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Expert call takeaways – COVID-19 impact
We hosted Mr. Madhu Rao, Technical director and Ex-Sr. Director South Asia, Sanofi in order to understand COVID-19’s impact on the pharmaceutical industry. He broadly answered the following queries: (1) impact on the Indian pharma market, (2) supply disruptions for manufacturers and end consumers, (3) vaccine for COVID-19 and (4) has the pandemic created an opportunity for India to become a pharmaceutical manufacturing hub once again. As of now, MoHFW reported that the number of positive cases in India has increased to 2,069 out of total ~48,000 people being tested and 53 deaths. This is expected to increase further once additional testing kits are available. Overall we remain positive on the sector and don’t expect any material negative impact of COVID-19.
* Impact on Indian pharmaceutical market: According to AIOCD, MAT Feb’20 growth stood at 9.5% which was similar to the past three years. It indicates that there was no impact till then. There is expectation that Mar’20 would also be a normal quarter or might see some growth owing to stocking of medicines with the fear of shortage. However, there is a possibility of a decline in the months of April or May due to lower demand due to stocking, plausible supply disruptions, decline in acute cases however, chronic based medicines would witness consistent demand.
* Supply chain disruptions: During Feb-Mar, there was fear of supply disruption due to shortage of supply of raw material from China. However, supplies from China have resumed albeit at a slow pace. Government in India imposed a lockdown to contain the spread of the virus including several ports. Essential supply is allowed but the imported materials are disinfected before passage is allowed in the country. This cautious approach and reduced manpower for manufacturing has created a delay in the supply chain which could create a disruption in the near term. This is despite companies having inventory to last few weeks.
* Vaccine for COVID-19: There a three basic steps in creating a vaccine – (i) identifying the vector and genes of the virus, (ii) pre-clinical trials and animal trials and (iii) human trials. Although the gene and vector has been identified, it would take considerable time to complete the trials and create a prophylaxis vaccine which can be taken as a preventive measure to avoid the ailment. Considering the situation, even a fast track approach would take 18-24 months before a viable vaccine can be commercialised. Although various studies, such as, a BCG vaccine could be theoretically used as a long term treatment, point to a faster approach, it is hazardous in practical life.
* Opportunity for India to become a pharmaceutical manufacturing hub once again: The pandemic has created a supply disruption from China and India could scale up its manufacturing to gain market share in the industry. Government has provided several incentives to companies to develop APIs indigenously to reduce dependence on China and provide an alternate source for companies worldwide. However, the scale up as well as matching the quality standards of necessary regulatory authorities worldwide would take significant amount of time and effort. Especially for complex APIs used for vaccines, insulins, etc.
* Our view: We believe COVID-19 will not have any significant impact on pharmaceutical industry although near term pressures are plausible. Large correction in stocks would provide opportunity to add at reasonable valuations. Our top picks are Cipla, Abbott India and Torrent Pharma.
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