The US House of Representatives has passed the National Defense Authorisation Act (NDAA), which includes provisions of the US Biosecure Act aimed at restricting certain biotech and pharmaceutical contracts involving China. The legislation now moves to the US Senate, with a vote expected next week, after which it would require presidential assent and further implementation by the US Department of Defense.
Speaking to CNBC-TV18, Piramal cautioned that the Act is still at an early stage of a long legislative and regulatory process. “This is only one step. It has to be passed in the Senate, signed by the President, and then the Defence Department has to create a list of companies. There is also a multi-year grandfathering clause, so it is going to take some time,” she said.
Despite the long gestation period, Piramal said the proposed law adds to the broader push for reshoring of pharmaceutical supply chains in the US, creating potential opportunities for Indian manufacturers. “Along with the pressure on pharmaceuticals overall to reshore, this will be another contributor. That is why this gives us opportunities,” she said.
For Piramal Pharma, the opportunity is underpinned by its existing manufacturing footprint in North America. The company operates five sites across the region, spanning active pharmaceutical ingredients (APIs), formulations, and injectable capabilities. “We have the capacity and capabilities needed if people do want to reshore,” Piramal noted.
The legislation includes a grandfathering clause of around five years, allowing companies to continue with existing contracts before being required to transition. According to Piramal, this effectively means that pharmaceutical companies will need to start planning relocations well before the deadline. “At the end of five years, they will have to move. You cannot move pharmaceutical products in one day or two months. It takes time to move products and drug substances,” she said.
Early indicators of interest are already visible. Piramal said the company has seen an uptick in requests for proposals (RFPs) from US clients, although it remains too early for firm decisions or large-scale conversions.
On competition from Chinese CDMO players, Piramal acknowledged that China continues to enjoy a cost advantage due to its scale. However, she said even a partial shift of global pharma outsourcing away from China could be meaningful for Indian companies. “The Chinese industry is very large. Even if some percentage moves to either the US or India, it will benefit us and the Indian CDMO industry, because we are much smaller than China,” she said, adding that “as of now, the Chinese are still cheaper.”
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Given the complexity of shifting regulated pharmaceutical manufacturing, Piramal expects the financial impact of the Biosecure Act on Indian CDMOs to emerge over the medium term. “In the P&L, I would imagine three to five years,” she said.
For now, the potential upside from the US Biosecure Act reinforces the longer-term China+1 thesis for Indian pharma manufacturing, even as companies and investors wait for greater legislative clarity and tangible order wins.
Below is the verbatim transcript of the interview.
Q: First, I just wanted to understand the opportunity that you see if the US Biosecure Act does become law. What is the opportunity that a company such as Piramal Pharma sees from that?
Piramal: I do want to emphasise that this is only one step in a fairly long process of the US Biosecure Act actually becoming law, because it has to be passed in the Senate, it has to be signed by the President, and the Defence Department has to create a list of companies. There is also a multi-year grandfathering clause. So, it is going to take some time. However, I do think that there will be reshoring happening to the US. Along with the pressure on pharmaceuticals overall to reshore, I think this will be another contributor to it. That is why this gives us opportunities, because we have five sites in North America, which include API sites as well as formulation and injectable sites. I think we have the capacity and capabilities needed if people do want to reshore.
Q: I just had one follow-up. This grandfathering clause, Nandini, is for around five years. So that means companies can continue working with their current contracts and then contemplate moving after five years. That is how we should read it?
Piramal: I think at the end of five years, they will have to move. So people will have to take steps to move before five years. It does take time to move products and drug substances. You cannot move pharmaceutical products in one day or two months.
Q: Nandini, you did indicate that you have the capacity and facilities in North America and other places. Have you already started seeing requests for proposals coming in from some of these US companies?
Piramal: I will say that there has been an uptick in RFPs. However, it is obviously too soon for decisions.
Q: If this Act actually goes through and approval comes in, do we expect conversion to happen at a faster pace and acceleration in terms of growth? There is also the China+1 angle on the CDMO side. When you look at Chinese CDMO players, they have very large capacities. Will this help us in any way, perhaps to be more competitive on cost versus China?
Piramal: Overall, I would say the Chinese industry is very large. Even if some percentage moves to either the US or India, it will benefit us and the Indian CDMO industry, because we are much smaller than China. But as of now, I would say the Chinese are still cheaper.
Q: So is it fair to assume that the opportunity will probably start reflecting in the P&L of CDMO manufacturers in India three to five years from now?
Piramal: I think that is ideal. It will take time. Yes, in the P&L, I would imagine three to five years.
Q: For you in particular, you have come out of a tough quarter, and your CDMO business has declined. You have indicated that US biotech funding is seeing some improvement, but there is still some way to go. What is the CDMO business looking like for the second half?
Piramal: We have seen some funding uptick over the last three months, probably since August, September, and October. Right now, I would still call it muted optimism, because three months does not make a trend. I would like to see where we are at the end of the year. Overall, yes, there has been an uptick, and yes, decisions are being made, but it is too soon to commit definitively.
Q: Is there any clarity on whether US agencies will evaluate supply chain security? Is the industry prepared for that, given that there has been so much discussion around this act already? Is the industry making preparations on these issues?
Piramal: I would say everyone, at least in the Indian industry, is aware, but I do not have a position on how US agencies will act.
Q: Just reverting to your performance, you scaled down your guidance last quarter and indicated flat revenue growth, with margins likely to be in the moderate to low teens for the year. Based on what you are seeing, are you able to stick to this guidance?
Piramal: Right now, we can stick to the guidance. Some of these decisions will take time to show up in the P&L. As I said, it is too early for a decision. We have seen an uptick in RFPs, but RFPs do take time to convert into decisions.