Pharmaceutical Sector : Glowing With Good Health

India is positioned as a significant and rising player in the global pharmaceuticals sector. In August 2021, the Indian pharmaceutical market increased at 17.7 per cent annually, up from 13.7 per cent in July 2020. In this report, Shreya Chaware highlights the factors that will trigger further growth of this sector [EasyDNNnews:PaidContentStart]

The Indian pharmaceutical industry has a major share in the global pie of this sector. Worldwide, India stands third in terms of production by volume and 14th by value. The country is the largest provider of generic medicines globally, occupying a 20 per cent share in global supply by volume, and is a leading vaccine manufacturer globally. India also has the highest number of USFDAcompliant pharmaceutical plants outside of the USA and more than 3,000 pharmaceutical companies reside in India bearing a strong network of over 10,500 manufacturing facilities as well as a highly-skilled resource pool. 

The pharmaceutical industry in India offers 60,000 generic brands across 60 therapeutic categories. Major segments include generic drugs, OTC medicines, API and bulk drugs, vaccines, contract research and manufacturing, biosimilars and biologics. India stands to be the fourth-largest Asian medical devices market after Japan, China and South Korea, and among the top 20 global medical devices markets in the world. Indian pharmaceutical companies, leveraged by their price competitiveness and good quality, have made a global footprint with 60 per cent of the world’s vaccines and 20 per cent of generic medicines coming from India. 

Market Size

According to the Indian Economic Survey 2021, the domestic market is expected to grow three times in the next decade. India’s domestic pharmaceutical market was at USD 42 billion in 2021 and is predicted to reach USD 65 billion by 2024 and grow further to reach USD 120-130 billion by 2030. India’s biotechnology industry comprises biopharmaceuticals, bioservices, bio-agriculture, bio-industry and bioinformatics. The value of Indian biotechnology industry stood at USD 70.2 billion in 2020 and is expected to reach USD 150 billion by 2025. 

India’s medical devices market stood at USD 10.36 billion in FY20 while it is expected to increase at a CAGR of 37 per cent from 2020 to 2025 to reach USD 50 billion. India is positioned as a significant and rising player in the global pharmaceuticals sector. In August 2021, the Indian pharmaceutical market increased at 17.7 per cent annually, up from 13.7 per cent in July 2020. According to India Ratings and Research, the Indian pharmaceutical market revenue is expected to record over 12 per cent on a YoY basis in FY22.

Pharmaceutical Stocks

During FY22, the second and third waves of the corona virus pandemic hit the economy and the cautiousness among equity markets went up. The BSE Healthcare index as well as Nifty Pharma index underperformed the equity markets on YTD basis in 2022. Despite the underperformance, there are several pharmaceutical stocks that have managed to deliver returns up to 768 per cent in 2022, so far. The top stock among the list was Hemo Organic which gained up to 768.73 per cent followed by Lactose (India), Gujarat Terce Laboratories and Parnax Lab zooming up 124 per cent, 111.07 per cent and 101.71 per cent, respectively, giving multibagger returns. Following are the top performing 10 stocks in the pharmaceutical sector on YTD basis: 

Talking about the top pharmaceutical companies and their performance, among the top 10 companies in the pharmaceutical sector based on market capitalisation, apart from Sun Pharmaceutical Industries and Cipla, the other companies have delivered negative returns on YTD basis. Divis Laboratories and Piramal Enterprises have tumbled the most among the 10 stocks, falling 34.39 per cent and 25.02 per cent, respectively, in 2022, so far. Looking at the Q4FY22 results, Sun Pharmaceutical Industries reported a surprising consolidated net loss of Rs 2,277 crore as against net profit of Rs 848 crore recorded in Q4FY21. 

The net loss included an exceptional item during the fourth quarter, which stood at Rs 3,936 crore. Meanwhile, the company’s consolidated revenue improved 10 per cent to Rs 9,446 crore in comparison to Rs 8,523 crore in Q4FY21. The drug major Cipla also reported a 2.41 per cent decline in consolidated net profits for Q4FY22, standing at Rs 362.07 crore compared to Rs 413.38 crore reported in the same quarter of the previous year. On the other hand, revenue from operations improved 14.9 per cent on a YoY basis. Here is the table summarising the returns on YTD basis of the top 10 companies according to market capitalisation in the pharmaceutical sector:

