We will maintain a growth rate in the high teens for both (CDMO and API business) in the next few years
In a recent interaction, Manoj Mehrotra, President Pharmaceuticals, Hikal explains to Viveka Roychowdhury how Hikal's plans to be self-sufficient for APIs and strategic in their DMF filings are finally bearing fruit. He also expands on what more is required on the policy front besides the PLI scheme
We are seeing a rise in COVID-19 cases in China. How will this impact India Pharma Inc., as the sector is dependent on China for key chemicals for pharma manufacturing? What steps has Hikal taken to become more self-reliant for key pharma raw materials etc?
In the past two years, Hikal is constantly trying to become more self-sufficient for APIs. Two years back, we were buying a significant amount of raw materials from China but we are finding alternative options for that in India for manufacturing our key APIs. We take KSMs and intermediate which are the raw materials (starting materials) from China and we manufacture the APIs ourselves. The situation may be a little different for the rest of the pharma industry where they import a lot of the direct APIs. From a Hikal perspective, we are in a better position compared to last time. Our efforts to be self-sufficient in KSMs are finally bearing fruit.
The COVID-19 outbreak and China Plus One strategy being pursued by global MNCs have only affirmed the position of India as the most preferred destination for outsourcing research & development and manufacturing due to its proven track record of high-quality research capabilities, in addition to its competitive cost structure.
Has the pharma procurement chain become better and more resilient?
We are currently dependent on China for about 50 per cent of our KSMs and we intend to bring it down further in next few years. In the last two to three years, we have been looking at partners within India and other geographies that are not dependent on China. Europe is also a destination for some of the KSMs but the Ukraine war has slowed down these efforts.
In our long-term plan, the objective is to have a robust supply chain out of India and Europe and reduce dependence on China.
Hikal’s Pharma vertical generates 57 per cent of the company’s revenue and EBITDA. Do you expect that to increase in the next financial year?
We have a hybrid business model for our pharma business. We are in the business of custom synthesis and contract manufacturing also known as CDMO. The second pillar is the API business, which focuses on generic APIs. We aim to grow in both business verticals of pharma and keep developing new products and acquiring new customers. We plan to launch new APIs not only in regulated markets but also in other markets that are offering good potential for some of our anti-diabetic products. The Middle East, Southeast Asia, North Africa, and Latin America markets have shown good potential. Historically, our presence was less in semi-regulated markets but now we are making more efforts to cater to other significant markets for our own APIs. Our API business’ objective is to keep developing three to four new products every year and launch them in regulated and semi-regulated markets.
On the CDMO side, we are seeing more traction coming out of the China Plus One strategy being pursued by Big Pharma companies. They have all also realised that being dependent on China is a geopolitical risk for their supply chains. There is a definite strategic shift towards India. We are having several discussions with various big pharma customers and some of them have shown results in 2022. Going forward, we will see more positive results in 2023 and 2024. We believe that both verticals within pharma, that is the CDMO and API business, are good for the future and we will maintain a growth rate in the high teens for both of them in the next few years.
You’ve signed a multi-product 10-year contract for the API with a global player. Which is obviously part of their China Plus One strategy. Could you tell give us any more colour on this deal?
The said project is progressing well and the contracted APIs are in various stages of development. The plant is also under construction and will be up and running by the middle of 2023. We will see revenues being generated out of this plant from FY 2024.
The objective of the customer was two-fold. They had several smaller suppliers for these APIs in China and India, primarily in China, but they wanted to de-risk from that. They call this a supplier consolidation