During several months of 2022, over a hundred children died in Gambia, Uzbekistan, and Cameroon under similar circumstances. An investigation conducted by the World Trade Organization (WHO) affirmed what everybody knew at that time: the deaths were caused by contaminated cough syrup of Indian origin.

The drug contained unacceptable amounts of diethylene glycol and ethylene glycol, chemicals often meant for industrial use, WHO revealed.

In response to the incident, the Indian authorities swiftly shut down Maiden Pharmaceuticals, a drug manufacturer in the Northern Indian state of Haryana, near Delhi, where the medicines had been produced. However, the incident cast a big shadow on the Indian pharmaceutical industry.

“The incidents regarding contaminated cough syrups in Gambia and Uzbekistan impacted the reputation of the Indian pharma industry,” commented Nakul Pasricha, MD, CEO of Pharma Secure, a local GS1 solution provider.

India’s drug manufacturers meet around 20% of the global demand for drugs and 60% of vaccines. Its biggest success story has been in the export of generics. However, the deadly cough syrup scandal raised strong doubts over the safety of drugs of Indian origin.

“Even though the industry is pivotal to the supply of quality, low-cost medicines to the entire world, confidence is shaken by high-profile lapses caused by some unethical manufacturers,” Pasricha admitted. 

In addition to shutting down Maiden Pharmaceuticals, the Indian government conducted several inspections and cancelled the licenses of quite a few companies that failed them, which Nakul said was the right step to rehabilitate the industry’s public image in the world.

Another move was the introduction of a QR coding regulation in 2023 for the Top 300 brands sold in India, requiring them to have codes that can be scanned and verified for authenticity. A similar regulation already exists for all exported drugs. 

“While these are all steps in the right direction, I believe we need much more action,” Pasricha emphasized.

“Specifically, [these include] expanded quality testing of drugs, an increase in the number of drug inspectors who can conduct a market investigation and enforcement activities, better coordination across central and state agencies, as well as expanded supply chain traceability regulations coupled with enforcement, to ensure that consumers can always verify the authenticity and provenance of medicines they are buying, whether in India or anywhere in the world,” Pasricha claimed.

A race for investments

On February 16, Swiss pharma giant Novartis launched a strategic review of its Indian outfit. The company said it planned to evaluate its 70.68% position in Novartis India Limited.

Although there is no guarantee that any transaction will come out of it, the move has been largely perceived as a sign that the Indian pharmaceutical industry might have lost a part of its competitive edge.

Only three months before, AstraZeneca had also announced that it may exit drug manufacturing in India on the basis of Global Strategic Review.

Western firms play a vital role in the Indian pharmaceutical industry. Over the years, Novartis, Roche, Eli Lilly and Pfizer have tied up with domestic companies like Torrent, Lupine, Cipla and Glenmark for drug manufacturing and clinical trials.

These few cases might be only the tip of the iceberg as global pharmaceutical giants scrutinize their positions in India.

The contract pharmaceutical industry in India has faced some long-standing issues. Ranjit Shahani, former vice president of Novartis India, said multinational companies are concerned about India’s intellectual property regime, which discourages patent perpetuation and, in certain cases, may impose compulsory licensing.

Under certain conditions, a third party can start manufacturing the drug without the patent owner’s consent.

Shahani said, “So, without completely exiting the country, they [foreign companies] are mitigating risks by trimming portfolios and abandoning new investments. Facing regulatory hurdles, IPR challenges, and pressure to generate revenue and net profit, most multinational corporations are reevaluating their strategies for the Indian market.”

According to analysts, increasing competition and a surge in production costs are the key factors driving Western firms to reconsider their development strategies in India.

Utkarsh Palnitkar, an independent industry consultant, said that the pharmaceutical business is global by definition, and international giants can, if necessary, reallocate resources to markets with higher growth potential or more favorable business environments. In light of this, the threat of losing a competitive edge has been looming over the Indian pharmaceutical industry for some time.

Palnitkar admitted that “a change in priorities may prompt multinational companies to reduce their presence in some markets, including India.”

The commentators warned that India is no longer a low-cost destination with a bottomless domestic market and bright export opportunities as it was last decade.

Challenging China

However, the danger of Western drugmakers’ exodus from India could be overestimated as the industry tees up for expansion in the coming years.

In 2023, the Indian Ministry of Chemical and Fertilizers forecasted that the $50 billion pharmaceutical industry will be only scaling up operations to reach a value of $130 billion by 2030. The lion’s share of that figure will come from non-Indian firms.

At the end of 2023, Reuters and Bloomberg reported that India could benefit from a cooling political relationship between Western countries and China. Complicated political relations with China have prompted more Western governments to recommend that companies de-risk supply chains from exposure to the Asian country.

