit with China was at $20.02 billion; it was $15.87 billion in 2009. With Indian pharmaceutical exports surging at 16% growth this year and set to cross the $12-billion mark, India is hoping that its pharmaceutical exports from India to China will also grow.

Earlier this year, the Chinese government decided to open up its $50-billion pharmaceutical market and provide universal healthcare to the country's population, with a target date of 2020. To reach this goal, the government will need to source pharmaceuticals—and India is eagerly waiting to benefit from the expected growth.

PHOTO: JOHN WOODWORTH / GETTY IMAGES

India's health minister, Ghulam Nabi Azad, took a 4-day tour of China in July 2011, during which time he asked the Chinese government to speed up authorization of Indian-manufactured pharmaceuticals. He specifically advocated for the Chinese Health Ministry to improve its lengthy registration procedure, which often discourages Indian companies from trying to enter the Chinese market.

Industry perspectives

"With regard to raw materials for the pharmaceutical sector, China is the world leader in basic raw materials today. They are also the masters in terms of APIs. If it is necessary for India to develop these areas, we have to partner [with] China,'' says Mumbai-based Cipla Chairman Yusuf K. Hamied.

In 2010, Cipla committed to investing approximately $70 million in China over a 3-year timeframe. The company is trying to beat out competition from Bangalore-based Biocon, Hyderabad-headquartered Dr. Reddy's Laboratories, and Mumbai-based Lupin. "Through 2015, biologic drugs worth more than $80 to $90 billion in global sales are set to lose patent protection, presenting a major opportunity. We want to be a part of this in China," said Hamied.

On June 15, 2010, Cipla acquired a 25% stake in Shanghai-based BioMab, a biotech company. The investment, in coordination with the Desano Group in Shanghai (a supplier of anti-HIV and antimalarial APIs), will involve the establishment of two monoclonal antibody manufacturing plants, one in Goa and one in Shanghai. Looking forward, Hamied says Cipla plans to develop biosimilars in China for three top biologics: Roche's Avastin (bevacizumab) and Herceptin (trastuzumab), and Pfizer/Amgen's Enbrel (etanercept). These top-selling innovator products account for $19 billion in annual revenue.

It has not always been easy for Indian firms to maintain a hold in China, however. Gurgaon, Haryana-based Ranbaxy was one of the first Indian companies to establish a venture in China, in 1993. According to a Ranbaxy official who preferred anonymity, a major part of Ranbaxy's sourcing used to come from China. "The idea then was to secure increased market share for our innovative drugs and also use the initiative to source intermediaries to cut down production costs," he said. However, in December 2009, after launching more than 40 products in China, Ranbaxy divested its stake in the ventures it had with Guang-zhou-based Baiyunshan Pharmaceutical Company and Hong Kong-based New Chemic. Ranbaxy said the move was part of a cost-saving consolidation of manufacturing operations. The Japanese firm Daiichi Sankyo, Ranbaxy's parent company, wanted to cut down unprofitable ventures and wanted exclusive control in China, not through a subsidiary. The same month, Ranbaxy dissolved its Japanese joint venture with Nippon Chemiphar as well, at the behest of Daiichi.

Dr. Reddy's Laboratories and Chennai-based Orchid Chemicals and Pharmaceuticals have forayed into China as well, but with mixed results. In July 2000, Dr. Reddy's signed an agreement with two firms to establish a joint-venture company in China named Kunshan Rotam Reddy Pharmaceutical Company. The agreement, with the Rotam Group of Canada and Kunshan Double Crane Pharmaceutical of China, had a total starting investment of $29.99 million. "Though the [joint venture] was to produce and repackage bulk formulations and APIs, the Indian firm has not made much headway in China," said Sunder Mohanty, principal pharmaceutical analyst at the brokerage firm, India Infoline.

Mohanty says a similar situation occurred with Orchid Chemicals and Pharmaceuticals. The company set up a $25-million 50–50 joint venture in 2002 with North China Pharmaceutical Corporation. The goal was to tap into the market potential for anti-infective drugs in China with an envisaged a 300-million ton bulk active drugs per year manufacturing capacity. Nine years later, however, the venture activity is diluted and Orchid now relies on supplying chemicals and contract work focused on custom synthesis and analysis.

Government views

Until recently, India produced 70% of its bulk-drug needs, but that figure has now fallen to 30%. A Commerce Ministry statement of July 16, 2011, notes that the Indian government is worried that the amount of cheap bulk-drug imports from China have led to a sharp fall in the share of domestic production.

Some have called India's low-export penetration into China embarrassing, including P.V. Appaji, executive director of Pharmexcil, the Indian government's pharmaceutical export promotion council. "Take a look at how China is supporting its bulk drug industry," Appaji says. "With financial incentives worth $75 million, foreign multinationals are keen to set up base there. In India, though Big Pharma tends to form close collaborations, such as risk-sharing outsourcing to codevelop drug candidates, very few of them are willing to permanently set up a decent size R&D center here. In order to retain our export advantage, we need to think like China and counter multinationals at their own game."

India's Commerce and Industry Minister Anand Sharma has also gone on record to express disappointment over China not fulfilling its promise of importing more pharmaceutical products from India. In August 2010, at the 8th meeting of the India-China Joint Economic Group, China had assured India that it would give India access through government contracts in sectors like pharmaceuticals and IT. In a statement to India's Parliament on Aug. 24, 2011, Sharma expressed concern that a year had gone by without China fulfilling its promise to import more. He said the matter would be taken up for discussions again with China.

The two nations are planning a series of talks, to begin Sept. 26, 2011, to shape a framework for enhanced economic cooperation in the pharmaceutical, technology, energy, steel, and telecommunication sectors. A goal of the so-called Strategic Economic Dialogue is to figure out how to grow bilateral trade to reach $100 billion by 2015. Discussions will focus, among other topics, on enhancing exchange and cooperation of pharmaceutical API plant supervision.

A. Nair is a freelance writer based in Mumbai.