Why Covid-19 is a boon to drug companies in one of the hardest-hit countries

India is the world's largest producer of vaccines and the sales of drug manufacturers in the country have grown amid rising demand

India's economy may have been hit hard by the Covid-19 pandemic but an industry that is bucking the trend is the country's pharmaceutical sector.

The country is the world's largest producer of vaccines and the pharmaceutical sector has thrived due to surging demand.

“Overall, this year the [pharma sector’s] growth is double digit and we will continue to report double-digit growth,” says Sudarshan Jain, secretary general of the Indian Pharmaceutical Alliance, which includes 24 of India's leading drug companies.

The pharmaceutical industry in India registered revenue growth of only 3 per cent last year as pandemic-linked restrictions affected the availability of products, Mr Jain says.

However, as the sector adapts to the health crisis, the alliance is forecasting growth of 13 per cent in the current financial year, which runs until the end of March.

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Overall, this year the [pharma sector’s] growth is double digit and we will continue to report double-digit growth
Sudarshan Jain, secretary general of the Indian Pharmaceutical Alliance

“Indian companies have been able to meet the global demand and, despite very strict lockdowns, they have been able to maintain the production,” Mr Jain says.

Meanwhile, demand for Covid-19 medicines, including the antiviral drug remdesivir, has helped boost local sales.

Called the “the pharmacy of the world”, India's pharmaceutical industry is the third largest globally by volume and the largest provider of low-cost generic medicines worldwide.

It is expected to grow to $65 billion by 2024, from the current $41bn, according to the finance ministry's 2021 India's Economic Survey. The industry is expected to be valued between $120bn to $130bn by 2030, the report says.

“The pandemic has been a major disabler for several economies and businesses but the Indian pharmaceutical market stood out strong in the face of adversity,” says Nikkhil Masurkar, executive director at Entod Pharmaceuticals, an Indian company which specialises in the research and manufacture of ophthalmology, ear, nose and throat, and dermatology medicines.

Entod Pharmaceuticals’ revenue grew by 30 per cent to 1.5bn rupees ($20.3 million) in the past financial year, Mr Masurkar says. The company has been adding 100 employees to its workforce each month, something it will continue to do until September 2021, as it expands its operations to meet increase demand.

“We plan on at least 40 per cent persistent growth year on year and expanding our sales field force to help promote our 200-plus products in the Indian and global market.”

Factors driving the pharmaceutical sector’s growth include its ability to cater to highly regulated markets such as the US.

“India has one of the highest number of FDA [Federal Drug Administration] compliant plants outside of the US,” Mr Masurkar says. “Also, labour and production are a lot cheaper in India than many other countries, and the supply of local talent into the industry is larger than that of most other countries.”

Companies are also expecting positive effects from the Indian’s government’s move to support the sector. In March, the government announced a new “production-linked incentive” programme, which includes incentives worth 150bn rupees for drug companies to produce certain products.

“The aim [is] to further encourage the pharmaceutical industry to enhance its manufacturing capabilities, diversify the product mix to complex generics, patented drugs, going up the value chain, bringing investment and creating global champions out of India”, says Suresh Nair, partner responsible for the indirect tax department at EY India.

India has an enormous opportunity to diversify and expand its exports and there is currently “a disproportionate dependence of Indian pharma exports” to the US and on generics, according to the finance ministry's economic survey.

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India was always a strong player and this served the nation during the surge [in Covid infections] with significant volumes, leading to growth in the pharma sector
Dharmesh Shah, chairman and managing director of BDR Pharmaceuticals

The government incentives will help to enhance “India’s manufacturing capabilities and exports” and can help reduce “the excessive dependence of Indian pharmaceutical industry on China for sourcing active pharmaceutical ingredients and key starting materials”, the survey says.

India almost doubled its share of pharmaceutical exports around the world to 2.6 per cent in 2019, from 1.4 per cent in 2010, according to official data from the government. There is scope for further growth by “pursuing opportunities in newer product classes such as gene therapy and speciality drugs and increasing exports to large and traditionally underpenetrated markets such as Japan, China, Africa”, according to the finance ministry's survey.

With a population of 1.4 billion, India has a huge market at its doorstep.

Mumbai-based BDR Pharmaceuticals is among the companies that have tapped into domestic demand for Covid-19 medicines and other supportive treatments to drive its sales.

“India was always a strong player and this served the nation during the surge [in Covid infections] with significant volumes, leading to growth in the pharma sector,” says Dharmesh Shah, chairman and managing director of BDR Pharmaceuticals.

The “future for the Indian pharma industry is quite promising as India continues to increase their spending in research and development, with criteria of accessibility and affordability”, he says.

While companies producing Covid-19 drugs have directly benefited from the pandemic, even those not focused on coronavirus treatments are registering a strong performance.

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The pandemic has served as a catalyst for the Indian pharmaceutical industry, particularly in the manufacture of vaccines
Akhilesh Jat, analyst at CapitalVia Global Research

Sun Pharmaceutical Industries, India's largest drug maker, swung to profit in the quarter through to the end of June, posting a net income of 14.4bn rupees while revenue rose by 29 per cent on the year. Its sales in India were up 39 per cent and 35 per cent higher in the US, with demand for its speciality drugs doing well in its key overseas market.

“Although the pandemic has hurt most other industries, the Indian pharmaceutical sector has converted this crisis into an opportunity,” says Akhilesh Jat, a pharmaceutical analyst at CapitalVia Global Research.

“The pandemic has served as a catalyst for the Indian pharmaceutical industry, particularly in the manufacture of vaccines.”

Sun is now tapping into the demand and is working on a clinical trial in India of an antiviral drug called Molnupiravir for Covid-19 treatment in the country.

Serum Institute of India, the world's largest manufacturer of vaccines, is making the Oxford-AstraZeneca Covid-19 jab locally while Hyderabad-based Bharat Biotech is producing a homegrown coronavirus shot.

Even as it increases capacity, India’s pharmaceutical sector is also facing challenges, including rising expenses as “the cost of raw materials, freight charges, and operational costs have skyrocketed as a result of lockdowns, resulting in a rise in the cost of inputs”, Mr Jat says.

There are also other fundamental issues that need to be addressed to allow the sector to achieve its potential, industry insiders say.

These include “a lack of a stable pricing and policy environment ... which has created a vague environment for investments and innovations”, Mr Masurkar says.

“The pharmaceutical industry in India is in need of proper techniques to analyse pricing structures to boost profit margins.”

There also needs to be a greater focus on “managing risks during the drug manufacturing process and quality systems”, he says.

But, overall, the outlook is healthy for India's pharmaceutical industry.

“India has been a consistent supplier of medicines during a very difficult time,” Mr Jain says.

Updated: August 8th 2021, 4:30 AM
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