How IPCA Labs is best suited to reap the hydroxychloroquine opportunity

On April 7, shares of IPCA Laboratories were up 10.06 percent to close at Rs 1524.15. The steep jump in stock price was largely due to the government partly easing the export ban on anti-malarial hydroxychloroquine, which will directly benefit IPCA.

The company was one among very few stocks that remained resilient during the novel coronavirus, or COVID-19, onslaught. During the most volatile period in the last one month, its shares stood their ground and in fact rose by 7.5 percent.

To be sure IPCA has done several things right in the last two years. Its focus on the branded segment of domestic formulation business paid rich dividends. Moneycontrol documented that story here.

What makes IPCA even more compelling now is the antimalarial drug hydroxychloroquine. The latter is now used as prophalytic drug to prevent COVID-19 infection among healthcare workers and patients. Please read this explainer to know more about hydroxychloroquine.

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There are dozens of formulators in India who make hydroxychloroquine pills, but most of them rely on China for critical active pharmaceutical ingredient (API).

With China tightening supplies of hydroxychloroquine API, prices have shot up dramatically in the last one month. API prices, which ranged between Rs 75,000 and Rs 80,000 per kg, are now trading at Rs 1,50,000 and above.

One formulator of hydroxychloroquine told Moneycontrol that while there is demand for the drug, but there isn't enough of API available with them to convert into tablets.

This is where IPCA being one of the largest producers globally of both the API and formulation of hydroxychloroquine has an edge. But simply having vertical integration doesn't give any heft if you are not able to supply to US.

US President Donald Trump announced stockpiling of 29 million doses (2.9 crore doses) of hydroxychloroquine as the country grapples with the COVID-19 pandemic.

IPCA has US approvals for hydroxychloroquine drug master file (DMF) and abbreviated new drug application (ANDA). A DMF is a filing for the active pharmaceutical ingredient (API) and ANDA is for the formulation.

However, a pending USFDA import ban of more than three years on its facilities almost threatened to blow-up IPCA's potential windfall opportunity. But given the extraordinary situation, US government realised that it can't ignore big suppliers like IPCA.

The USFDA swung into action and made an exception to its import ban on IPCA facilities. It allowed the import of APIs of hydroxychloroquine sulphate and chloroquine phosphate produced at the company's APl manufacturing unit situated at Ratlam in Madhya Pradesh. The regulator has also allowed import of hydroxychloroquine sulphate tablets produced at the formulations manufacturing units at its Indore special economic zone and Pithampur in Madhya Pradesh, and Silvassa.

India, Europe and Australia too have started using hydroxychloroquine as a prophylactic. The government has placed an order for 10 crore tablets of hydroxychloroquine from IPCA and Zydus Cadila.

IPCA was tight-lipped on the installed capacity of APIs and formulations. But sources within the company told Moneycontrol that there is no shortage of capacities.

"We have enough capacity to meet the demand both domestically and from overseas," said an executive who didn't want to be named.

India has a capacity to produce 20 crore tablets per month. Analysts estimated that IPCA has nearly about half of that capacity.

Before COVID-19, anti-malarial segment for IPCA wasn't doing great. Import ban and competition, led to anti-malaria segment declining sharply from 17 percent in FY13 to about 6 percent in FY19. IPCA had a revenue of Rs 3,633 crore.  In coming quarters, the revenue break is expected to be very different.