Pharmaceutical & Healthcare Sector In A Bonny Baby Scenario

The pharmaceutical market, valued at USD 42 billion in 2021, is projected to grow to USD 65 billion by 2024 and reach between USD 120 and USD 130 billion by 2030. The National Digital Health Blueprint is poised to unlock over USD 200 billion in economic value for India’s healthcare industry within the next decade.

Amidst a sea of red in the majority of investors’ portfolios following the election results, healthcare and pharmaceutical stocks stood out with remarkable resilience, providing a sense of relief to those who had retained faith in them. Mandar Wagh explores the factors precisely fuelling optimism within the pharmaceutical and healthcare industry and forecasts what lies ahead for the sector 

The domestic markets have experienced significant volatility due to uncertainties surrounding the Lok Sabha election results and the outlook for India’s future growth. On the day the results were announced, a substantial selloff was evident, with benchmark indices plummeting over 8 per cent each. This sharp decline was driven by a wide gap between the actual results and exit poll predictions, suggesting that the current government might need to depend on coalition partners to secure a third term in power.

In a market bloodbath where every portfolio was bleeding red, with power, energy, banking, financial services and PSUs leading the losses, pharmaceuticals and healthcare stocks were among the few that remained in the green. A question arises: Beyond the essential nature of healthcare, what specific investor sentiments fuelled the outperformance of pharmaceutical and healthcare stocks compared to the broader market during this downturn?

Pharmaceutical and Healthcare: A Defensive Sector Shielding Investors
Pharmaceutical and healthcare sectors are commonly regarded as defensive due to several inherent characteristics. First, the essential nature of healthcare ensures consistent demand irrespective of economic conditions – whether in times of prosperity or downturns, people require medical treatments, medications and healthcare services. Additionally, the noncyclical nature of these sectors means that their demand remains relatively stable compared to other industries, which are more susceptible to economic fluctuations.

Moreover, the inelastic demand for many healthcare products and services ensures steady revenue streams for companies operating in these sectors. Regulatory protections, such as patents on drugs, further safeguard the market position and revenue of pharmaceutical companies. With an ageing global population, the demand for healthcare services and medications is expected to continue growing, providing a long-term growth trajectory for the sector. Continuous investment in research and development drives innovation, fostering growth and investor interest even during market downturns. These combined factors make pharmaceutical and healthcare stocks a more reliable and less volatile investment option, particularly in uncertain economic times.

About the Sector
The Indian pharmaceutical and healthcare sector stands as a cornerstone of the country’s economy, encompassing various facets such as hospitals, healthcare services, medical devices, telemedicine, medical tourism, health insurance and clinical trials. The hospital segment, constituting 80 per cent of the nation’s healthcare market, is witnessing burgeoning interest from both domestic and international players. Bolstering this landscape is the monumental ‘Ayushman Bharat’ initiative, the world’s largest health insurance scheme, spearheaded by the Indian government.

With over 150,000 operational Ayushman Bharat centres, the initiative aims to decentralise primary healthcare services, bringing them closer to the communities. The Indian pharmaceutical industry boasts a repertoire of over 60,000 generic brands, spanning generic medications, over-thecounter drugs, API and bulk drugs, vaccines, contract research, manufacturing, biosimilars and biologics. On the global stage, the Indian pharmaceutical sector holds significant sway, ranking third in production volume and fourteenth in value.

Primarily catering to the United States market, Indian pharmaceuticals enjoy widespread distribution worldwide. Notably, India emerges as the largest vaccine provider globally, supplying over half of all manufactured vaccines. Additionally, India commands a 20 per cent share of the global pharmaceutical export market, establishing itself as a premier destination for generic drug manufacturing. Furthermore, as the twelfth largest exporter of medical goods globally, India has garnered acclaim as the ‘pharmacy of the world’, offering high-quality generic medications and vaccines at affordable prices.

This reputation has been further solidified by India’s pivotal role in supplying corona virus vaccines, earning recognition from major economies and cementing its position in the global healthcare landscape. The Indian pharmaceutical market experienced a 9.5 per cent growth in March 2024, driven by positive value growth across all the major therapy areas. According to the Indian Economic Survey 2021, the domestic pharmaceutical market is expected to triple in size over the next 10 years.

The pharmaceutical market, valued at USD 42 billion in 2021, is projected to grow to USD 65 billion by 2024 and reach between USD 120 and USD 130 billion by 2030. India hosts over 3,000 healthcare companies, supported by a robust network of more than 10,000 manufacturing facilities and a pool of highly qualified professionals. Additionally, the National Digital Health Blueprint is poised to unlock over USD 200 billion in economic value for India’s healthcare industry within the next decade.

