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SII & Bharat Biotech could see profits on low costs as India rolls out Covid vaccination

Analysts say supply to government amid low distribution, marketing and R&D costs could aid profits. Bharat Biotech vaccine is priced at Rs 206 per dose while SII’s is at Rs 200.

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Mumbai: As India rolls out its Covid-19 vaccination programme across the nation Saturday, the two vaccine manufacturers who have made the cut so far — Serum Institute of India and Bharat Biotech — are expected to make profits despite the low costs.

The two companies, which have been in the headlines for a few weeks now, will be able to make 40-50 per cent EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins as they didn’t incur significant research and development costs, industry experts said.

Moreover, even if these players keep prices low while supplying the vaccines to the government, they will still be able to see profits since there is no distribution and marketing costs in these initial stages, they said.

“These companies have not invested heavily in R&D. Hence, whatever cost is there it will be manufacturing cost. Depending on the prices, they should make 40-50 per cent EBIDTA margin,” said an analyst with a leading broking firm who didn’t wish to be identified.

In the vaccination programme’s initial stage, 3 crore frontline workers will be vaccinated. For this, India has approved SII’s Covishield and Bharat Biotech’s Covaxin for emergency use and ordered 6 crore doses. Two doses are required for both the vaccines.

Former Indian Medical Association president Dr Rajan Sharma said the vaccine makers will be making profit because of the sheer volume.

“As the first phase is being rolled out and the IMA said they will be actively participating… So by the end of 2-3 months, you will have one of the most effective human trials. And these vaccines will also be exported. So, profit will obviously follow. It will be cost effective. Nobody will give a vaccine with a loss. At least 30-40 crore people are vaccinated,” Sharma said, adding that pricing will be higher in the private sector.

Vaccine expert Naveen Thacker said the vaccine makers will still be making profit which could be lower initially as due to low pricing. “Adar Poonawala [MD, SII] said the vaccine will be sold at Rs 1000 per dose to the private sector. For foreign countries it will be more. So, they should have some profit, maybe it will be on the lower side because of the initial pricing,” he said.

According to a government statement, SII will initially provide 1.1 crore doses to the government at Rs 200 per dose. The company has said it will later launch the vaccine in the market at Rs 1,000 per dose.

Covaxin will charge Rs 206 each for 38.5 lakh doses it will supply to the government, said the statement, adding that while the actual pricing is Rs 295 per dose, the company has decided to provide 16.50 lakh doses free of cost.

ThePrint reached SII and Bharat Biotech for comment on profitability via email but there was no response until the time of publishing this report.

Also read: Indians trust Covid vaccination the most, 80% willing to take it now, finds global survey

Companies’ positions

Pune-based Serum Institute of India, founded by Cyrus Poonawalla in 1966, is one of the biggest suppliers of India’s immunisation programmes. It is also among the largest vaccine makers in the world in terms of doses produced and sold — over 1.5 billion doses, including vaccines for polio, BCG, measles and rubella, among others.

In 2018-19, SII’s net sales was at Rs 5,238 crore, while profit after tax was Rs 2,252 crore. The five-year (2014-2019) compounded annual growth rate (CAGR) for sales was 8.1 per cent while the five-year CAGR for profit after tax was 5.3 per cent.

SII’s export earnings were over two-third of its net sales in 2019. Its total assets were Rs 16,703 crore at the end of 2019.

For the Covid-19 vaccine, the company partnered pharma giant AstraZeneca and the University of Oxford. Covishield has an efficacy of over 62 per cent.

The SII has already manufactured a stock of around five crore doses. It claims capacity to raise production to 10 crore doses a month by February.

Bharat Biotech International Ltd started operation in 1996. In a short span, it has become a leading biotechnology company, with over 160 patents. It has also become the largest rabies shot producer after the acquisition of Chiron Behring from GSK in March 2019.

The company’s net sales for FY19 was at Rs 763.3 crore while net profit was Rs 111.6 crore. Due to its low base, the growth figures were impressive — the five-year net sales CAGR was 23.6 per cent while the same for net profit was 43.3 per cent. Its export earnings were 37 per cent of its net sales in 2019.

It developed Covaxin in collaboration with the Indian Council of Medical Research. The vaccine is currently in Phase-III clinical trials so the efficacy data is not available. The emergency use approval is based on Phase I/II trials that have established safety and adequate immune response.

Bharat Biotech has an annual capacity of 300 million shots. It has also signed an agreement with the firm Precisa Medicamentos for supply of Covaxin to Brazil.

Also read: How to think about travelling now that Covid vaccines are out

Other contenders

Cadila Healthcare, the fifth largest pharmaceutical company in India which produces Covid treatment drugs like remdesivir, is also developing an indigenous vaccine for the novel coronavirus. It has received government’s approval for phase-III trials on 26,000 Indian patients.

Cadila’s pricing details for the vaccine are unavailable as yet.

Its consolidated net sales for FY19 was Rs 14,253.1 crore while net profit for the financial year was Rs 1,176.1 crore. More than one-third of its revenue earnings are from exports.

Cadila has a supply capacity of 10 crore doses annually, apart from outsourced manufacturing of 5-6 crore doses.

‘Growth opportunities are robust’

In a note to its clients on the growth potential of these companies, broking firm Sharekhan said, “COVID-related opportunities (launch of remdesivir) are expected to benefit players such as Cadila.”

It added, “Management commentaries suggest that growth opportunities in the US and other exports markets are robust. Indian companies are also expected to benefit from COVID-related opportunities in major exports markets.”

According to industry estimates, the $20 billion Indian pharmaceutical market, which was growing at 9.5 per cent CAGR in the last five years amid several challenges like few new approvals, addition of new products under National List of Essential Medicines, demonetisation and GST implementation, had an impressive first two quarters in the current fiscal after the pandemic broke out.

The industry is set to report another quarter of strong growth in the October-December period, according to analysts.

India is among the top 10 nations in pharmaceutical spending globally, and one of the top three in value terms. It is growing at a brisk pace owing to its population size, increasing chronic diseases, and rising healthcare facilities.

Amid the pandemic, some of the Indian companies are expected to benefit from Covid related opportunities in major export markets.

Also read: 6 central hospitals in Delhi only get Covaxin for Day 1 of drive — staff worry, doubts linger


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