India's leading drugmakers stocking up to avoid supply disruptions

India’s leading drugmakers have increased their raw material buffer stock by at least 40 days in recent months to insulate themselves from global supply disruptions and to not miss any supply opportunity, said sources. 

Multiple sources at the top drugmakers in the country confirmed the average inventory of active pharmaceutical ingredients (APIs), the raw material to make medicine, has gone up to four to five months from an earlier two and a half to three months. 

“We have bought in advance in order to avoid any issues arising out of supply disruptions and price fluctuations. It is an operational decision to keep costs under check and improve efficiencies,” said the global chief financial officer of a leading Mumbai-headquartered company. He said the companies had started auditing the API manufacturing facilities in China before they placed an order with any supplier. 

R K Baheti, director of finance at Vadodara-based Alembic Pharma, said: “The cost of slightly higher inventory is far less than the cost of lost opportunities. It is economical to make API in large batches, and one may not be able to consume the batch immediately. For high-value APIs, which also require complex processes, companies keep stock.”  He said many companies had created buffer stocks of APIs due to global uncertainties. 

Last year had seen serious supply disruptions in the global market for bulk drugs or APIs after China cracked down on polluting industries. This led to prices of APIs going up by 30-80 per cent for most APIs imported from China. 

Deepak Malik, analyst with Edelweiss, said there were drug shortages in the US from time to time. “To be able to supply to the US timely, several firms maintain a buffer stock of API given there is a global uncertainty in terms of supplies for the past few months,” he said. 

After the US Food and Drug Administration (USFDA) cracked down on high-blood pressure drug (that contained active ingredient valsartan) due to presence of probable cancer-causing susbtances as impurities last July, it led to a shortage of the drug in the US market. Several products were recalled and companies saw an opportunity here. Those who got APIs for the drug okayed by USFDA could quickly increase their supplies to that market. 

According to reports, the prices of some of the variants of the product went up in the US market around August-September. Firms like Alembic, Jubilant saw an opportunity here. Around August-September, Jubilant Pharma, Mylan NV, and Alembic Pharmaceuticals were selling the drug in the US.  Malik said the annual report analyses of many drug firms showed that their overall inventory days had increased. This, however, included stock of both finished products (formulations) and API.  Edelweiss analysis noted that Sun Pharmaceuticals inventory days increased from 338 days in 2017-18 (FY18) to 366 days in FY19. Similarly, Cadila Healthcare inventory days increased to 196 days in FY19 from 185 days in FY18. Natco saw a sharp rise —  from 335 days in FY18 to 498 days in FY19. 

Most of the major drug firms make APIs themselves, especially the high end APIs. However, they also procure APIs, both locally and from China for certain products where it makes economic sense. 

The chairman of a leading pharmaceutical company, which draws around 40 per cent of its revenues from the domestic market and a significant portion from the US, said that for basic chronic therapy drugs like metformin, India is largely dependent on Chinese supplies. 

“Diabetes drugs are used as long-term treatment and patients cannot go off medication. Metformin bulk drug is imported from China as it is cheaper and Indian bulk drugmakers have moved to higher-end APIs. If the supplies from China stop, the production here would be hit. So firms that have exposure to this segment would always maintain a buffer stock,” he explained.

Advance purchase
  • Top Indian drugmakers increase inventory by around 40 days on an average
  • Global API market seeing supply disruptions and price fluctuations for the past one year
  • Drugmakers say making APIs in large batches is cost-effective
  • Analysts say having buffer stock helps step in for one-time supply opportunities 
  • India is dependent on China for basic APIs 
  • High-end APIs are made in India

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