ICRA has revised its outlook of the Indian pharmaceutical industry from stable to negative in view of the ongoing lockouts in parts of China following the coronavirus outbreak.
Consequently, a prolonged outbreak and lockout in China is expected to adversely impact the supply of active pharmaceutical ingredients (APIs), which are key raw materials used to manufacture drugs.
Presently, the domestic pharmaceutical industry is highly dependent on imports, with more than 60 per cent of its API requirement being imported, and in some specific APIs, like cephalosporins, azithromycin and penicillin, the dependence is as high as 80 to 90 per cent.
Out of the total imports of APIs and intermediates into India, China accounts for 65-70 per cent.
According to ICRA research, the domestic APIs manufacturers have an inventory of one-two months, which should adequately support their production till mid-March 2020.
“Continuation of the virus outbreak, however, beyond mid-March 2020 may adversely impact production of these API manufacturers, possibly leading to a complete halt of production for some smaller players.”
“Alternatively, for certain intermediates, they may source it from other countries, but at higher prices. This will impact their profitability as they may not be able to fully pass on the same to the formulations manufacturers.”
Furthermore, the ratings agency said that while the domestic pharmaceutical manufacturers have not seen any significant increase in raw material prices as of now, expectations of disruption in supply beyond mid-March 2020 would result in an increase in the prices, thereby impacting 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.”