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Increased coverage, better pricing outlook bode well for vaccine manufacturers

* The Government of India today announced the eligibility criteria for vaccinations to be extended to 18+ years of age from 1st May’21. This would create additional demand for nearly 1.2b vaccine doses in India.

* Furthermore, vaccine manufacturers would be given the flexibility to supply 50% of their doses to the state governments and private market – pricing for the doses would be declared in advance.

* While the current supply run-rate (~90m doses/month) is much lower v/s demand, a) faster approvals, b) better pricing, and c) new capacity additions would help reduce the demand-supply gap, to some extent.

Announcement details

* GOI today announced adults aged 18+ years would also be eligible for vaccination from 1st May’21 in Phase 3 of the national vaccination program.

* Vaccine manufacturers would need to supply 50% of their production to the center and would be free to supply the remaining 50% to the state governments / open markets (non-GOI channel). Manufacturers would need to declare in advance the pricing for the 50% doses that they would supply to the state governments / open market. Private hospitals would have to procure their supplies from this 50% quota.

* The government also plans to allow imported vaccines such as Pfizer and Moderna to be entirely usable by non-GOI channels.

* GOI would continue to provide vaccinations to all eligible healthcare workers, frontline workers, and people aged 45+ years free of charge. The cost of vaccinations for those between the ages of 18 and 45 years would have to be borne by the consumer.

Demand remains far higher than supply

* ~125m people in India have received at least one dose of a vaccine to date. 43– 44% (~600m) of the Indian population falls in the 18–45 years age group. This implies the need for an additional 1.2b doses (assuming two doses per person) to vaccinate the entire population in this age group.

* Bharat Biotech (10m per month), Serum Institute of India (60–70m doses per month), and Dr Reddy’s Lab (DRRD; ~12m doses per month) would provide only 90m vaccine doses per month – far lower than demand.

* However, a) faster approvals for newer potential vaccines, b) the import of fully ready-to-use vaccines, and c) better pricing would help enhance capacity to meet the demand for ~1.2b vaccine doses. Moreover, financial assistance from GOI to three state-run vaccine makers would aid the capacity increase to ~100m doses by Sep’21.

Advantage DRRD

* DRRD has a license to market the first 250m doses of Sputnik V in India. We had assumed With the govt. now opening up the distribution of vaccines to private players, we est. an additional INR100/dose for 50% of the vaccines. This would result in an incremental revenue opportunity of INR12.5b for DRRD. We await further clarity on vaccine pricing in the private market.

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