COVID-19 Impact on Indian Pharmaceutical Industry
Introduction:
Covid-19 known as Novel Coronavirus has brought a tactical shift in businesses across the world. Indian Pharma Industry is no exception to forced strategic shifts. Indian Pharmaceutical industry has recorded significant progress in the export of antibiotics to the world. Though industry also suffered transient setbacks from US regulatory inspections over denial of US FDA Approvals & few law-suits, few companies have been exceptionally well with improvised quality controls & innovative products. Let’s delve deep into exploring how Covid-19 has marked its footprints on the Indian Pharmaceutical Industry.
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COVID-19 Positive Impact on Indian Pharmaceutical Industry:
India witnessed a growing interest in Telemedicine Industry even in Pre-Covid-19 times. Covid-19 imposed mandatory travel restrictions across the state & local borders & people were fearful to visit medical practitioners due to fear of contracting coronavirus infection. In Chaos, the Telemedicine industry recorded huge spikes in demand for consultation from medical practitioners. Ministry of Health & Family Welfare in collaboration with NITI Aayog & Board of Governors-Medical Council of India issued regulatory guidelines making the telemedicine industry register a spurt by clearing a regulatory path in advising medicines through telephonic or video call consultations. As we can see in the following chart, the industry seems well poised to take strategic advantage in the health tech market.
Acceleration to Digitization & Adoption of Artificial Intelligence & subsets:
While we are absolutely aware of the fact that Digitization & Artificial Intelligence has gained prominence much before Covid-19, this crisis has accelerated a vital push for quicker adoption. Artificial Intelligence & its subsets help on many fronts which are but not limited to- discovery of new drug molecules, make meaningful sense to clinical data & studies, find new medicinal products for suppression of symptoms/symptomatic cure of irreversible diseases. AI provides automation support to supply chain & customer engagements. Covid-19 has helped gain immediate push for these initiatives for the creation of a healthy ecosystem & gain momentum to multi-billion dollar industry for medical tourism.
COVID-19 Negative Impact on Indian Pharmaceutical Industry:
Dependency on China for APIs & KSM:
India imports nearly 60% of Active Pharmaceutical Ingredients (APIs –the essential raw material of the drug that produces desired impacts). Of total import, India relies on China for approximately 60-65% imports given China’s economical pricing & scaled-up production supported by government subsidy & favorable currency movements. China underwent severe lock-down in January-March which halted the supply of APIs & Key Starting Materials (KSMs- building blocks for APIs). It made the entire supply chain vulnerable to potential supply-shock had the lock-down in China extended beyond a period of a couple of months. Such imbalances could potentially raise prices of many medicines.
Reduction in Sales:
Due to lock-down restrictions, many pharmaceutical companies recorded a historic decline in sales. The decline in sales could be attributed to many reasons. All elective surgeries were postponed & only life-threatening clinical treatments materialized for accommodating rising Covid-19 patients. Such postponement & prioritization of clinical treatments plummeted sales of many non-essential drugs. Techno-pharma marketers couldn’t actively promote their products on account of restrictions. Once panic buying of essential drugs subsided, the industry witnessed a decline in sales governed by above-shared factors & restricted labor movements resulting in hampered manufacturing. We can also attribute one of the key reasons for the decline in sales to people staying indoors paving the way to a reduction in respiratory & food-related infections.
The export sector to witness likely brunt of ~ 1 billion USD
Indian pharmaceutical industry thrives from a substantial share of revenues from USA & Eurozone countries. As countries have imposed travel bans, the availability of logistics & non-essential raw materials has taken the brunt affecting export revenues as well. Further, an inspection of facilities of manufacturing & many pending license approvals has been delayed for indefinite times due to travel bans across the world. Hence, pharma companies with significant bases overseas shall take the plunge in revenues which is estimated to be around approximately 1 billion USD (as per media content in the public domain).
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Brief Summary & Likely Probabilities:
- As far as the performance of capital markets is concerned with regards to Indian pharma companies, we believe initial buoyancy in stocks witnessed panic buying in anticipation of lock-down restrictions, uncertain supply outlooks. Once the initial euphoria fades away, sales shall shrink for a quarter (to say the least) on account of availability of fewer workers & fear of contraction of the virus. Indian pharma sector was under-performer relative to other sectors before Covid-19 & initial run-up of stocks might be related to closely catching up fair-values or discount possibilities of companies being beneficiaries of supplying medicinal products which are helpful in the suppression of symptoms/ potentially favorable outlook to fetch contract for the vaccine( if developed). We believe buying in a defensive outlook of the pharma sector may shrink on account of the substantial run-up of stocks.
- Buoyancy in the US Dollar has also been a favorable factor since the pharma sector garners substantial revenue from international markets.
- We suggest keeping an eventful watch on sales of non-essential drugs for assessing how many activities have regained grounds post round of beginning of unlocking economy. Sales data & promotional activities along with the pricing of products shall drive the margins for the future.
- Indian pharma sector can turn crisis into an advantage by exploiting opportunities to produce APIs indigenously & reduce supply-chain dependency & become one of the fastest markets to grow across the globe.
- Adoption of blockchain technology in a broader sense along with quick access to funding shall create a new era of the Indian health care ecosystem. It has to be backed by accelerated decision making on macro levels, regulatory guidance & enlightenment to help implement changes on the ground & leadership should take aggressive initiatives for envisioning beneficial exit from the pandemic era.
Author: Ashutosh Buch
About the Author:
Ashutosh Buch is CFP (FPSB India) & has passed Level-I of CFA Program. His primary interest lies in analyzing investments in primary & secondary markets. At present, he focuses on learning the nuances of financial markets & management consulting. He remains committed to his goal of helping businesses scale up & making them ESG-friendly.
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