A New Dawn on the Horizon For Indian Pharma Stocks
Kotak Insights | Date 24/08/2024
Ever since I started wearing an Apple Watch about a year ago, I have become more attuned to the various health metrics it tracks.
How many steps was I taking per day?
What was my resting heart rate?
How many hours a night did I sleep?
How did my heart rate variability change over time?
This newfound awareness made me realise how much technology can influence our understanding of personal health.
I'm assuming that I’m not the only one experiencing this switch.
As more people become engaged with their own health data, it’s clear that the demand for personalised healthcare is on the rise.
This trend has significant implications for the pharmaceutical sector, driving innovation in areas such as precision medicine, digital therapeutics, and patient-centred care.
You see, healthcare impacts everything and everyone, regardless of their economic or social status.
Take Covid-19 for example. It starkly highlighted how robust healthcare systems can stabilise economies while inadequate infrastructure can bring them to a standstill.
As things are in 2024, the prospects of the Indian pharma sector look really good, all thanks to two big changes that have happened recently.
With a population exceeding 1.4 billion, India isn't just a vast market within the global healthcare landscape. India's healthcare system is increasingly poised to cater to the needs of an ageing and affluent global population.
The Growth Pill for Indian Pharma
As India aspires to become a global pharma leader, just offering cheaper medicines cannot be the only solution.
Enter the US Biosecure Act!
This Act is designed to safeguard vital US biopharma research by limiting state funding to American entities that engage with suppliers from certain countries that pose national security risks (think China and Russia).
While this Act has still not been enacted, if it does, it will restrict technology transfers to these countries’ firms.
You see, the US pharmaceutical industry is heavily dependent on China for outsourced research and development, as well as contract manufacturing. However, rising tensions between the US and China have underscored the risks of relying so heavily on China for such a crucial sector. This is where the Biosecure Act comes into play.
Because of China’s loss, India is becoming a compelling option for major pharmaceutical companies in the US.
US Drug Shortage
On top of the Biosecure Act, another factor impacting the Indian pharma sector is the drug shortage in the US.
In fact, the US has seen very little innovation and large outcomes in its healthcare ecosystem, which explains why American healthcare is worse than many other places around the world.
The persistent drug shortage has had serious consequences for patients, leading to higher costs and delays in receiving necessary care.
Enter India.
The country has consistently risen to the occasion when the world needed support. During the COVID-19 pandemic, Indian pharmaceutical companies delivered over 298 million vaccines to 100 countries through the Vaccine Maitri initiative.
Growing Exports
The third and final factor that’s come into play to support the pharma sector is growing exports.
One of India’s greatest strengths lies in its ability to export generic medicines to countries in search of cost-effective healthcare solutions.
Indian pharmaceutical companies command a significant portion of the global export market. These medicines are produced, researched, and tested at a fraction of the cost, making them highly affordable. India's contribution has been crucial in reducing healthcare expenses in developed nations like the US and the UK.
In FY24, India’s drugs and pharmaceuticals exports increased 9.7% year-on-year to US$ 27.9 billion.
The government has even rolled out 2 production-linked incentive (PLI) schemes to promote domestic manufacturing of key pharmaceutical ingredients and generic medicines.
With exports on a steady rise and all other factors coming into play, the stage is set for pharma companies.
Indian Pharma Companies to Look Out For
Companies supplying to the US market should be on your watchlist as they could perform better on account of increased exports, consistent performance in international trade, and increased production of drugs.
However, they should have compliant facilities and track record, a focus on R&D, strong relations with US-based clients, and decent exposure to the business from the US.
Some top companies that export to the US include Sun Pharma, Aurobindo Pharma, Suven Pharma, Syngene International, Biocon, and Gland Pharma.
Other potential beneficiaries could be Piramal Pharma, Laurus Labs, Alkem Labs, Neuland Laboratories, Shilpa Medicare, Cipla and Vimta Labs.
Final Words…
India's pharma sector aspires to reach the milestones of US$130 billion by 2030 and US$ 450 billion by 2047. This looks achievable from here on, but some regulatory and pricing pressures could prove as roadblocks along the way.
On top of that, the US health regulator – USFDA – might just take it up a notch with its inspections. This has remained the trend post-pandemic.
Several warning letters and import alerts have resulted in delays in product launches, translating into supply penalties and significant costs for remedial measures.
Moreover, geopolitical tensions and possible changes in government policies could significantly impact the future trajectory.
Thorough research and careful analysis are crucial for investors. By examining individual companies' strategies, risk factors, and financial stability, investors can make well-informed choices and position themselves to capitalise on the revival of the Indian pharmaceutical sector.
What do you think, dear reader? Is the Indian pharma sector all set to re-rate and chart its growth trajectory soon?
Happy Learning!
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Sources and References:
Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
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