Today, India has become the largest provider of generic drugs on the global level after supplying more than 50 percent of global demand for various vaccines, 40 percent of generic demand in the US and 25 percent of all medicines in the UK. The pharmaceutical market has become the largest exporter of medication by volume. In terms of market size, the Indian pharma industry is expected to grow over 15 percent per annum during the same period. The market is expected to progress to US$55 billion by 2020, thereby emerging as the sixth-largest pharmaceutical market globally by its size.
But 2019 ended on a sour note for Indian pharmaceutical companies, with the Nifty Pharma index down about 10% so far. When it is compared with the Nifty 50 index has risen about 10%. And, unfortunately, the pharmaceutical firms may not be out of the woods in 2020. The US FDA inspections increased considerably in 2019 and led to the Indian drug makers getting about 23 warning letters. Today, Indian companies account for about one official action-indicated letter. Indian companies account for about one official action-indicated letter for every six inspections that are worrisome.
Most pharma stocks that got observation letters, OAI letters, or warning letters went into a tailspin. As the US FDA inspects over 400 manufacturing plants in the country every two years, the risk of adverse observations remains high.
Here what could be the solution? Its control over costs, with the added element of curtailing capacity expansion. It would boost the return on equity in the long run. Still, some critical risks for domestic pharma could come from issues like NLEM and price controls. In our country, drugs are assumed as expensive, but any move to review costs could severely eat into the margins of pharma companies. The domestic pharma market has been progressing at a rapid pace that aided profitability enhancements. If domestic pricing pressure increases, margins and profitability could be eroded.
A good thing is that the earnings downgrade cycle has moderated. This time, although, the market is factoring in higher potential earnings growth for 2020. Give the heavy and looming overhangs, as high earnings growth could be at a risk. If the actual progress rate contracts, the Indian pharmaceutical industry of India could still be in for topsy-turvy 2020.
Road Ahead
Medicine spending of the country is projected to grow 9-12 percent in the next five years, leading India to become one of the top 10 countries in terms of medical spending.
Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards the chronic therapies for diseases like cardiovascular, anti-diabetes, anti-depressants and anti-cancers, which are on the rise. The government has taken steps to cut costs and reduce the expenses of healthcare. Speedy introduction of generic drugs in the market has remained in focus and is expected to support the Indian pharmaceutical companies to gain profit.
