Inflation and rising costs can indirectly affect prescription drug costs through exchange-rate fluctuations and thus impact the overall pharmaceutical sector. In a candid conversation with Moneycontrol, RK Baheti, Chief Financial Officer of Alembic Pharmaceutical talks about the company’s growth, challenges posed by the pandemic, and the growth of the pharma sector in recent times. Edited excerpts:
Alembic recently announced its Q4 numbers; what is your assessment of the overall results?
The Q4 results were pretty good because the Indian market, which had grown last year (2021-22), banked on some extraordinary sales in the acute segment. This was particularly something that had to do with either fever or related symptoms that did very, very well. We, being market leaders in Azithromycin, obviously outperformed the market by a very large margin.
How do you see the current rate of inflation affecting the Indian pharmaceutical sector?
We can’t predict the impact of current inflation. We have witnessed in the past that during a high inflation period, pharma sales go down.
In a normal, non-Covid period with high inflation, I suspect that generally the industry would see a slowdown, at least till a return to normalcy. On an overall basis, we expect the Indian pharma market to keep growing at 8-10 percent or perhaps a little higher, if things really improve.
How are the steps taken by the Union government to ease the inflation pinch helping the industry?
With the kind of steps they have taken in the last two weeks, I'm pretty confident that in the next two months, there’ll be some control on inflation.
Inflation should start stabilising, if not coming down. All this is being factored on the oil price staying at $110 or around that. If it shoots above $125, every calculation will go wrong.
How do you see growth across various segments of the pharma sector after the pandemic?
COVID-19 seems to have taken a backseat now. With a large number of vaccinations, the impact seems to be much milder than what it used to be earlier. Hopefully, the pharma industry will be back to its normal state with a growth rate of 8-10 percent, with specialty growing a little higher at about 12-13 percent, and the acute segment growing by 5-6 percent. There are more representative numbers in terms of growth for the industry.
Alembic’s US sales have been under pressure for some time; what is your sales outlook there?
The United States market has been an area of concern for the Indian pharma industry. I think the markets are under pressure, not because volumes have gone up or that the demand has disappeared, but largely because of pricing erosion. The whole gamut of pricing comes from how many suppliers are there and what price they offer. Having said that, the pricing pressure continues.
How have API flows been impacted by the Russia-Ukraine war and China imposing a strict lockdown?
As far as war is concerned, I don’t think it has a major impact on API supplies, except that crude prices impact the prices of solvents etc., which have a fair degree of contribution in API costing. So, assuming that crude remains at these price levels, API supply would not see any impact because of the war. But the China lockdown and disruption have really put the supply chain under some pressure. I am told that things seem to be easing now.
The US FDA has re-started physical inspections after COVID-19. How do you see the regular compliance audit programme going from here?
Due to COVID-19, routine physical inspections at our new facilities got delayed; wherever they could do an online inspection, it was done. They have also tried to maintain the kind of status quo that approved facilities continue to function so as to not disrupt the market, as long as basic compliance norms are met and those that aren’t approved have been parked. This continued for about two years. But in the last three-four months, the US FDA has started visiting facilities physically also for regular compliance audit programmes. So, now you will see more and more action both ways — in terms of approval of facilities and also in terms of more 483s and more warning letters and so on and so forth.
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