Intersection of Health and Wealth
The Nifty Pharma index, a sectoral gauge for leading pharmaceutical companies, has delivered robust 48 per cent returns over the last year, outperforming the benchmark indices by a wide margin. Healthcare and pharmaceutical companies have demonstrated resilience, delivering impressive doubledigit returns over the past year and considerable gains during the last month, despite heightened market volatility. These impressive returns showcased by companies stem from their individual robust financial performances, as well as the overall strength of the sector. Looking at the year-on-year financial performance for Q4FY24, a majority of the companies recorded double-digit revenue growth, with aggregate revenue surging by approximately 13 per cent.

Likewise, while a few companies reported a slight decline in operating profit and net profit growth, nearly all experienced noteworthy double-digit growth. On an aggregate basis, operating profit and net profit showed significant year-on-year growth of 27 per cent and 50 per cent, respectively. Alkem Laboratories Ltd. and Zydus Lifesciences Ltd. stood out with triple-digit net profit growth, while Gland Pharma Ltd. and IPCA Laboratories Ltd. led the pack in terms of revenue growth. However, the sequential performance was lacklustre, marked by modest growth in aggregate revenue and a marginal decline in profitability.

U.S. Drug Shortage and India’s Strategic Advantage
The U.S. healthcare system has been grappling with a critical issue: a surge in drug shortages. The first quarter of 2024 saw a decade-high, with over 300 medications across 22 therapeutic areas experiencing limited availability. This crisis stems from a confluence of factors. One key factor has been increased regulatory scrutiny. Stricter audits have unearthed quality control lapses among companies heavily supplying the U.S. market. While these measures aim to improve patient safety, they have also led to temporary disruptions in production, further straining the drug supply chain.

Beyond regulatory hurdles, other culprits are at play. Shortages of raw materials, coupled with business decisions to discontinue less profitable drugs, particularly older generics, have compounded the problem. Disruptions caused by the corona virus pandemic, trade disputes and logistical challenges have hampered the flow of essential materials and finished drugs. Additionally, sudden spikes in demand for specific medications due to outbreaks or seasonal illnesses have overwhelmed the existing supplies. The impact is felt across diverse medication categories. Local anaesthetics, fundamental hospital pharmaceuticals, common oral and ophthalmic products, ADHD treatments, and even chemotherapy medications are experiencing inadequate availability.

Historically, drug shortages have often translated to price hikes. With limited supply driving up demand, pharmaceutical companies have the opportunity to raise prices for scarce medications. Given the substantial U.S. dependence on medication and intermediate supplies from India, domestic manufacturers and suppliers in that country are well-positioned to leverage this situation. The Indian pharmaceutical industry, with its robust capabilities and numerous manufacturers engaged in active competition, is poised to maintain price competitiveness in the market. Increased U.S. demand could bolster Indian companies’ market share and potentially lead to a shift in the global pharmaceutical supply landscape.

Pharmaceutical 4.0: Technology Revolutionising Healthcare
The corona virus-driven pandemic has triggered an unprecedented surge in technology adoption across sectors, including healthcare and pharmaceuticals. In response to the challenges posed by the pandemic, pharmaceutical companies swiftly embraced digital solutions to ensure uninterrupted operations. This rapid technological shift not only maintained productivity but also enhanced efficiency, raised quality standards, and facilitated cost control measures. Leveraging advanced digital tools and data analytics, these companies transformed workflows, enabling seamless communication, streamlined processes, and real-time datadriven decisions.

Emerging technologies such as artificial intelligence (AI) and machine learning (ML) are revolutionising drug discovery,development and healthcare by processing vast datasets and deriving insights rapidly. Big data and advanced analytics simplify the management of diverse datasets, accelerating research and development processes while paving the way for precise healthcare solutions. Digital therapeutics utilise digital platforms to deliver evidence-based treatments, ensuring continuous monitoring and adjustment for better outcomes. Blockchain technology ensures traceability of pharmaceutical products, enhancing quality control and patient safety throughout the supply chain.

Nanotechnology enables the design and delivery of drugs at the nano scale, promising targeted therapies and personalised formulations for optimised efficacy. Bioprinting combines 3D printing with biological materials, revolutionising organ transplantation and drug testing with functional tissues. Virtual reality (VR) and augmented reality (AR) provide immersive training environments and real-time surgical assistance. Telecare utilises telecommunications technology for remote medical care, bridging healthcare access gaps for underserved populations. These advancements underscore the transformative impact of technology on the healthcare and pharmaceutical industry, paving the way for more efficient, precise and accessible healthcare solutions.

Conclusion
The Indian healthcare and pharmaceutical industry is currently experiencing a remarkable surge in investor confidence, fuelled by several favourable factors. These include robust financial performances by companies, marked by double-digit growth in both revenue and profit figures. The sector is becoming increasingly attractive to global investors, primarily due to the strong focus and support from the government.

The government’s commitment to expanding access to affordable healthcare and enhancing the quality of medical services further improves the investment appeal of the sector. Additionally, the sector stands to benefit from the opportunity presented by drug shortages in the U.S., potentially boosting demand for Indian drug manufacturers. Moreover, ongoing technological advancements are creating unprecedented opportunities in the sector for long-term growth and innovation.