Problems With Indian Pharmaceutical Sector

Introduction

In this article, we are going to do a detailed analysis of Indian Pharma Sector. What is the current market size of Indian Pharmaceucital sector, what are the types and speciality of drugs manufactured in India and the exports etc. Also lets see what are the problems Pharma sector is currently going through.

India enjoys an important position in the global pharmaceuticals sector. 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.

If everything else is positive, what is the real problem with the Pharma Industry in India?

Detailed Analysis of Indian Pharma Sector

Current Outlook of Pharma Industry – Indian vs Global

  • Size of Indian Pharmaceutical Sector = $50 Billion ie. close to Rs.3.25 Lakh Crore
  • Out of the total market size of $50 Billion, the Export market for Indian Pharma industry is around $17 Billion. In terms of Indian Rupees, it is approximately Rs.1.2 Lakh Crore.
  • As far as the global market is concerned, India manufactures around 20% of the total drugs manufactured all over the world according to the volume (not by size). India stands at 3rd position globally by volume. But, when we consider the ranking in terms of value, Indian Pharmaceutical market is at 10th rank.
  • Overall Global market is more than $1.2 Trillion and currently India is contributing around 3%-4% in the global market. Thus, we can see that there is a big opportunity for India to grow in the overall global footprint.

Then what is the problem with Indian Pharmaceutical Industry?

Problems With Indian Pharmaceutical Sector

  • Pharma sector in India is largely dependent on the Generic drugs. What are the generic drugs?
  • Pharmaceutical companies usually focus on R&D and files the patents for the developed solutions. After filing the patents, the respective company enjoys the production rights of the developed drug/solution for 20 years. No other company can produce the same drug in that 20 years span.
  • But once the duration of 20 years is completed, the patent will get expired and the generic companies comes into the picture. These generic companies can manufacture those drugs at a comparatively much lower costs with a considerably lower profitability. These drugs are known as ‘Generic Drugs’.
  • And the main problem with Pharmaceutical industry in India, that Indian pharma companies mainly focus on manufacturing the generic drugs only. The Indian companies generally don’t allocate/spends much funds for R&D domain as well as generating the Patents etc. This is the general development trend of generic business in Indian pharma companies.

Generic Drug Market

  • India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in UK.
  • Almost 50% of the total $17 Billion exports from India is going to the US market. Total generic drug market of US is around $80 Billion. And India’s contribution by value is almost $8 Billion and 30% by volume in US generic drug market. So we can see the dependency of Indian Pharma sector on the US.

5 Key Challenges for Indian Pharmaceutical Sector

Detailed Analysis of Indian Pharma Sector – 5 Key Challenges
Pressure of USFDA Actions on Indian Pharmaceutical Industry
  • US Health Regulator – US Food and Drug Admiinistration (USFDA) is conducting the inspectaions of manufacturing plants of Pharma sector companies in India.
  • And from last 2-3 years USFDA has given a lot of observations / negative commets in the audit conducted at the Indian Pharmaceutical manufacturing facility. Also, a lot of actions has been taken by USFDA.
  • USFDA will not give the license to the Indian manufacturing facility for the further new production until and unless all its conditions is not fulfilled by these Indian Pharmaceutical companies.
  • Many Indian Pharma companies like Sun Pharma, Lupin, Cipla has faced such problems because of the number of faults found out in the quality checks performed by USFDA.
  • Thus, Indian Pharmaceutical Industry is suffering from this pressure of actions taken by USFDA.
Government’s COntrol on Pricing
  • Government has a lot of focus on Healthcare sector. Pricing control is a very important factor in the process of making of the reforms by the government.
  • The same thing was executed by the government earlier in the Realty sector. These steps are right from government’s point of view. But, from the investors’ point of view, these pricing control majors taken by government may affect adversely to the investors’ profit margins.
  • Government has already priced down the generic drugs and increased the generic drugs’ promotion.
Fake Products
  • In rural sectors, a lot fake products are manufactured by small companies.
  • Or without any inspection, these companies set up their plants to manufacture similar kind of fake drugs by using the same compositions as that of original drug. So, it will create an indirect competition for the main pharma company which results into the reduced sales.
Lack of Human Resource
  • There is a scarcity of trained human resource required by the Pharmaceutical sector in India currently.
  • The quality of Medical Representatives (MRs) of the pharma companies has deteriorated according to the feedbacks given by the doctors as well as professional medical practitioners.
  • Many pharma companies has been employing a cost-cutting strategy for the training given to these MRs. As a result, the quality of human resource in Indian pharma companies is deteriorating and it is affecting directly to the sales numbers of the pharma companies.
Health Insurance Problem – In-Patient & Out-Patient
  • Health insurance policies covers only those medical bills for which hospitalisation of the patient is there.
  • Medical bill’s settlement is being proceeded only for the hospitalised patients, otherwise these health insurance companies don’t execute the settlement of bills for OPDs and other such medical services.It is also one of the key challenge to the pharma sector in India.
  • In future, if such health insurance policies covering full medical bill settlement without hospitalisation come, then it would be beneficial for the Indian Pharma industry.

Conclusion

  • Due to the above 5 key challenges the visibility of earnings or earnings’ growth is not much for Pharma Sector in India.
  • For the same reason, institutional investors are also not that much confident about Pharmaceutical industry and thereby Indian Pharmaceutical Sector.
  • Therefore, retail investors should also avoid pharmaceutical sector in their portfolio until and unless the above challenges/problems are solved.