On March 11, 2020, the World Health Organisation (WHO) declared the coronavirus, SARS-CoV-2 to be a pandemic. More than a year after the outbreak, over three million people have lost their lives with approximately 152 million cases across the globe. The pandemic has managed to cause a complete upheaval in people’s lifestyle along with businesses running losses and workers losing their jobs. Amidst this scenario, it is the pharmaceutical industry that has taken centre stage in the fight against this menace, assisting world governments in fulfilling their population's needs.
The global pharmaceutical industry in 2019 achieved a market value of approximately $1,217 billion with a compound annual growth rate of 6.7%. This value is expected to decline to $1,209 billion in 2020 owing to the COVID-19 outbreak.
The pharmaceutical (or pharma) industry can be defined as a “complex system of processes, operations, and organisations involved in the discovery, development, and manufacturing of drugs”. Firms functioning in the industry are responsible for research and development (R&D) activities, development and manufacturing of active pharmaceutical ingredients and manufacturing of drugs.
In 2019, Germany occupied the top position in the pharma industry with a 14.5% share in the export of drugs and medicines. It was followed by Switzerland and Netherlands with a share of 12.2% and 7.9% respectively. Among other countries, Denmark, Netherlands and Italy are the fastest growing exporters of drugs and medicines since 2015. However, three countries have witnessed a decline in the exported drugs and medicines sales in the last five years. These are, namely, the United Kingdom (26.7%), Ireland (18.9%) and the United States (6.1%).
In recent years, growth patterns in developed economies have observed a flat trend which has induced firms to shift their focus to emerging markets, thus finding new sources of revenue and profitability. The same has been witnessed for the pharmaceutical industry. The pharmaceutical emerging markets, or 'pharmerging' markets hold the potential of an extraordinary growth story.
In 2016, emerging markets accounted for over 30% of the development in pharma markets. This shift has been attributed to the economic and demographic development in these economies with a rise in health expectancy, access to healthcare services and improved funding for the healthcare sector.
Another major factor is the sharp decline in firms’ revenue as a result of the expiration of patents. This is known as the patent cliff, which is now affecting several branded drugs that have been in the market for years. The shift towards the use of generic drugs worldwide, increasing availability of biosimilar drugs, a significant differential in manufacturing costs and prices, and change in disease patterns in emerging countries are some of the other major reasons for the shift being observed in the pharmaceutical industry. These factors have induced the emerging economies into becoming the key drivers of the global pharmaceutical market.
Among the emerging markets, five countries namely China, Brazil, Russia, India and South Africa are the ones in domination with their role becoming increasingly important in the coming decade.
Pharmaceutical Industry in India
In the last fifty years, India’s pharmaceutical industry has grown by leaps and bounds. From having a 5% share of the total medicine consumption in India in 1969, Indian pharma holds an 85% share of the same in 2020. Today, India is not only able to meet its domestic needs but has also established itself as a leader in the global pharma landscape and is known as the ‘pharmacy of the world’. The industry today is recognised for the quality and cost-effectiveness of its products. Widely known as the ‘archetype of affordable healthcare’, the Indian industry has had a significant contribution towards the improvement of public health outcomes, both within India and across the globe.
With a market size of $41 billion in 2018-19 and a market growth rate of 10-12%, the Indian pharma industry exported $16.3 billion worth of bulk drugs, intermediates, drug formulations, herbal products, surgical equipment and other goods in 2019-20. Particularly, the industry contributes more than 20% by volume to the global generics market and 62% of the global demand for vaccines. Fourteenth largest in the world in terms of value and 3rd largest in terms of volume, the industry is expected to grow to $100 billion by 2025.
Within India, the industry plays an important role in India’s economic growth and is recognised as one of the top sectors attracting foreign direct investment (FDI) and reducing the trade deficit. The sector attracted a total of $16.54 billion worth of FDI inflow between April 2000 and June 2020. The sector’s importance is further underlined due to the amount of trade surplus generated with exports accounting for $20.7 billion and imports at $2.31 billion in the year 2020. The industry generates employment for over 2.7 million people, directly or indirectly.
COVID-19 and Opportunity for India in Post-Pandemic World
The outbreak of the virus has challenged healthcare systems around the globe. From the United States, a country that undertakes the highest expenditure on its healthcare system, to the sophisticated European healthcare systems, each country is struggling to contain the spread. Despite the plethora of measures undertaken by countries, the massive inpouring of coronavirus infected patients has exceeded the existing infrastructure and resources in several countries, with the disease causing huge loss of life and human suffering. Additionally, there is a shortage of essential equipment, medicinal supplies and even medicines. The pandemic has also brought forth the existing inequalities in access to healthcare globally.
Amidst these challenges, the global pharmaceutical markets are facing major discontinuities. For instance, there have been concerns regarding global over-dependence on China for active pharmaceutical ingredients (API), particularly in India, the US and Europe. As a result, in the past few months, several countries have been experiencing disruption in the pharma supply chain. The pandemic has also reinforced issues like re-shoring, nearshoring and shortening supply chains.
The Indian pharmaceutical industry has been a key contributor in improving the healthcare outcomes in the country with the pandemic presenting several opportunities and challenges for the industry. The growing distrust in China comes as an opportunity for India even so the economy will be facing increased competition from countries like Vietnam and Malaysia.
To utilise the post-pandemic potential to the fullest, the industry has to build on its strength along with taking a giant leap towards innovation. The introduction of new capabilities is necessary to bring efficiencies to facilitate the industry to move up the value chain. A two-fold approach can be adopted to achieve this.
First, India needs to explore opportunities in complex generics, biosimilars, vaccines and preventives and other complex products. Having attained leadership in the generic market globally, India now needs to consolidate its position in other markets to move up the value chain. Focusing on complex products for this matter will help to achieve long-term sustained growth for the sector.
These complex generics involve a comparatively more difficult production process, face less competition and involve higher margins. Similarly, biosimilars can play an equally important role in expanding India’s pharma sector. Domestically, India is leading in the world when it comes to launching biosimilars, however, only a few Indian companies are able to infiltrate US and European markets due to the non-alignment of India's regulatory guidelines with the regulations in these markets. In addition to the generics market, India has also established itself as a strong contender in the global vaccines market, with the country supplying 60% of the world's vaccine requirements. The step further is thus to develop new and complex vaccines, especially in times like these.
The second approach should be with respect to innovation. India needs to set up an environment conducive to innovation by bringing together academia, pharma companies, entrepreneurs and medical institutions. A look at the global scenario reveals that there is a concentration of research and development activities in the US and Europe, reflecting their dominance in innovation. India also does not compare well with its counterpart China which has twice the number of R&D sites and innovation centres. Therefore, there exists tremendous scope for India to establish itself as a global innovation hub.
In conclusion, the increasing shift of pharmaceutical firms from western economies to emerging economies presents India with a golden opportunity to enhance its pharma production along with emerging as a strong contender in the R&D sector. Even though the pandemic has resulted in innumerable challenges to the economy and the pharma industry in particular, it has also presented the industry with an opportunity to rise to the occasion and establish itself as a leading global player. Whether the country is able to perform on this front remains to be seen!
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