In Q4FY22, the input costs in the form of higher API, solvent and freight prices YoY had an impact across the pharmaceutical sector. The higher costs were bundled with a weak seasonality in India’s business. In H1FY23, the outlook for most companies remains a bit cautious as input costs are still on the upper side. In FY22, the pharmaceutical industry registered growth of 9-11 per cent driven by a push from emerging and domestic markets. By showing strength and commitment amid the disruption caused by the pandemic, the industry exhibited its ability to provide adequate medicines and contributed significantly to other areas like sanitation, preventive healthcare and quarantine facilities. In the equity markets, the following stocks have been the top 10 gainers in the pharmaceutical sector for FY22:

Emerging Trends

In the past five months, the pharmaceutical industry has grown at a fast pace. The industry’s revenue improved 13.9 per cent on a YoY basis in January 2022 as quoted by India Ratings and Research, citing the data released by All Indian Origin Chemists and Distributors. As compared with a 5.3 per cent rise in December 2021 and a 4.5 per cent rise in January 2021 last year, the growth can be categorised as strong driven by a spur in the demand for acute therapy products due to a surge in Omicron cases. The Government of India did not step back in lending support to the healthcare and life sciences sector at large. The Union Budget 2022 acknowledged the rapid improvement of health infrastructure in the past two years and aimed on strengthening the delivery of mental health services via a National Tele-Mental Health Programme. 

This programme will include a network of 23 tele-mental health centres of excellence, with NIMHANS being the nodal centre and the International Institute of Information Technology-Bangalore (IIITB) providing technology support. The pharmaceutical industry is in a state of fundamental transformation as the scale of operations is rising. The year 2022 is expected to see the companies oriented to staying agile and resilient with regards to disruption caused by fluctuating market demands and diverse customer needs. The pharmaceutical industry is rising rapidly with digitisation while advanced research in the field has opened newer avenues of treatment for mankind. 

"The year 2022 is expected to see the companies oriented to staying agile and resilient with regards to disruption caused by fluctuating market demands and diverse customer needs. The pharmaceutical industry is rising rapidly with digitisation while advanced research in the field has opened newer avenues of treatment for mankind. "

Based on available data, the following can be some of the technology trends in the pharmaceutical sector in 2022: 

1. Increasing Popularity of E-Pharmacies:
An e-pharmacy operates in an efficient and responsible manner for remote areas as it provides easy and affordable medicines to the people at their doorstep in just one click. It also gives information about the medicinal remedies’ awareness to the purchaser. The brick pharmacies are now running behind in the competition as with the pandemic hitting the country people have been avoiding going to pharmacies.

2. Digitisation with Artificial Intelligence and Machine Learning:
Digitisation and technological innovation is the backbone of a growing economy along with the pharmacy business. Identifying this reality, people have aligned their offline business with the online opportunities to pace up with the dynamic business environment in the technological world.

3. Maintenance of Digital Records:
Use of digital processes has been popular and will continue in 2022. The original paper-based processes have been transformed to digital to efficiently operate the businesses. A unified Aadhaar-synced medical history backup has been developed by different medical organisations. Pharmaceutical companies have found digitalisation advantageous because of the transparency it provides across the organisation and departments.

4. Cloud Computing:
In the pharmaceutical industry, the cloud allows businesses to work with other stakeholders to become more effective. Cloud computing also provides an inexpensive way to use analytics. Pharmaceutical companies rely specifically on cloud security and central access to analyse complex data in clinical research. 

Outlook

A growth of 6-8 per cent on a YoY basis is expected for India’s pharmaceuticals market (IPM) in FY23. The growth can be restricted due to inventory stocking of key materials in FY21 on account of disturbance in supplies caused by the pandemic. On the other hand, API (active pharmaceuticals ingredient) businesses are anticipated to report higher single-digit growth due to a demand uptick and the overall revenue growth may range between 9-10 per cent. In a research note, India Ratings and Research said it has maintained a neutral outlook for the Indian pharmaceutical sector for FY23. A large number of product launches in the pipeline for the country gives a positive outlook for the sector in FY23 on an overall basis. 

The product launches are expected to assist the companies in handling the pricing pressures hitting their current business. Also, freedom from travel restrictions can augur well as frequent visits by US drug inspectors will lead to clearances of more facilities under the USFDA’s scanner. Going forward, improved growth in domestic sales also depends on the ability of companies to align their product portfolio towards chronic therapies for diseases such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers, which are gaining attention. 

The Indian government has taken many steps to reduce costs and bring down healthcare expenses. Rapid launches of generic drugs into the market have remained in focus and are expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines may also give a push to the operations of the pharmaceutical companies.

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