India is currently one of the giants in the global pharma industry. Maintaining one of the top spots in the production of pharma products by volume, the pharma industry in India is set to at least double its valuation by 2030. It has the first place in the manufacturing of generic medicines and is responsible for the supply of over 50% of the global vaccine demand. It has a 40% market share in generic demand in the US and 25% in all medicine demand in the UK. In addition, India also contains a significant number of scientists and engineers who are constantly pushing the ceiling for higher industry growth.
In this article, we will discuss the evolution of the pharma industry in India, its future outlook, and present analysis to understand what makes it a worthy sector for investment filled with numerous growth stocks.
Evolution
The pharma industry in India has undergone a swift evolution and expansion in the past few decades. This growth and development can be categorised into four stages:
- First phase (Pre-1970): This was a phase dominated by foreign companies.
- Second phase (1970-1990): This phase marked the first time that domestic companies entered the pharma production market and started operations. One factor that propelled the inception of domestic ventures was the introduction of the patent bill in 1970, reducing dependence on US intellectual property laws.
- Third phase (1990-2010): This can be referred to as the era after the LPG (Liberalisation-Privatisation-Globalisation) reforms in India as the country opened up to the world market. Indian companies also went global and started operating in foreign countries.
- Fourth phase (2010-Present): This is the phase we are in currently as the Indian pharma sector has evolved to become a force to be reckoned with in the global pharma industry.
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SWOT analysis of the pharma industry in India
A SWOT analysis of the pharma industry in India can provide significant insights into the strengths and weaknesses of the sector. Let us take a look at the detailed analysis under the four headers:
- Strength
- Weakness
- Opportunities
- Threats
Strength
One of the major strengths of the pharma industry in India is that the cost of manufacturing is much lower compared to most other countries, making it a cost-effective site for voluminous production. With the backing of a strong industrial sector, India also has the advantages of a highly skilled workforce and technological advancements. With the growth of the service sector in the country, communications, marketing, and distribution channels are also robust, strengthening the entire pharma ecosystem.
Weakness
While India ranks 3rd globally in the production volume of pharma products, it could only attain the 14th spot in terms of value. These figures, as per the Economic Survey 2022-23, are indicative of a lack of funding for research and development of new medicine and technology, which necessitates changes to policymaking. The collaboration between the industry and the academic fraternity is also not up to par. Another potential vulnerability is the focus on the low-cost production of low-quality medication, a threat to the reliability of the entire sector.
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Opportunities
Despite all the weaknesses, a major avenue for growth for the Indian pharma sector is exports. It is predicted that with the low-cost production, the demand for generic medicines from India in developed countries will only rise with time. There also lies the potential for India to be a hub for clinical trials internationally. As the investment in R&D increases, India can also become a major player in the new medicine and technology development in the sector.
Threats
One of the most significant challenges faced by the domestic pharmaceutical industry is the implementation of product patent policies. To address this issue, the pharma industry in India must enhance its research and development efforts. Additionally, the Government of India's Drug Price Control Order, which imposes strict regulations on product pricing, impacts the profitability of pharma companies.
Besides these, the small businesses in the domain are particularly vulnerable to the new excise duty structure based on Maximum Retail Price (MRP).
USFDA and the pharma industry in India
More than 25% of India's pharmaceutical exports are directed to the United States. The US Food and Drug Administration (FDA) is responsible for overseeing and ensuring the safety and efficacy of these medications. India supplies approximately 30% of the generic drugs available in the US market. Consequently, all medicines sold in the US are subject to FDA regulations, which include regular inspections of Indian manufacturing facilities.
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R&D
Indian companies initially broke into foreign markets by developing generic variants of patented drugs at a lower cost and engaging in legal challenges to contest these patents. This approach is still relevant and expected to grow. However, companies have also started to evolve their product development strategies by investing in R&D and focusing on new molecule discovery to align with the current market environment. This is a lucrative and lofty target as the potential for profits is even higher despite the high initial costs.
Summing up
The pharma industry in India has evolved into a global leader, excelling in the production of generic medicines and vaccines. Despite its challenges, the sector benefits from cost-effective production and a skilled workforce, with enhancing R&D being the key to maintaining its global position and ensuring continued success and innovation.