In addition, US lawmakers have recently put the pharmacological sector under scrutiny in relations with China and are seeking to restrict companies with federal funding from contracting with “foreign adversary” biotech groups of concern deemed to be a threat to national security.

That is leading some biotech companies to consider using Indian manufacturers to produce active pharmaceutical ingredients for clinical trials or other outsourced work.
The Indian government has been working proactively to reap the benefits of the global political agenda.

In 2020, the Indian government embarked on a production linked incentive (PLI) plan for the promotion of domestic manufacturing of critical key starting materials (KSMs) and active pharmaceutical ingredients (APIs) in the country with an overall funding of around ($750 million) through 2028-2029.

The scheme envisages 20% subsidies for the first four years, 15% for the fourth year and 5% for the sixth year on authorized sales of fermentation-based bulk drugs. The state subsidies for the bulk drugs based on chemical synthesis will amount to 10% during the first six years.

The reform turned out to be a big success for the Indian pharmaceutical industry. As of early 2024, it secured investments into 27 greenfield bulk drug projects and 13 greenfield plants for manufacturing medical equipment, Dr. Mansukh Mandavaya, the Minister said, as quoted by the press office.

By December 2023, over 60% of the investments planned for the entire initiative had already been allocated. Historically, India has been dependent on bulk drug imports, primarily from China.

Under the PLI scheme, 1800 pharmaceutical products, formulations, and 22 bulk drugs will be manufactured in India. In addition, when the PLI scheme was introduced, India imported 90% of medical equipment, primarily from China. The Ministry reported that 2023 was the first year when import dependence tangibly lowered.

“The investment in fermentation-based manufacturing also signals a rediscovery of our strength in the region, which was affected by cheap imports,” the Ministry’s press office said.
Representatives of the Indian pharmaceutical industry firmly believe that the present geopolitical situation could open a window of opportunities to attract even more investments.

Local press reported, citing sources in the pharmaceutical companies, that the import-replacement push pursues two key objectives. The first is to generate more value inside the country, which should ultimately make the Indian pharmaceutical sector more competitive. The second is to separate the industry from China in case a trade war with Western countries becomes real.

The latter target might not be within grasp yet. A report prepared by the Coalition for a Prosperous America, a US trade lobby, showed that, for example, India-based Aurobindo Pharma got about 55% of its raw materials for ingredients from China.

Aurobindo is one of the largest Indian drug manufacturers, supplying the most generic drugs by volume to the US. Other drug manufacturers are likely to have a similar level of dependence.

Underground pharma world

To unlock its potential, the Indian pharmaceutical industry needs to make sure the problems of toxic and potentially life-threatening drugs hitting the market will never happen again.

Following the cough syrup deaths, the Indian government cracked down on the illicit operations, but as a survey conducted by the journalist investigation team thePrint in 2023 showed, this might not be enough.

The investigators paid a visit to a pharmaceutical company in Modi Nagar, where they discovered operations “working in an unregulated world of dubious drugs on the outskirts of the Indian capital, with no name and no identity.”

It is not clear whether the government’s campaign to clear the pharmaceutical industry of illegal drugs brought any sizeable results. Fly-by-night drug manufacturing units continue to flourish, running business exclusively in cash and issuing no bills.

Modi Nagar is not the only bastion of illegal pharmaceutical business in India. Suspicious drug manufacturing units and suppliers have also flourished across the country in regions like Noida, Faridabad, Delhi and Ghaziabad. thePrint found widespread examples of small drug manufacturing units built using untrained, low-skilled labor, substandard ingredients and manipulated data during the story.

The very existence of such operations put the future of the Indian pharmaceutical industry into question.

The scandal involving death of children in several countries “have tarnished the image of India in the world of pharmacy,” thePrint claimed.

A managing director of a pharmaceutical company commented under condition of anonymity that fake medicines can easily land not only on the domestic, but also on overseas markets. He explained, “The regulatory process is weak, and many officials are corrupt.”

In addition, the government lacks the infrastructure to ensure the sufficient quality of exported drugs. According to the Ministry of Health and Family Welfare, there are only 29 federal government drug testing laboratories and eight drug testing laboratories established by Indian states.

Local market players insist that for the country where every fifth pack of drugs in the world is made, it is clearly not enough.

A retired drug inspector in Haryana who also requested anonymity said, “The reason for weak drug testing is also the condition of government laboratories.”
He indicated that most state laboratories run on outdated equipment, producing largely unreliable results.

All in all, these problems make the new deadly scandals hitting the Indian pharmaceutical industry more than real. The analysts concluded that these are the risks that the industry will have to bear for the time being. 

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Vladislav Vorotnikov is a freelance journalist based in Moscow, Russia. He can be reached at vorotnikov.vlsl@gmail.com.