Sun Pharma blames 'speculative buying' on coronavirus-related price hikes

The potential for the Chinese government’s response to the coronavirus outbreak to disrupt supplies of active pharmaceutical ingredients (APIs) has raised concerns about drug shortages​. There is also scope for the situation to drive up the cost of intermediates, APIs and, by extension, finished drug products.

Responding to reports of such price rises in Indian newspapers, analysts asked executives at API and generic drug manufacturer Sun Pharmaceutical Industries about the impact of the outbreak, using a reported doubling in the going rate of the antibiotic azithromycin as an example.

Dilip Shanghvi, managing director at Sun Pharma, put the dependence for azithromycin supplies on China at 80% or 90%, suggesting it is very vulnerable to a prolonged reduction in output from sites in the country. However, Shanghvi is skeptical of the idea that supply disruption is the principle cause of recent increases in the prices of azithromycin.

Shanghvi said, “I don't think ... this 80% price increase is justified. It's only speculative buying, which would have raised prices​.”

While Shanghvi gave a definitive answer to the price question, the evolving nature of the coronavirus outbreak made him more equivocal about a broader discussion of how the situation in China may hit Sun Pharma.

Shanghvi thinks Sun Pharma’s API business is most exposed to China, reflecting the fact that it buys a large number of intermediates from the country. On face value, Sun Pharma’s formulation business is less exposed to China but the complexity of modern, globalized pharmaceutical supply chains makes it hard for even Shanghvi to precisely gauge the risk to the operation.

The Sun Pharma executive said, “Many of the raw materials, which we may be buying in India, may have dependence on the Chinese intermediate. So, we think we are buying from India, but there is a China link​.”

This uncertainty led Shanghvi to shy away from predicting how Sun Pharma will be affected if the current situation in China continues beyond three to four weeks. Executives at other companies have been similarly reticent to make predictions about the impact of long-term disruption.

One factor that could help Sun Pharma emerge from the outbreak relatively unscathed is the location of key manufacturing units in relation to the areas hardest hit by the coronavirus. Shanghvi said most of the manufacturing units relevant to Sun Pharma’s supply chain are located outside of the hotspots of the virus, leading the executive to express hopes his company will avoid “any significant impact​.”