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Pharmaceuticals Sector Analysis Report 

[Key Points | Financial Year '19 | Prospects | Sector Do's and dont's]

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  • India enjoys a key position in the global pharmaceutical industry. The country is the world’s largest supplier of generics, accounting for 20% of global exports. It supplies over 50% of global demand for various vaccines and 40% of the demand for generic products in the US. The domestic pharmaceutical market contributes to ~2% of the global industry in value and ~10% in volume terms.
  • The domestic pharmaceutical industry has received foreign direct investment (FDI) worth US$ 16 billion on a cumulative basis, between April 2000 and June 2018.
  • The industry has played a key role in driving better health outcomes across the world through its affordable and high-quality generics drugs. Increased accessibility to affordable drugs has been one of the key enablers for lowering the disease burden in India. India’s per person disease burden measured as Disability Adjusted Life Years (DALYs) dropped by 36% justing for changes in the population age structure.
  • During the year, drug penetration in India increased by 50%. India has now become Polio-free5, as a result of strong collaboration among vaccine manufacturers, healthcare providers, the government and development organisations.
  • The industry has also helped in bringing down the treatment costs of life-threatening diseases such as Chronic Myeloid Leukemia and Hepatitis C, to less than 5% of the original cost.
  • 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. Presently, over 80% of the antiretroviral drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

How to Research the Pharmaceutical Sector (Key Points)

  • Supply
  • Higher for traditional therapeutic segments, this is typical of a developing market. Relatively lower for lifestyle segment.
  • Demand
  • Very high for certain therapeutic segments. Will change as life expectancy, literacy increases.
  • Barriers to entry
  • Distribution network, patents, developing and manufacturing capabilities,
  • Bargaining power of suppliers
  • Varies from market to market For instance, consolidation in US has led to pricing war in generics, In India, distributors are increasingly pushing branded products in a bid to earn higher margins.
  • Bargaining power of buyers
  • High, a fragmented industry has ensured that there is widespread competition in almost all product segments. Currently, the domestic market is also protected by the DPCO.
  • Competition
  • High and fragmented owing to many small players in the industry.

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Financial Year '19

  • The country’s pharmaceutical industry is expected to expand at a CAGR of 22.4% over 2015–20 to reach US$ 55 billion. The pharmaceutical sector was valued at US$ 33 billion in the previous year.
  • India’s pharmaceutical exports stood at US$ 17.27 billion in FY18 and reached US$ 19.14 billion in FY19. Pharmaceutical exports include bulk drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and surgicals.
  • The exports of Indian pharmaceutical industry to the US will get a boost, as branded drugs worth US$ 55 billion will become off-patent during 2018-2019. For the US market, Indian companies are developing niche portfolios in various segments. High margin injectables, dermatology, respiratory, biosimilars, complex generics etc. have become an area of interest. Most of the Indian pharma companies have been working on these. Major companies have increased their R&D spend to build pipeline of niche drugs.
  • The National Health Protection Scheme is largest government funded healthcare programme in the world, which is expected to benefit 100 million poor families in the country by providing a cover of up to Rs 5 lakh (US$ 7,723.2) per family per year for secondary and tertiary care hospitalization. The programme was announced in Union Budget 2018-19.
  • The Indian government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.
  • Exchange Rate Used: INR 1 = US$ 0.0159 as on March 31, 2019.

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Prospects

  • Pharmaceutical spending in developed markets is likely to grow at 2-5% CAGR between 2018-22 compared to 5.8% in the 2013-17 period. While launch of innovative products is likely to drive growth, is expected to be balanced by patent expiries of existing products.
  • Innovation in new drug development, immunotherapy, next generation biotherapeutics, including cell-based gene therapies and digital health tools will gain importance in the future of the healthcare industry.
  • India and Russia are expected to grow faster, in comparison, averaging at 10% in the same time span, while the other pharma emerging markets will average 6-9%.
  • Global population is projected to exceed 9.3 billion by 2050, of which 21% will be accounted for by those aged 60 and above. As individuals become increasingly health conscious and medical science continues to advance, life expectancy will increase. By 2040, Japan, Singapore, Spain and Switzerland are projected to have a life expectancy rate in excess of 85 years, while 59 countries, including China, are expected to surpass a life expectancy of 80 years during that period.
  • Growth in global pharmaceutical spending through 2023 will primarily be driven by developed markets and the accelerated adoption of new innovative products. Spending on medicines in developed markets is estimated to grow at 3-6% CAGR from US$ 800 Billion in 2018 to US$ 990-1,020 Billion in 2023.
  • All developed countries will show moderation in growth through 2023, as compared to the 2014-18 period. Specifically in the US, the positive impact of new specialty launches will be partly moderated by loss of patent protection on older products.

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Related Links for Pharmaceuticals Sector
Quarterly Results | Sector Quote | Over The Years

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