Credit rating agency ICRA has revised the outlook on the Indian pharmaceutical industry from ‘stable’ to ‘negative’ as it does not rule out the possibility of lockouts in parts of China — due to the outbreak of COVID-19 — impacting profitability of drugmakers in India.
ICRA said the industry was highly dependent on imports. Over 60% of its active pharmaceutical ingredients’ requirement are met through imports and in some specific Active Pharmaceutical Ingredients (APIs) like cephalosporins, azithromycin and penicillin, the dependence is as high as 80-90%. Of the total imports of APIs and intermediates into India, China accounted for around 65-70%.
“The situation is more alarming in the case of intermediates of stages prior to APIs and key starting materials (KSMs) which are the building blocks for the drugs, wherein, in some cases, China is the exclusive supplier. Also, for some input materials, even if alternative sources are available, China remains the preferred source given the economical rates,” ICRA said.
The agency said “domestic API manufacturers have an inventory of 1-2 months, which should support their production till mid-March 2020. Continuation of the virus [impact] beyond mid-March may adversely impact production of these API manufacturers, possibly leading to a complete halt of production for some smaller players.”
For certain intermediates, they may source from other countries but at higher prices thus impacting their profitability as they may not be able to fully pass on the same to the formulations manufacturers. “While they can shift their source of supply of raw materials for exports to regulated markets like the US, it requires refiling the drug master file (DMF) with the United States Food and Drug Administration (USFDA) for approval, which takes about six months,” ICRA said.
Stating that though majority of the pharmaceutical manufacturing facilities in China are located far away from the COVID-19 affected sites, there has been a disruption in the supply chain due to the lockouts, the statement pharmaceutical manufacturers in India have not seen any significant increase in raw material prices as of now. But expectations of disruption in supply beyond mid-March would result in an increase in the prices and impact their profitability.
The extent of impact of production shutdowns and increase in prices of raw materials on the profitability of the domestic pharmaceutical manufacturers would, however, vary depending on each company’s product and raw material sourcing mix and the quantum of inventory held.