Coronavirus Impact: India's Dependence on Chinese APIs May Lead to Drug Price Rise, Shortage

The dependence of pharmaceutical companies on China when it comes to active pharmaceutical ingredients (APIs), intermediates and other key starting materials is well documented. As per the USFDA, as of August 2019, up to 13 percent of manufacturing sites for APIs for drugs in the US market are located in China, 18 percent in India and 13 percent in the rest of the world.

While the amount of API manufacturing sites is limited to only 13 percent in China, experts say a bulk of US drugs are linked to API imports from that country. This dependence is either via final drug manufacturers or directly via API suppliers to US drug manufacturers. As per Gary Cohn, a former economic adviser to Donald Trump, China produces 97 percent of antibiotics used in the US.

For India, as of FY19, China accounted for 67 percent of total imports of bulk drugs and intermediates. Heads of pharma companies point out that almost 80 percent of India’s key starting material for the production of cephalosporin, a type of antibiotic, is from China. The supply chain, according to pharma companies, runs deep and is complicated. For example, as Dilip Shanghvi of Sun Pharma explained on its Q3 earnings conference call, while the company's formulations business is not so dependent on China, the companies from whom it sources raw materials could have some dependence on Chinese intermediates. So one might think they are buying from India but there is a link to China.

China exports bulk drugs from regions such as Hubei, Jiangsu and Shandong amongst others. However, drug manufacturers and analysts point out that the majority of pharma ingredient production is in the Hubei province which is the capital of Wuhan, the epicentre of the Coronavirus outbreak. In fact, reports point out that 60-70 percent of bulk drugs used to manufacture common antibiotics is from this region. The fear then is that if production stoppage prolongs in regions such as Hubei, the industry will eventually suffer from a spike in prices and possible shortages. But as of now, big pharma companies are not pressing the panic button as they have inventory on an average for 1-3 months. Aurobindo, for example, said their average stock is 2-3 months. Cipla and Lupin too told analysts and investors on their earnings conference call that they have stock available.

Impact on the supply chain
However, the situation is being monitored closely by companies and they fear an impact on the supply chain if the problem persists beyond a few weeks. According to Scott Gottlieb, former USFDA chief, the fear is not just generic drugs facing shortages. Branded drugs use Clinical Research Organisations (CROs) in China and clinical trials could be put on hold. Also, drug firms could see delayed filings on new drugs if they have to shift work outside China.

The next few weeks hence will be crucial, the head of a pharma company said on condition of anonymity. Many Chinese companies are expected to restart operations this week and a gradual ramp-up is expected. Pharma companies with dependence on Chinese APIs are monitoring the situation on a daily basis with their suppliers. Analysts, on the other hand, are not perturbed. While they expect a temporary disruption and spike in prices to impact margins in the near term, they are not changing estimates for the longer term.

While this situation could return to normalcy, the larger picture of dependence on Chinese APIs cannot be ignored and one has to ask if there is an opportunity for India? Kiran Mazumdar Shaw, Chairperson and CMD of Biocon, who expressed concern that the current situation could extend to 6-9 months, said there is an opportunity for Indian companies to ramp up production to meet the global needs.
(Source: CNBCV TV18)

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