Commerce ministry, Exim Bank to unveil model to meet longer-term loan requirements
With export-oriented Indian pharma companies facing stiff competition from China and a close scrutiny of foreign regulatory agencies, the commerce ministry and the Exim Bank of India will soon unveil a financing model compatible with the sector’s special needs: Longer-term loan with an extended moratorium period.
Currently, commercial banks extend loans to the sector with only a five-year-tenure and one-year moratorium period, as it does in the case of most other industries.
Exim Bank, sources said, has begun extending term finance to pharma companies with a maximum repayment period of 10 years and with a moratorium of up to 36 months (meaning, principal repayment can be deferred by three years and only the interest needs to be paid during the moratorium period).
The longer-term loan is to help export-focused pharma firms set up high-quality facilities (including for R&D) that meet global standards, so as to obtain approvals from regulators including the US Food and Drug Administration (FDA). The loans can also be used to help Indian pharma companies (including through joint ventures overseas) acquire companies, tangible assets and brands abroad.
Of the global exports of pharmaceutical products worth $485.5 billion in 2013, India had only a 2.4% share with $11.7 billion, an Exim Bank study showed. Germany topped the list with $75 billion, a share of 15.4%.
As per a Pharmaceutical Export Promotion Council of India (Pharmexcil) study, the time taken for commercial viability of a drug intermediate (mostly done by the MSME sector) is seven years, including for developing it and getting the required approvals. The overall time taken for building a regulated market site, ensuring its validation and commissioning, completing its scaling up, filing with the FDA as well as clearing the FDA inspection and approval process ranges between 34-58 months.
According to Exim Bank, cost of compliance with the FDA norms is high. An FDA-approved API manufacturing facility can cost between R 30-40 crore and formulations manufacturing plant may cost about R50-60 crore.
However, accreditation by these regulators is important for Indian pharma firms to increase market share in the heavily regulated markets in the West.
A recent EY report citing the commerce ministry says India has the second-largest number of manufacturing facilities outside of the US (523 as of March 2014) registered with the FDA. India’s drug exports to the US have risen from $1.25 billion in FY10 to $3.45 billion in FY14.
Also a huge opportunity for the Indian pharma industry, specializing mostly in generics (off-patent drugs), is the increasing number of patented drugs going off patent. A September 2014 report of CARE Ratings said: “During 2014-2016, about $92 billion worth patented drugs are expected to go off patent in the USA as compared with $65 billion during 2010-12.”
However, on the greater scrutiny of foreign regulators, the CARE report said USFDA import alert on Indian manufacturing facilities jumped from zero in 2010 to 32 in 2014. Import alert issued against Indian plants in 2013 accounted to 49% (or 21) of the total 43 such import alerts issued by the FDA worldwide, it added.
Noting that China was using its financial power to provide affordable and long-term credit to their pharma companies to build huge capacities and wear away the advantage enjoyed by the Indian pharma companies, the Pharmexcil study said: “We (Indian pharma sector) depend up to 63 % on Chinese raw materials and intermediates due to systematic decimation of domestic intermediates/API (active pharmaceutical ingredient) industry.
Obviously, the Chinese manufacturers give liberal terms for end products competing with India and squeeze Indian manufacturers in the intermediates market.”
* Longer-term loans meant to help export-focused pharma companies set up high-quality facilities (including for R&D) that meet global standards, so as to obtain approvals from regulators including the US Food and Drug Administration.
* The loans can also be used to help Indian pharma companies (including through joint ventures overseas) acquire companies, tangible assets and brands abroad