With investors jittery about pharma, it may be the best time to buy in
Globally, pharmaceuticals as an industry has been in critical views since some time now. With the Indian government exerting downward pricing pressure in its endeavor to make healthcare affordable along with similar pricing concerns in the USA post-Trump elections, pharma companies are scrambling to maintain profitability and grow at the same time. Notably, even as margins are under pressure, the top-line seems to have a different story to tell.
Demystifying the Indian pharmaceutical industry
India is a leading pharma production destination
The Indian pharmaceutical sector reflects close to 2.4% of the global pharma industry in value along with a 10% share in volumes. This clearly reflects the strong positioning of Indian pharma in the global space.
Strong on exports
For generics, India accounts for 20% of total global exports. Pharma exports from India have grown at 9.44% in FY16 ringing the register with ~16.9 billion USD. With exports growing at 8% in January 2017, Indian pharma is expected to register double-digit growth in 2017.
Rapid industry growth
The pharma industry is expected to grow at a CAGR of 12.9% through 2015-20 with a target monetary size of USD 55 billion. The highly-correlated healthcare sector, which is one of the fastest accelerating sectors in India, is expected to clock a 17% CAGR through 2008-20 to achieve the dream target of being a USD 250 billion industry.
Increased medical infrastructure and deeper medical insurance penetration is expected to set India right on track to be among the top 3 global markets in terms of incremental growth and 6th largest global market in absolute size.
The Indian pharmaceuticals market witnessed growth at a CAGR of 5.64 per cent, during 2011-16, with the market increasing from USD20.95 billion in 2011 to USD27.57 billion in 2016. As mentioned above, the industry is expected to hit the $55 billion mark by 2020.
Notable actions in the Indian pharma space
Research and Development: Indian pharma companies spend anywhere between 8%-11% of total turnover on their R&D efforts. R&D expenses are expected to increase with product patents in place and the need for innovative drugs to support sales growth
Collaborations and Joint Ventures: Several MNCs are using M&A and JVs as a preferred route to enter the Indian market. The recent move by the government to allow 74% FDI into pharma has made the space even more conducive to M&A and private equity deals. The synergies are expected to further optimize the already low-cost pharma R&D and manufacturing in India.
6 leading pharmaceutical companies have formed an alliance ‘LAZOR’ to share their best practices to improve efficiency & reduce operating costs.
PPP in R&D: Indian Government invited multi-billion dollar investment with 50 per cent public funding through its public private partnership (PPP). As on January 2016, the total project cost of healthcare infrastructure project was USD151.91 million & there are 5 healthcare projects under PPP. The figures are expected to grow further this year.
While the Indian pharma industry is facing headwinds from stringent US FDA norms and downward pricing pressure from the Indian government, the increase in product innovations (fueled by product patent laws) and expanding healthcare market is expected to drive the earnings north over the next -year period.