Gaurav Garg
Pharma is an underrated sector in India even though the country plays a major role in the supply of vaccines and drugs to the world.
It is estimated that the Indian pharma sector accounts for around 50 percent of vaccine supplies of major countries like the US and the UK.
By 2025, the Indian pharma sector is expected to grow to $100 billion and the medical device market to $25 billion. In FY19, the country’s pharma sector exported around $19.14 billion worth of drugs to the world.
The Nifty Pharma consists of top 10 companies that represent the segment’s performance in the country. These are Aurobindo Pharma, Cadila Healthcare, Biocon, Lupin, Cipla, Glenmark, Dr Reddy's Labs, Sun Pharma, Piramal Enterprises and Divis Labs.
The Indian pharma sector is well-diversified in which large players concentrate on exports while other companies cater to domestic demand, including the newly emerging market that is focused on active pharmaceutical ingredients and biosimilars.
The large players have an advantage of functioning in all the three segments compared to small players. The domestic business has been further divided into three categories-- branded, unbranded and over-the-counter products that are sold directly to the consumers without a prescription.
Domestic companies earn around 80 percent of the business through branded generics, which may see a multi-year growth in the coming decade. Overall, the pharma sector is fundamentally looking strong for the coming five to seven years.
After a tough six years, the pharma sector is performing well and is around 25 percent up while the broader market is down by 20 percent year-to-date.
Factors like earnings up cycle, significant products launches, FDAs clearance for more and more sites and good valuation at the start of the year will add additional benefits to the sector.
The impact of the coronavirus outbreak on the sector is less when compared to segments like aviation and tourism. As the sector comes under essential goods, it is exempt from lockdown restrictions.
One of the rating agencies has said that the Indian pharmaceutical sector is expected to grow at 3 to 5 percent year-on-year in the current financial year.
In the coming year, due to an increase in raw material, logistic and manpower costs, companies may hike prices of non-DPCO (Drug Price Control Order) by up to 7-8 percent as compared to an average hike of 5 percent earlier.
Many Indian companies are working to find a vaccine or a drug for COVID-19 and are in various stages of trials. Many have tied up with foreign institutions to produce millions of vaccine doses in a short period as billions of people eagerly wait for a breakthrough.
Five years is the minimum time it has taken scientists to develop a vaccine. The first case of AIDS was reported in the early 1980s, it took more than a decade to develop a medicine that could stem the progress of the diseases but we still haven’t found a vaccine for it.
Coming to the present scenario, pharma companies have set a target of 12-18 months for a COVID-19 vaccine but is it possible?
The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.
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