The Indian Pharma Industry – A Defensive Bet


Expanding Margins to become a Premium Industry

17What is the position of the Indian Pharmaceutical Industry? Is it the right time to invest in this industry? These and other questions need an urgent answer to make strategic decisions regarding investment plans. On rationale thinking and analysis, it seems to be quite a reasonable bet to invest in the Indian Pharma Industry. One significant basis for such a view would be that the pharmaceutical companies are very well placed to grab the Generic opportunities in the coming years. Generics are products that are low cost versions of any branded drug, having the same potency or effect as the original branded drug. Indian pharma companies have developed a niche in this type of reverse engineering for producing generics and can effectively provide generic versions of drugs that are more affordable. The chemistry and manufacturing skills of the industry make it poised to take advantage of such an opportunity. In India, major pharma companies are steadily shifting in the region of the high margin sectors. There are several products that are waiting to be launched towards such high margin sectors and this will lead to an increase in the investments by these companies.

Their investments so far have been done with rational planning, as the companies have been making acquisitions in a rather conservative fashion. Today, they need to move forward and increase their margins. This can be achieved by enhancing the targeted segments, offering improved products and strategies in order to sustain the industry as a premium investment attraction.

Business Scenario benefitting Indian Pharma

12Additional reasons for the Indian pharma benefitting from the present scenario are that the international companies are under greater stress related to expiry of patents and the imposing of stricter regulations. Indian pharma companies can derive advantage from this as the business gets diverted to newer markets.

It is considered that investments in the Indian Pharma is a good and reasonable bet that could pay off dividends, as the global business environment is favorable to them. It is suggested that investment in pharma companies could be based on a selective choice, concentrating or favoring investments in those companies that can take advantage of the patent expiry situation in the US. It would be a good bet to invest in pharma companies that have a strong fundamental business and dependable finances along with good growth prospects.

An Upbeat Mood on Investing

investment-tips-300x300Recent value researches based on Nifty and BSE have shown that the Indian Pharmaceutical sector has performed better than other sectors. Investors seem to be in an upbeat mood regarding this sector on several counts. Analysts base their arguments on factors such as, the Eurozone is facing a period of uncertainty and as for the scenario in India, and monsoon has not been up to expectations. Hence, they claim that the increasing global M&A deals taking place in the pharma sector is leading to an increase in the valuation of this sector. Pharma companies are continuing to enjoy a good performance both in the local and the overseas markets and this is in spite of the competition prevailing abroad. This can be seen by the fact that India has more than hundred facilities that are approved by the US FDA outside the US. There is also positive growth in sectors, such as CVS and diabetology, largely due to the lifestyle patterns of the city dwellers. It is, therefore, argued that investors would be making a wise bet by having an exposure to the pharma sector in their portfolio.

Optimum Time for an Investment Stand

The market size of the pharma industry has become twice its size from 2005 with more than ten thousand markets in the world, both listed and unlisted. The major portion of the turnover comes from US exports with the rest coming from domestic sales in India as well as other countries, such as Germany, Austria and also Russia. Moreover, it has been predicted that it will establish itself among the top ten markets of the world, already being the fourth largest market with regard to the volume. It is also expected that the market for chronic segment will grow much faster. This augurs well for investment, as the chronic segment ensures that there is a regular consumption of the products.

Increasing Growth Opportunities – Potential Drivers

8Investing in the pharma industry can also be considered a defensive bet, as the sector witnesses increasing growth opportunities in the next few years. There are many drugs that are facing expiries of their patents in the US. These provide generic opportunities to pharma segments in India, as the US companies whose patents are expiring are making attempts for establishing joint ventures with generic companies in India. The entry barriers are also very little, especially in case of markets in the US and the UK, as they are unbranded in nature. The tender system is in operation in these markets and it is comparatively easy to enter the markets.

Additionally, many multinational branded companies dealing in drugs are seeing better growth prospects in the emerging markets. They have started showing interest in generic companies in several countries, including India. Pharmaceutical companies that have an established portfolio of products and good sales network stand to gain, as these big multinational players will look to them for acquisitions. Another potential driver for the pharmaceutical market is the production of biosimilars. These are biopharmaceuticals that mimic natural proteins that are present in the human body. The generic pharma sector can be greatly driven by the production of such biosimilars, especially when the patents for the biologics expire among their rivals. Regulatory reforms in the US and the UK also seem to be emerging.

Expecting a Robust Growth

pills and pill bottlesThe bottom line is that the Pharma sector in India seems to show good prospects of growth during the next few years, with increase in exports on account of the patent cliff and also due to emerging markets. The domestic formulations are also growing steadily and the big multinational companies have started recognizing the abilities of the Indian pharma companies, leading to several important acquisitions, tie ups and deals relating to specific products during the past few years.

Thus, we can conclude that the growth pattern of the Indian Pharma sector is slowly moving from a defensive position to one of growth, showing green prospects for investment.

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