Indian pharma companies now confront a new challenge as the cost of imports from China has gone up. Chinese suppliers have raised the prices of various APIs (active pharmaceutical ingredients), KSMs (key starting materials) and certain drug intermediates. Estimates vary depending on the product in question.
"On an average, the increase in the prices of APIs and KSMs has been around 20 per cent compared to the pre-COVID-19 days," says Sudarshan Jain, Secretary General of the Indian Pharmaceutical Alliance, which has many leading Indian pharmaceutical companies as its members. But then, much depends on the product and the imported quantum because in some cases there has been a sharp increase. And these are expected to impact the industry. At the moment, analysts feel, while it will take a toll on their gross margins, some of it could be offset by the rupee depreciation against the dollar as most Indian companies do export. Currently, the rupee is at around Rs 76 to a dollar.
Consider the price of isopropyl alcohol (IPA) imported from China. This has seen as much as a 100 per cent increase. It is an important ingredient in the disinfectants and is used extensively by the pharma industry and also by the makers of sanitisers. "We use about 500 to 600 tonnes of IPA per month and the Indian pharma industry would be using around 20,000 to 30,000 tonnes per month (and this excludes sanitiser-makers)," says Dr Satyanarayana Chava, founder and CEO of Laurus Labs, an important API maker from India that sells its APIs in around 56 countries with focus on areas like anti-retrovirals, hepatitis C and oncology. While the price rise in case of IPA is sharp, he sees a general increase in the import prices of around 10 to 15 per cent.
Another product imported from China that has also seen a significant increase is 'para amino phenol' or PAP, used as a key starting material for making paracetamol. "The price increase here has been around 27 per cent and it is partly because their production cost has gone up and also perhaps because they are leveraging the fact that they are the main suppliers in the global market for this product today," says Krishna Prasad Chigurupati, chairman and managing director of Granules India and the maker of drugs, which are the first line of treatment for diabetes, pain and fever with exports largely to markets in the US and Europe. He imports PAP for making paracetamol. He says although there are makers who make their own PAP, but most end up with having to import para nitro chloro benzene (PNCB) needed to make the PAP. This is imported mostly from China. "We can make our own PAP but we need to use a different process that does not make us dependent on PNCB, because that process is expensive."
The rise in cost of imports from China is only one component of the increased cost structure for many of the pharma units because given the need for social distancing, the logistic cost has gone up too. Even the sea freight charges are up, so are the air freight charges. The latter has seen a sharper increase. "Today, we spend an additional Rs 6-7 crore every month and substantial part of it is towards expenses towards additional safety measures such as continuous fumigation of toilets and other crucial areas, washing and sterilisation of the garments employees use in every shift apart from a four-fold increase in logistics costs and other expenses," says Krishna Prasad.
Meanwhile, Jain of IPA points out that the focus of the industry today is to make the products available in the market and there is no shortage of it. "The import price increase is only one of the components of it as the overall cost of production has increased with the rise in logistics-related costs and those relating to additional employee safety measures. The units are trying to deal with the financial viability," he says.