More than a decade after deciding to divest its Chinese manufacturing subsidiary to Sinopharm group, India’s second-largest pharmaceutical firm Aurobindo Pharma (APL) is revamping its strategy around the China business.
The two-pronged strategy involves significantly reducing the overdependence on raw-material imports from China on one hand and shifting from India to China over a couple of dozens of finished pharmaceutical formulations to be manufactured at the newly built facility in China on the other hand.
The Chinese oral formulations manufacturing facility will, apart from meeting the Chinese market needs, cater to Europe and emerging markets.
The Rs 23,455 crore Aurobindo Pharma in revenues in the fiscal to March 2022 has recognised risks around the supply chain disruptions during the Covid-19 pandemic owing to the high dependence on the China market for import of key starting materials (KSMs), intermediates, and active pharmaceutical ingredients.
Of the total raw-material requirement of APIs and excipients, the Hyderabad-headquartered pharmaceutical giant currently procures around 55% of the material from China. Of the balance, around 7% is procured from various countries and some 38% of raw materials are sourced from various players in the domestic market.
In a bid to mitigate the risk of supply disruptions from China, Aurobindo Pharma has started to increasingly procure raw-material from Indian sources.
Aurobindo Pharma is building a large manufacturing facility spread over 110 acres at Kakinada in Andhra Pradesh to manufacture Penicillin-G and its derivatives, involving an investment of around Rs 1,900 crore. The proposed 15,000 tons Penicillin-G project is part of the Indian government’s production liked incentive (PLI) scheme for some KSMs and raw materials.
“We have commenced civil works at the Kakinada manufacturing facility for Penicillin-G products and expect to commence manufacturing operations by early 2024,” vice-chairman and managing director K. Nityananda Reddy told Moneycontrol. “Penicillin-G and its derivatives are currently manufactured mostly in China and Europe and the world depends largely on China.”
Aurobindo Pharma’s then Chinese subsidiary Aurobindo (Datong) BioPharma Co Ltd was engaged in the manufacturing of 6APA, a derivative of Penicillin-G, which was mostly consumed by the company in India.
As a part of the two-pronged strategy, Aurobindo Pharma has decided to shift 30 of its finished pharmaceutical formulations from India to China where its oral formulations facility commenced commercial production in January.
Of the proposed 30 products, the company has already obtained approval for two products and expects to receive approvals for 10-15 products this year. The company is also looking to transfer a few products from Europe to the China facility, targeting to reach some 40 products in China.
“If we are successful in realising our (China) plans, then there should be significant accretion to both our topline and bottom-line spreads,” said Nityananda Reddy in a communique to shareholders through the latest annual report.
China’s spend on pharmaceuticals is estimated to reach around $200 billion by 2026 from $169.4 billion in 2021.
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