Power crisis brewing in China likely to hit Indian pharma companies

Delays in consignments, rising prices of key ingredients worry industry

The power crisis brewing in China may throw the Indian pharma market off gear if the situation continues for a few more months, feel sources in the local industry. Indian players roughly import 66-70 per cent of their bulk drug requirements from China.
 
Already, prices of active pharmaceutical ingredients (APIs), raw materials to make drugs, have gone up significantly and there are delays in shipments to India.
 
Sudarshan Jain, secretary general of the Indian Pharmaceutical Alliance (IPA), the umbrella organisation of big pharma players in India, said prices of APIs have started going up. “Prices of Penicillin-G from China have gone up from $14 per unit to $26 in just one month,” he said, adding that India does not have large capacities to make such fermentation-based APIs.
 
IPA members account for 60 per cent of the domestic market and about 80 per cent of India’s exports of pharmaceutical products.
 
Jain added that supplies are coming, but there are delays in shipments. “Apart from the power shortage problem plaguing the industry in China, there are also issues with shipping. Consignments are coming, but late. Typically, large pharma players would carry a three-month buffer stock, and the industry at large is trying to maintain a healthy inventory even if it means buying at higher prices,” he said.
 
One of the leading drugmakers of the country, Cipla seems to agree.
 
Kedar Upadhye, global chief financial officer, Cipla, told Business Standard, “The power crisis in China may impact future supplies of API to India if it continues. Zones where the power shortage is acute are unfortunately the provinces from where Indian formulation makers source their APIs.”
 
He added that Cipla’s dependence on imports from China would be around 66-70 per cent, roughly the same level as the overall industry.
 
“We are carrying buffer stock now,” Upadhye added.
 
“Looking for alternative sources of API would not be easy. The scale (tonnage) of Chinese production is very high, the cost advantage very high, and there is also some technology superiority. There is a gestation period until India can come up to the level of China,” Upadhye added.
 
Mid-sized players may face a bigger challenge. A mid-sized company in Gujarat said overall input costs – packaging material, intermediates and APIs, among others – for formulation makers have gone up in the last few months.
 
For APIs, there has been a price rise of 25-40 per cent. “While larger players can book bulk volumes, carry inventory, and even afford to pay more, the smaller ones cannot. If the situation continues, we would request the government to look into it, perhaps allow us to take a price hike,” the industry source said. He added that prices of key APIs like paracetamol have been going up every year – from Rs 330 per kg around 2013-14 to nearly Rs 850 now.
 
“As manufacturers, we have hardly taken any price rise for paracetamol, a key drug in Covid-19 treatment, as it is under price control. We don’t want to create any panic, but margins of the industry would come under pressure, especially for smaller players,” he added.

FACT SHEET

• Indian players import 66-70% of their APIs from China
• Developing alternative sources of API is time-consuming
• Prices of APIs have gone up in the last one month
• There are delays in consignments reaching India
• Firms carry 2-3 months buffer stock of raw material
• Wholesalers and retailers carry 2-3 months of finished product stock