What are APIs and how they threaten India’s status of a ‘pharmacy to the world’

Despite being a leading supplier of medicines to several countries, India is highly dependent on China for raw materials even to produce medicines as basic as Crocin.

Aspirin tablets (Representational image) | Joe Kohen/Bloomberg

New Delhi: India — which is called ‘pharmacy of the world’ for being a leading supplier of drugs to many countries — may fall short of essential medicines if coronavirus-hit China fails to open its supply chain soon.

Despite being a leading supplier of high-quality medicines to several countries, Indian pharmaceutical industry is highly dependent on China for raw materials even to produce medicines as basic as Crocin.

These raw materials are called the Active Pharmaceutical Ingredients (API), also known as bulk drugs. Indian drug-makers import around 70 per cent of their total bulk drug requirements from China.

In the 2018-19 fiscal, the government had informed the Lok Sabha that the country’s drug-makers had imported bulk drugs and intermediates worth $ 2.4 billion from China.

But with an indefinite lockdown in China due to the deadly coronavirus outbreak, supplies of raw materials from China to produce drugs for treating HIV, cancer, epilepsy, malaria, and also commonly-used antibiotics and vitamin pills, are likely to be hit.

To prevent the shortage of medicines, the Narendra Modi government is considering curbing export of 12 bulk drugs.

ThePrint explains what APIs are and how India lost its growing market of APIs to China in the 90s.

What is an API? 

It is a chemical compound that is the most important raw material to produce a finished medicine.

In medicine, API produces the intended effects to cure the disease. For instance, Paracetamol is the API for Crocin and it is the API paracetamol that gives relief from body ache and fever.

Every medicine is made up of two main ingredients — the chemically active APIs and chemically inactive, excipients, which is a substance that delivers the effect of APIs to one’s system.

Fixed-dose combination drugs use multiple APIs, while single-dose drugs like Crocin use just one API.

How an API is manufactured? 

According to Japanese API producer, Katsura Chemical, “API is not made by only one reaction from the raw materials but rather it becomes an API via several chemical compounds. The chemical compound which is in the process of becoming an API from raw material is called an intermediate.”

It further explains that there are some APIs that pass “through over ten kinds of intermediates in a process when it changes from being a raw material into an API”.

The long manufacturing process is continued until it is purified and reaches a very high degree of purity.

An API manufacturer first develops the chemical compound in a laboratory. Later, the production department manufactures high quantity of APIs using large reactors. It is then checked for purity before selling it to drug-makers.

“If an API is not ultra-pure, medicine cannot meet the strict quality criteria. So the quality of an API plays a very important role,” according to Kastura Chemical.

How India lost its API market to China?

During the early 90s, India was self-reliant in manufacturing APIs.

However, with the rise of China as a producer of API, it captured the Indian market with cheaper products and it eventually led to high economies of scale for China.

“When China entered the market, it started selling APIs, which were 40 per cent cheaper than Indian APIs,” said an official from a Mumbai-based pharma company.

But with an increase in the cost of labour in China, Chinese APIs are now cheaper by 20 per cent than Indian APIs.

“China created a low-cost API manufacturing industry. The industry was backed by the low cost of capital followed by aggressive government funding models, tax incentives. Their cost of operation is one-fourth of India’s cost. Even the cost of finance in China is 6-7 per cent against India’s 13-14 per cent,” the official added.

So, due to low-profit margins and non-lucrative industry, Indian pharma companies over the years stopped manufacturing APIs.

“We started importing APIs, which was a cheaper option, and increased our profit margins on drugs. We imported API, produced final formulations and exported them,” said the official.

India gave up manufacturing APIs for ascorbic acid (Vitamin C supplements), Aspartame (artificial sweeteners) and also for commonly used antibiotics such as Rifampicin, Doxycycline, Tazobactam acid, and even steroids.

Not just APIs, India even stopped producing materials used to manufacture APIs, which are called intermediates.

The list of intermediates includes atorvastatin (anti-cholesterol drug), chloroquine (anti-malarial drug), gabapentin (anxiety drug), and ciprofloxacin and cephalosporins (both antibiotics).

Will problem solve if India starts producing its own APIs? 

“We cannot increase the production of APIs to an extent where we end up matching the economies of scale generated by Chinese units. Our cost of production for API will be higher, which in turn would hamper the export competitiveness of the products,” said the former head of a Mumbai-based pharma company, who also represents a lobby of drug-makers.

“We need to match the prices offered by Chinese firms. For this, we need to invest phenomenally high in API manufacturing so that the buyers of Chinese APIs move towards India,” he added.

The other alternatives for buying APIs, when China is unable to supply, are the US, Singapore, Italy and Hong Kong.

“The pharma industry in a meeting with government think-tank NITI Aayog last week asked officials to enable India to produce cheap APIs to match the prices of Chinese products. Otherwise, our products will lose cost-competitiveness in the global arena,” said the drug-makers lobby representative, who was present at the meeting.