Prices of raw materials of key drugs such as paracetamol and antibiotics have seen a spike owing to the Coronavirus outbreak. The viral outbreak that began in China has infected more than 71,000 people globally.
According to industry heads, raw materials of key drugs used to manufacture painkiller paracetamol and common antibiotics such as Azithromycin and Amoxicillin have seen prices spike anywhere between 20 percent to over 50 percent since the outbreak. Prices of paracetamol raw material has moved up to Rs 450 per kg versus Rs 250 kg earlier, Azithromycin has risen to Rs 12,500 per kg versus Rs 7,800 per kg earlier and Amoxicillin prices have moved to Rs 1,800 per kg versus Rs 1,500 per kg earlier, industry sources say.
One of the key reasons for this increase is that many of the starting materials or raw materials to manufacture these drugs are sourced from China. For example, most fermentation-based active pharmaceutical ingredients (APIs) such as cephalosporin, penicillin and erythromycin are imported from China, with the country being either the largest or the only source globally for these supplies. Wuhan, the capital of Central China’s Hubei province, the epicentre of the outbreak and a hub for API supplies, has not seen manufacturing restart and supplies from other regions in China are also slow, says the head of an API manufacturing company on condition of anonymity. Supplies from other regions in China are mainly impacted by logistic issues such as slow government clearances.
One of India’s largest manufacturers of paracetamol on condition of anonymity has said shortages have risen. For example, there is currently a 20-30 percent shortage of a key raw material used to manufacture paracetamol. In this case, alternate supplies are unusually tough, according to the company head, as China provides 80 percent of supplies for it. Traders are also taking advantage of the situation and hiking prices of inventory, says Zydus Cadila Chairman Pankaj Patel.
While prices of these key raw materials have surged, the industry doesn't expect it to filter down to the finished product, as many of these drugs are under price control. Any decision on a hike in prices will have to be taken by the Centre.
Looking for secondary sources
However, the manufacturers remain worried. Most companies currently have inventory for 1 or 2.5 months only. A few have raw materials to meet their needs until Q1FY21 as most companies stocked up on inventory ahead of the Chinese New Year, which is a normal industry practice. But if the current situation lasts beyond April, the raw material shortage will become an issue, Patel noted.
Furthermore, the industry could brace itself for further price hikes. Many companies are already looking for secondary sources of API supplies, buying at higher prices in the spot market and trying to backward integrate as much and as quickly as possible.
While the spike in prices of key raw materials is negative for most pharmaceutical companies, it is an opportunity for some. IOL Chemicals, which manufacturers APIs for pain drug ibuprofen and exports 50 percent of it, says they are receiving more queries from Latin America and countries such as Vietnam. Currently, around 30 percent of global ibuprofen supplies are impacted, as per the company, because one of the key suppliers of ibuprofen API is Hubei Biocause, which is impacted as it is based in Wuhan region.
On the other hand, US-based chemical company BASF is currently facing technical issues and expected to restart supplies only in March. The impact is already seen on ibuprofen API prices. From around $15 the prices have moved up to $18 and expected to rise to $20 as per IOL Chemicals. The company expects its capacity utilization, which is currently at 80 percent, to increase due to the expectant incremental order inflows.
But are incremental supplies an opportunity for the rest of the industry? The likes of Glenmark believe so. In their Q3 earnings conference call, Glenmark said the developments in China are a significant opportunity and it expects flows to come to India from China. Biocon chief Kiran Mazumdar Shaw and Patel also echoed this view, saying that the time is ripe to ramp up API supplies irrespective of the price as the shortage of APIs is a long term opportunity for India if the government offers support.
According to Patel, to combat the present shortage, in the near term the industry must ramp up indigenous API capacity whilst for the long term, fresh investments are imperative.
First Published: Feb 18, 2020 4:12 PM IST
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