Sweet spot for pharma sector comes with greater competition
The pharma sector narrative changed drastically between February and March. In February, the concern was all about API supplies getting disrupted. By mid March, the narrative had changed to how pharma sector can capitalize on the opportunities presented by COVID-19.
Look at the stock prices
If you take a casual look at the NSE Pharma index, the recovery has been literally V-Shaped since the middle of March 2020. Since mid March, the pharma stocks have gained anywhere between 40% and 60% and more than recovered the losses since January. One can argue that pharma stocks are still way below the 2015 valuations but that is off the point. What exactly is driving this interest in pharma stocks?
FDA goes easy on India
The US Food and Drug Administration (FDA) suddenly appear to be going easy on Indian pharma companies. There seems to be a sense of urgency within the FDA to approve manufacture of critical generics, at least as long as the COVID-19 emergency is on. Even the Halol plant of Sun Pharma, that has long been a bone of contention with the FDA, has got clearance from regulators. While the FDA has clarified that such permissions are temporary, this is likely to last long enough till the lag effect of the COVID-19 remains an overhang. That changes the pharma narrative.
Generics hold the key
One thing the COVID-19 has underlined is the importance of primary healthcare and the availability of cheap drugs. That is only possible if you have generics manufacturers with global scale and the capacity to ramp up production. India is one of the few countries in the world that offers these capabilities in good measure. If the world has to get out of such pandemics now and in the future too, then it is impossible without the active support of generics. India is one of the few that offers these benefits on a platter to the global economy. That is hard to ignore. The real shift would be visible when the dust of the COVID-19 settles and the US sits down to rethink its pharma policy. We could see a new global shift towards generics with the checks and balances. The dividends for Indian pharma could be huge.
Beware the competition
This generics opportunity for Indian pharma will not come without its risks. Government will be forced to open up the Indian pharma market and lower duties will expose Indian pharma units to global competition. Already, generics makers from Israel, Vietnam and Turkey are giving India a tough run. The Indian pharma model needs to re-invent itself to factor greater competition in the global marketplace and also in India. That could really distinguish the men from the boys in Indian pharma!
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