Published on 7/04/2020 6:26:32 PM | Source: Motilal Oswal Financial Securities Ltd 

Multiple factors adversely impacting production of medicines - Motilal Oswal

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Below is the Views On COVID-19 – Production and labor availability key concerns by Motilal Oswal Financial Securities Ltd

COVID-19 – Production and labor availability key concerns

Supply constraints for ancillary materials hindering manufacturing

To understand the impact of the 21-day lockdown in the country, following the COVID-19 outbreak, on the branded domestic formulation business and raw material supply chain, we interacted with the Founder and CEO of Celagenex, Dr. Rajaram Samant.

* Implementation of the 21-day lockdown continues to plague the industry due to less clarity from local authorities on essential services/materials for production of medicines.

* Transportation and labor availability are bigger challenges, particularly, the availability of packaging for medicines, which does not come under essential services.

* Production could take up to 3-4 weeks to get streamlined once the lockdown is lifted as ancillary units would also need some time to start functioning smoothly.


Multiple factors adversely impacting production of medicines

* The government’s order on essential and non-essential services has still not percolated to the ground level appropriately. ~70% production has come to a halt while the remaining 30% functioning facilities are operating with 30-40% workforce.

* Factories are facing hardships due to curtailment of employee movement and suspension of transportation. Labor availability continues to hinder production. Even if the lockdown is lifted, it would be challenging for labor to return (travel) to work. Some companies are estimating that up to 50% of their labor force have migrated to their hometowns and might not return even after the situation improves.

* Ancillaries, such as packaging materials, do not come under essential services, adding to the umpteen challenges faced by the companies. Also some packaging material manufacturers supply to industries other than pharmaceuticals, and are finding it particularly challenging to convince authorities to let them operate.


Other highlights:

* Companies are not facing major issues in obtaining raw materials as 70-80% of the demand can be satisfied with the current supply. The situation is expected to improve with Chinese production coming back on line. Transportation is a bigger challenge with transporters fearing heavy-handed treatment from the authorities.

* Demand for acute therapies has completely disappeared due to reduced doctorpatient connect. Only a few cardiologists, diabetologists and neurologists continue to see patients through telemedicine tools, driving off-take of chronic medicines.

* Chronic patients appear to have stockpiled their medicines for 2-3 months. Thus, business in chronic therapies is likely to be muted for 1-2 months post lifting of the lockdown. People have also stocked Hydroxuchloroquine (HCQ), Azithromycin and Paracetamol before the government could put HCQ in the Scheduled Drug List. Prices of Azithromycin and Paracetamol have skyrocketed as there is huge demand for these medicines in the US and Europe.

* On the US generic side, inventory levels are slightly higher, and thus, much disruption is not expected in this business.

* Typically, most companies set their strategy in March for the entire year, which has been disrupted now. MNCs would have done this in Dec’19, and thus, are in a better place.

* Companies are not looking to launch new products right now.

* With MRs not visiting doctors, the cycle has been disrupted; while some digital tools to engage doctors are being used, but the off-take remains relatively low as doctors are not seeing patients currently.

* Russia has 3 antivirals, which are OTC products and widely used by the general population. These antivirals seem to be working on COVID-19 patients, which could be the reason for the low deaths in Russia.

* The financial constraints could weigh on smaller companies and start-ups with tight cash flows.

* In India, factories have lost 8-10 days due to the lockdown and delay of raw materials from China. Total API supply is lagging by ~1 month. Packaging supply will also take 2-3 weeks to come in. After the shutdown is lifted, it is likely to take 3 weeks for factories to normalize.

* In California, most hospitals for emergencies are running to full capacity. Occupancy in private hospitals in India is running 40% lower than what it was in Jan-Feb’20.

* Responses on patent, 5050(b)(2) filings and ANDAs are on time, as staff is working from home on the US generics side. This provides comfort on the ANDA approval process.


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