China 1 strategy gains momentum in pharma, but full monetisation still 2-3 years away: Goldman Sachs
New Delhi [India], : Indian pharmaceutical and biotech sectors have started witnessing tangible benefits from the global shift away from China, as early signs of the China 1 strategy materialising emerge, according to a recent Goldman Sachs report.
Some pharmaceutical and biotech companies report that they have started witnessing the conversion of earlier enquiries and Requests for Quotations into pilot projects and small contracts.
The 'China Plus One' strategy is a business technique in which corporations diversify their manufacturing and supply chains by expanding into countries other than China while still keeping a presence in China.
The report was prepared based on the outcome of the '2nd annual India CRO/CDMO trip' event in Bengaluru and Hyderabad.
The credit rating firm, in its equity report, added that Indian companies witnessed a major uptick in RFQs from global clients looking to diversify supply chains away from China.
While these developments indicate progress, the report also noted that large-scale financial gains from these shifts will take time, possibly a three- to five-years.
"After seeing a significant influx of enquiries/ RFQs over the past 1-1.5 years, management of some companies like Syngene, Neuland, Divi's, etc. have now started highlighting instances of conversion of RFQs to pilot projects/contracts, although large financial benefits will still take time to materialise," the report added.
The report further added, "We expect the geographic supply chain diversification theme to play out over a 3-5 year period, if not more."
The report also speaks about BIOSECURE Act of the United States, an evolving policy which directs to reduce American dependence on Chinese biotech suppliers.
"While investor discussion around the BIOSECURE Act is relatively light as there have been limited updates on this topic, most corporates acknowledged that their clients are actively building strategies to reduce their dependence on China," Goldman Sachs added in the report.
Interestingly, the report observes that this trend is being led by large pharmaceutical and biotech companies, which are more willing and able to bear the switching costs involved. Contrary to the big players, smaller companies, in the US and Europe, are still hesitant due to funding constraints and the capital-intensive nature of moving suppliers.
While there is little immediate investor focus on the act due to limited updates, corporates across the sector confirmed that their clients are proactively preparing for a post-China sourcing strategy.
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