Indian pharma is one of the few sectors that has benefitted and expected to emerge stronger in the wake of the COVID-19 pandemic. This reflects in the performance of the NIFTY pharma index which moved from 8,745 on 20 March 2020 to 14,929 on 15 March 2021[i].
The industry has already overcome the short-term impacts faced due to the pandemic such as medication shortage and concurrent supply shortage on account of disruption in the raw material supply chains. However, the pandemic has highlighted some key challenges for the Indian pharma industry.
The COVID-19 pandemic inflicted challenges on the Indian pharma industry
The above-mentioned trends brought out a long-term impact on the industry and Indian companies. Driven by the government’s support for self-reliance, certain relevant initiatives, including the two (Production Linked Incentives (PLI) schemes for bulk drugs and medical devices have given the industry a major boost. These incentives are to the tune of INR6,940 crore and INR3,420 crore, respectively[iv], and encompass greenfield projects for bulk drugs and intermediates, and establishment of three bulk drug parks. Pharma companies have realised the importance of backward integration, which is expected to reduce dependence on external sources of raw material supply, improve quality of production and bring about a greater reliability in Indian API manufacturing. Not just in India, but this pandemic is also leading to supply chain shifts across the globe and there is an increased move towards reducing reliance on one specific country or region. This is expected to be a major growth driver for Indian API and intermediate companies.
A word of caution though
Risk and compliance have been an area of concern for the Indian pharma industry with increased United States Food and Drug Administration (USFDA) scrutiny. Given the present opportunity, India has the potential to emerge as a dominant player in the pharma supply-chain. The industry is expected to make higher investments and focus on enhancing internal standards of regulatory compliance, especially in data integrity, governance and compliance. Higher investments in compliance also imply that many small-size formulations and API companies become non-viable and bring consolidation in the industry, especially led by larger players and private equity-backed platforms.
Secondly, the pandemic boosted good public resilient healthcare infrastructure and data collection, including maintenance of patient records. The government has already proposed to increase the healthcare expenditure by 137 per cent to INR2,23,846 crore from INR94,452 crore spent in the previous year[v]. Furthermore, India’s health insurance penetration of 3.71 per cent in FY19 is likely to grow with strong potential for micro insurance, especially in rural areas[vi].
Thirdly, online pharmacies have become a force to reckon with. Some of India’s largest business houses and global e-commerce firms are viewing this as a huge opportunity and attempting to make a foray within this domain. This can lead to further consolidation among existing players. Integrated healthcare platforms with allied services, such as online consultations, diagnostics, and medicine delivery is also expected to emerge.
The winners in today’s scenario will be companies that leverage this opportunity to adapt to changing market dynamics, newer technologies and ways of working. Both the government and private companies have demonstrated responsiveness, quick decision-making, and innovation during this period. It has been famously said — “India disappoints both optimists and pessimists.”[vii] Given the tailwinds of favourable government policies, faster regulatory approvals, innovation, and robust compliances, if the Indian pharma companies manage to disappoint the optimists then this will be a colossal waste of an opportunity born out of a crisis!
[i] Nifty 50, Yahoo Finance, accessed on 15 March 2021
[ii] Credit metrics of leading pharma companies to remain stable: ICRA, ET Healthworld.com, 26 September 2020
[iii] India spends just 1.26% of GDP on public healthcare, TSG Sunday Guardian Live, 2 January 2021. 5 hospital beds/10k population: India ranks 155th in 167, The Times of India, 17 December 20201
[iv] Govt notifies incentive schemes for API/medical devices manufacturing, Financial Express, 24 July 2020
[v] Union Budget 2021 | Budget proposes 137% hike in health, well-being spend, The Hindu, 1 February 2021
[vi] Indian Insurance Industry Overview & Market Development Analysis, IBEF, accessed on 20 March 2021
[vii] India disappoints optimists, and pessimists: Economic analyst Ruchir Sharma (IANS Interview), Business Standard, 3 July 2016