ICRA cuts outlook on Indian pharma

MUMBAI: ICRA has revised its outlook on the domestic pharmaceutical industry from stable to negative in view of the lockouts in parts of China, amid the coronavirus outbreak. Of the total imports of active pharmaceutical ingredients (APIs) and intermediates into India, China accounts for 65-70%, while in specific APIs like cephalosporins, azithromycin and penicillin, the dependence is as high as 80-90%.
The viral outbreak and the consequent lockout in China has resulted in a shutdown of production units in the country. The situation is more alarming in case of intermediates of stages prior to APIs and key starting materials (KSMs), which are the building blocks for drugs, where in some cases, China is the exclusive supplier. For instance, PenG and 7ACA, the key raw materials required for manufacturing cephalosporins are made in China only.
For some input materials, even if alternate sources are available, China remains the preferred source given the economical rates. Though a majority of the pharmaceutical manufacturing facilities in China are located far from the coronavirus-affected sites, there has been a disruption in the supply chain.
According to ICRA, domestic formulations manufacturers have an inventory of 1.5-2.5 months on an average, and thus they have not been impacted as yet. However, a shortage of APIs and KSMs due to the extended lockout in China will adversely impact production of the formulations manufacturers. Coupled with an increase in API prices due to supply shortage, this will impact the profitability of the domestic formulations manufacturers.
The extent of impact of production shutdowns and increase in prices of raw materials on the profitability of domestic pharmaceutical manufacturers would, however, vary depending on each company’s product and raw material sourcing mix and the quantum of inventory held, a note said.

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