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Pharmaceutical Industry Analysis
Must know facts:
- The Indian Pharmaceuticals market is the 3rd largest in terms of volume and 13th-largest in terms of value.
- All Pharma companies will have Branded Generic drugs & Generic Generic drugs (lesser price, component most often remains the same, market placement of drugs is the differentiator).
- Indian Pharmaceuticals is amongst the global leaders in providing quality generics to the world. Indian Pharmaceutical companies constitute a 16 billion dollar market.
- India’s cost of production is nearly 33 per cent lower than that of the US as labour costs are 50–55 per cent cheaper than in Western countries.
- The cost of setting up a production plant in India is 40 per cent lower than in Western countries & as a result it has highest number of USFDA plants outside the USA. India has over 546 USFDA-approved company sites/manufacturing plant, the highest number outside the US.
- The market share of hospitals is expected to increase from 13.1% in 2009 to 26% in 2020. The purported rise of lifestyle diseases in India is expected to boost industry sales figures.
Influencing Factors for price change:
- Individual Stocks in Pharmaceutical sector are best judged when benchmarked against – ‘NIFTY Pharma’ indices.
- News on – new drug applications filed by Individual companies will have a huge impact triggering price moves.
- Watch out for news on branded drugs in US which may go off patent – The exports of Indian Pharmaceutical industry to the US will get a boost, as branded drugs worth US$ 55 billion will become off-patent during 2017-2019. (as per CARE ratings)
- All Pharma companies are directly exposed to dollar movements. As most of any Pharma company in India is totally reliable on exports, dollar always plays a key role. So keeping a close tab on currency markets certainly helps.
- Any Optimacy in viewing generic drugs as a solution in US will certainly be a factor to watch out, as it directly takes a hits on to export portfolio of Indian companies.
Understanding the Industry:
Indian Pharma industry enjoys an important position in the global Pharmaceuticals industry. The Indian Pharmaceuticals market is the third-largest in terms of volume and thirteenth-largest in terms of value. It has highest number of USFDA plants outside the USA. It’s amongst the global leaders in providing quality generics to the world.
In 2016-17 & first half of 2017-18, the industry faced a slew of issues with increased scrutiny of regulatory authorities, increase in competition in generics market of one of its primary export destination, USA. This, in turn, resulted in marginal growth in exports to that country.
Why most Indian Pharma attracts global attention:
- India’s cost of production is nearly 33 per cent lower than that of the US
- Labour costs are 50–55 per cent cheaper than in Western countries. The cost of setting up a production plant in India is 40 per cent lower than in Western countries
- Cost-efficiency continues to create opportunities for Indian companies in emerging markets & Africa
- India has a skilled workforce as well as high managerial & technical competence in comparison to its peers in Asia
- India has the 2nd largest number of USFDA-approved manufacturing plants outside the US
- India has 2,633 FDA-approved drug products. India has over 546 USFDA-approved company sites, the highest number outside the US.
India’s generic drugs account for 20% of global exports in terms of volume, making the country the largest provider of generic medicines globally. As per MakeinIndia report – between 2011 and 2016, patent drugs worth USD 255 Billion were estimated to go off-patent, which as a result lead to a huge surge in generic product and tremendous opportunities for companies. The country also has a large pool of scientists and engineers who have the potential to steer the industry ahead to an even higher level.
Pharma companies have increased spending to tap rural markets and develop better infrastructure. With increasing penetration of chemists, especially in rural India, OTC drugs will be readily available. The market share of hospitals is expected to increase from 13.1% in 2009 to 26% in 2020. The purported rise of lifestyle diseases in India is expected to boost industry sales figures.
Estimated Market Size:
Indian Pharmaceutical sector is estimated to account for 3.1 – 3.6 per cent of the global Pharmaceutical industry in value terms and 10 per cent in volume terms. India’s Pharmaceutical exports stood at US$ 16.8 billion in 2016-17 and are expected to grow by 30 per cent over the next three years to reach US$ 20 billion by 2020, according to the Pharmaceuticals Export Promotion Council of India (PHARMEXCIL).
India’s biotechnology industry comprising bio-Pharmaceuticals, bio-services, bio-agriculture, bio-industry and bioinformatics is expected grow at an average growth rate of around 30 per cent a year and reach US$ 100 billion by 2025.
Analysing the dynamics of Pharma sector, there are both interesting and challenging times for the industry. There has been a shift from infectious diseases to non-communicable diseases (NCDs) as populations are aging and lifestyles and habits are changing. Companies will need to align their product portfolio in this direction, during these growth times.
FDI policy boost: 100% Foreign Direct Investment (FDI) is allowed under the automatic route for greenfield Pharma.100% Foreign Direct Investment (FDI) is allowed under the government route for brownfield Pharma in upto 74% FDI is under automatic route and beyond 74% is under government approval route.
Top Stocks in the industry:
SUN Pharma, Piramal Enterprises, Cipla, Cadila Health, Lupin, Biocon, Aurobindo Pharma & many more.
(Please note above stocks are not recommendations, they are purely for information purpose only)
Information Source / References: IBEF, Economic times,The Economic Survey 2016–17 & 17/18, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports,
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