India’s economy may be struggling, but its pharmaceutical industry is booming, thanks to initiatives to improve domestic access to medicine and a solid export market. But can such growth continue?
India is a significant player in the global medicines industry. Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US, and 25% of all medicine in the UK. Globally, India ranks 3rd in terms of pharmaceutical production by volume and 14th by value.
While the country’s economic growth sinks under 5%, the Indian pharmaceutical industry is growing by 7% to 8% a year, according to the Indian Pharmaceutical Alliance, while rating agency ICRA expects growth of 11% to 13% in 2020
According to government sources, India's medical expenditures would increase by at least 9% to 12% in the next five years, making it one of the 10 largest nations in terms of medical spending.
Compared to other nations, the cost of manufacturing pharmaceutical goods in India is lower and more effective.
The BSE Healthcare Index has risen at a CAGR of 12% per year over the previous ten years, while the Nifty Pharma has returned approximately 10.94% per year
India exports 16 billion more medicines than they import. There are about 3000 pharma companies in India, 10 pharma companies are part of the Nifty 50. Indian investors truly believe in the Indian pharma industry and consider it a defensive sector.
But can you believe this country did not have access to even basic drugs and used to import all the medicines until the 1970s.
Beginning of Indian Pharma
The origins of India’s market leadership can be traced back to the independence era. Around 1947, western multinational corporations controlled India’s pharmaceutical market. They held almost 99% of the patents, and domestic drug prices in India were among the highest in the world. But around 1970, the Government decided to switch things ups.
They tweaked India’s patent laws and the new amendments only protected the manufacturing process deployed to make new drugs. The Indian government saw this problem and started public sector pharma companies Hindustan Antibiotics Ltd. and Indian Drugs and Pharmaceutical Ltd.
This act was passed to provide low-cost medicines to citizens and to grow the Indian pharmaceutical industry. This law patented the process of manufacturing medicines rather than the product and this act opened a lot of opportunities for Indian pharma companies.
Now let's discuss what made the Indian pharmaceutical industry grow at such a good pace.
Why Indian Pharma is Winning?
The cost of production of pharmaceutical products in India is very low compared to other nations. The lockdown in China has had a significant impact on India’s drug prices as well. Paracetamol, vitamins, and penicillin cost higher than before since the nationwide lockdown.
To elaborate, the slow production of APIs translated into scarcity, which increased the costs of materials required to produce generics. At one point in time, the cost of a paracetamol shot was from Rs 250-300 kg to 400-450 kg.
2. Increasing Investment
Foreign direct investment (FDI) inflows in the Indian drugs and pharmaceuticals sector reached $1.206 Billion between April-December 2021. Even Indian retail investors have poured more than Rs 12,000 crore and this has moved pharma stocks to new hights.
The BSE Healthcare index has risen at a CAGR of 12% per year over the previous ten years, while Nifty Pharma has returned approximately 10.94% per year. During the same period, Nifty has returned 12.28% per year, while Sensex has returned 12.72 % per year. With the spread of the coronavirus, the pharmaceutical industry and mutual funds that invest in it have done better than their counterparts recently.
3. Policy Support
In June 2021, Finance Minister Ms. Nirmala Sitharaman announced an additional outlay of Rs. 197,000 crore (US$ 26,578.3 million) that will be utilized over five years for the pharmaceutical PLI scheme in 13 key sectors such as active pharmaceutical ingredients, drug intermediaries, and key starting materials.
Weakness in Indian Pharma
However, that doesn’t mean, it’ll be a walk in the park. Pharma companies are extremely dependent on foreign countries. For example, Divi’s derives the majority (80%) of its revenue from exports to global companies and almost a third of its revenue comes from the US alone. And although the US market is particularly lucrative, this dependency can be a prickly thorn sometimes.
For instance, Between 2010 and 2015, FDA inspections of Indian companies more than doubled from 108 to 270. Around 25–30% of the total warning letters issued by the FDA could be attributed to India alone.
The process of pharmaceutical products is divided into 4 parts: research, product development, clinical tests, and marketing. The Indian industry has been coordinating all these parts very well. The research and development of the scientist, careful clinical research, and the marketing team's support are all perfect. The recent pandemic was the perfect example of how well our pharmaceutical industry helped save millions of lives.
Do let us know your views on the Indian pharmaceutical industry in the comments.