China’s virus ails the Indian pharmaceutical industry

• An overview: Indian pharmaceutical industry
• Impact of Coronavirus on the supply of APIs for Indian Pharmaceutical players

India is the largest supplier of generic drugs globally and supplies a variety of vaccines; the country meets over 50% of global demand, 40% of generic demand in the US and 25% of all medicines in the UK. The country has a large pool of scientists and engineers who have the potential to gear up the industry further ahead. At present, over 80% of the antiretroviral drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome) are supplied by the Indian pharmaceutical firms. The country’s pharmaceutical exports stood at US$ 17.27 billion in FY18 before reaching to US$ 19.14 billion in FY19. 

After having reported  a sale of $6.5 bn in 2014, the pharmaceutical industry took a downturn globally on account of global economic recession and its effects were also seen in India with industry revenue dropping by 29.2% to $4.6 bn in the subsequent year. In 2016, however, while the global pharmaceutical market’s revenue increased by 14.7% to $78 bn, the Indian pharmaceutical industry grew by 26.1% to $5.8 bn on account of greater exports backed by high inventory level of generic medicines. Further in 2018, as India is heavily dependent on China for the supply of API’s (imports accounting for ~67%), the price of imports spiked when the Chinese Government imposed a  penalty on API’s and KSM manufactures who were in violation of environmental norms and in turn significantly impacting the margins of Indian pharma players.

Furthermore, the Indian pharmaceutical industry faced a rough end in 2019. Unlike the mature markets of the United states where drug cost is controlled by market, here, the government and regulators play a crucial role within the entire process. The list of cost-controlled drugs has swelled from 74 in 1995 to almost 860 in 2019. The pharmaceutical industry was valued at $36.7 bn in 2018 expected to grow at a CAGR of 22.4% over 2015-20 to reach $55 bn.

Outbreak of coronavirus impacting supply of APIs (Active Pharmaceutical Ingredients)

Extended Chinese New Year holidays clubbed with the outbreak of coronavirus has adversely impacted the Indian pharma industry. Major pharmaceutical manufacturers in China are located in and around Wuhan which is also the epicentre for coronavirus outbreak. The pharma industry fears a higher chance of disruption within the production and supply chain due to the virus outbreak.

Since Indian pharma industry is heavily dependent on China for APIs, a large number of Indian manufacturers usually stock the supplies for a minimum of two months, which are now decreasing at a fast pace.

Indian manufacturers dealing in APIs have already started to increase prices at a high pace, where on an average the prices have increased 10-15% and in some cases the increase has been more than 50%. In the last few months, pharma company’s businesses have been buffeted by an over 50% increase in the cost of raw material imported from China due to recent outbreak of coronavirus, leaving businesses hobbled by shrinking margins. Prices of active pharmaceutical ingredients (APIs) for antibiotics and anti-inflammatory drugs have skyrocketed. Price of paracetamol has increased from Rs 260-360 per kg, whereas, Nimesulide has more than doubled to Rs 1,100 from Rs 450. Azithromycin, used for bacterial infections, and montelukast, for treatment of respiratory infections, have shot up by about 30%. Prolonged outbreak of coronavirus can further lead to a situation where the Indian pharmaceutical industry faces a shortage of generic drugs which are dependent on the import of APIs from China, thereby negatively impacting the growth prospects of the industry.