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Fermentation products manufacturing may need a little more push than PLI scheme: Experts
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Gireesh Babu, New Delhi
August 03 , 2021
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Even as the Central government has come out with significant measures to support production of key starting materials (KSMs), active pharmaceutical ingredients (APIs) and others under the production linked incentive (PLI) scheme, a little more push is needed for the industry to attain the fermentation technology-based product manufacturing capabilities and win over China in supplies, opine industry experts.
There are multiple factors that challenge the manufacturing of fermentation-based products in the country, says B R Sikri, chairman of Federation of Pharma Entrepreneurs (FOPE); chairman of CII Committee of Life Sciences and Biotech, Northern Region; and vice president (north zone) of Bulk Drug Manufacturers Association (BDMA).
The investment in fermentation-based products is much higher compared to chemical synthesis. There are hardly a dozen top Indian companies who are capable enough to venture into manufacturing fermentation products.
At present, India lacks in technology in this area, and needs to outsource the technology part of these projects and the cost of technology, uninterrupted power, and water in abundance. Cost of power will have a major role in winning this business.
"Out of the cost of fermentation-based products, almost 40-50 per cent is the cost of power. The environmental requirements are also another challenge. These factories can be set up only near the sea. Considering the humidity in the coastal region is more, the fermentation based products cannot be kept in a humid atmosphere. In China, near the sea it is cold weather," said Sirki.
Another challenge could be that even if the companies go for a huge investment, if China drops the prices significantly in future, it would impact the Indian manufacturing. By the time the industry goes to the government to impose anti-dumping duty, the scenario might have changed.
The incentives given by the government are quite generous, but the problem is that the gestation period is very long, said Sujay Shetty, global health industries advisory leader, partner, PwC India. By the time it reaches the gestation period and the materials come out, there is a possibility that the prices may have declined substantially in the global markets or import prices will still be cheaper. So how, in spite of adjusting for incentives, the Indian manufacturers can still make these units profitable is a challenge that pulls back the industry to bid for fermentation technology-based units, he said.
Almost three decades ago, the Government of India gave 10 licences in the country to set up penicillin G plant in the country, but none of them became a success and most of the people burned their fingers because of the Chinese imports, availability of technology and power, said Sikri.
According to a review on "India's Road to Independence in Manufacturing Active Pharmaceutical Ingredients: Focus on Essential Medicines", conducted by a group of experts and published by open access journal publisher MDPI, in May, 2021, said, "China’s cost advantages in fermentation-based products depend on various factors, including low costs of raw material and utilities, provision of subsidies by the state and good economies of scale, due to large scale production.”
The review added, “Chinese manufacturers have managed to keep raw materials costs for penicillin-G production lower by 3–4%, due to improvements in strain yields, using the latest technologies. The abundance of and proximity to raw materials in the country have also helped lower costs of purchase and transport of raw materials, contributing to savings of almost 10 to 15%.".
Production facilities started between early 1960s and late 1990s including for penicillin G/V, streptomycin, kanamycin, vitamin B 12, tetracycline, ascorbic acid, erythromycin, griseofulviin, gentamycin, cephalosporin, cyclosporine and mitomycin by indian and foreign drug majors in the country were either closed or in partial operation.
The industry is confident that it would see support from the government on environmental clearances, as the centre has already committed to such projects by supporting the industry through the PLI scheme and other policy decisions.
"The government has to come forward and sit with the top industry representatives and do the analysis so that there would be more interest to manufacture fermentation based products similar to the interest we see in chemical synthesis products manufacturing. The government can also consider joint ventures with those companies who are strong in fermentation-based products in the international markets," Sikri suggested.
Top companies including Aurobindo, Sun Pharma, Lupin, Cipla, Zydus, Dr Reddy’s Laboratories and Torrent Pharmaceuticals can enter into manufacturing of fermentation-based products.
Under the PLI scheme, the Government of India has already announced the names of companies which are going to set up facilities in the fermentation products, but one needs to see how these projects get implemented, he added.
Shetty said that there should be a way to make it profitable and incentivise it for the people to come and put in investment. There is certainly a case to look at that and find the levers - one is the incentives, second is import duties among others.
The industry will ask for some degree of protection. Without steeply controlling imports, it is difficult to make these industries successful. Some solutions have to be thought of in addition to the incentives, though these incentives are generous, he maintained.
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