COVID Impact (Pharma Supply Chain)

Current situation in a nutshell (Based on my discussion with Industry participants):

  • Relevance of China in India Pharma context:
    • 2/3rd of API and KSM are imported from China (Over the years, share has gone up by 4-5% YoY)
    • Therapies where China holds Leadership (in return commands pricing movement)
      • Vitamins
      • Steroids
      • Antibiotics
    • For the bulk commodity APIs (High volume, low value), >50% of market share is with China
  • Inventory Levels:
    • Sufficient Inventory till April (Typically, in API – RM Inventory days (of sales) ~70-90 days)
    • Companies with urgent supplies requirement airlifting RM from China (This mode of transport is expensive and requires extensive govt. approvals)
      • Example – Granuels India & Cipla
  • Pricing:
    • Generally, prices across therapies have shot up by 30-40% in China
    • In India, the prices of the same APIs have gone further up by 20-30% from Chinese pricing levels
  • Challenges:
    • Manpower attendance a) Factory Level b) Ports c) In road logistics – 10-20% attendance across segments
      • Example – At JNPT, labours have given notice to not work for 10-15 days
    • Manufacturing – Overall utilisation Levels are at 30-40% (RM is available but no manpower to run the plant at optimum capacity)
  • Categorisation of APIs:
    • High Risk: Dependence on China is High + Manufactured in Infected areas (Vitamins and Steroids)
    • Medium Risk: Dependence on China is Medium + Not manufactured in the infected areas
    • Low Risk: Alternatives outside China available in ample
  • De risking from China
    • Upfront Capex + gestation period to achieve scale is a big entry barrier – China to continue holding Leadership position on Manufacturing side
    • Ideally, post the crisis, de-risking will happen but very slowly towards – India, Taiwan and South Korea

Stay Safe!

Cheers – Anuj Khandelwal


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