COVID-19 brought positives for pharma industry

Antony Prashant, Partner, Deloitte India, sheds light on the various aspects that led to the growth of the Indian pharma industry during the COVID-19 pandemic and also mentions the recommendations for the upcoming 2022 budget

In India, the COVID-19 pandemic initially had a disruptive impact on the pharma sector. While drug sales slowed in early 2020, sales in the dominant retail sector picked up in the second half of the year, supported by an increased uptake of acute products such as anti-viral and anti-bacterial drugs during the peak infection waves. In FY21, while cardiac and neuro/CNS indicated double-digit growth, chronic therapies indicated marginally slower growth of eight per cent.

On the manufacturing front, there were disruptions in the supply chains, especially for Active Pharmaceutical Ingredient (API)/Key Starting Material (KSM) imports from China. Imports from China account for nearly 65-70 per cent of the total pharma raw material imports, with the cost of key ingredients rising by 50-60 per cent. This was a key factor in the government introducing schemes targetted towards the pharmaceutical industry including promotion of bulk drug parks and the first and second PLI schemes.

The promotion of bulk drug parks scheme will finance common infrastructure facilities in three bulk drug parks with a financial outlay of Rs 3,000 crores over five years from FY 2020-21 to FY 2024-25 lowering the manufacturing cost of bulk drugs, among others.

The first PLI scheme is expected to promote domestic manufacturing of 53 critical KSMs/Drug Intermediates and APIs in the country with a financial outlay of Rs 6,940 crores. This PLI was expanded into a second PLI scheme with a further outlay of Rs 15,000 crores, and aims at promoting the high-value diversification of Indian pharma manufacturing.

During the COVID-19 pandemic, the government reduced the GST rate on APIs from 18 per cent to 12 per cent. However, similar reduction was not provided in the intermediary raw materials and solvents used by the API manufacturers. This may lead to an inverted duty structure in the API industry leading to accumulation of input tax credit and, in turn, will hamper the working capital flow in the industry. Accordingly, it is recommended to bring such intermediary raw materials and solvents in the reduced GST bracket.

It would be amiss not to mention the role of the medical devices industry as it ensured business continuity and expediting deliveries of critical equipment during the pandemic. With unparalleled demand for products like diagnostic tests, Personal Protective Equipment (PPE), masks, gloves, oxygen canisters, etc, COVID led the medical devices industry to quickly recalibrate across the value chain and serve critical needs. Some such developments were supported by grants from the National Science and Technology Entrepreneurship Development Board (NSTEDB) under the Department of Science and Technology (DST).

From a market access perspective, given the lockdowns, the traditional sales model of pharma companies was disrupted. Physical visits to doctors were reduced, many companies adopted only one initial visit followed up by virtual and telecalls. This led to pharma companies rapidly embracing digital technologies for physician engagement, demand sensing, product availability and creating flexible supply chains. Greater adoption of such technology interventions is expected to continue into 2022.

Overall, the world has taken note of India’s quick response to the global crisis. The Indian pharma industry is being seen as a preferred global supplier of innovative medicines and novel ingredients in the post-pandemic world. To make the most of this opportunity, the government should introduce measures to enable the industry to move upwards in the value chain towards innovative products.

Building an ecosystem for pharma Research and Development (R&D) and increasing supply chain robustness will not only harness the available talent in India, but will also help in the economic growth of the country.

Antony Prashantbudget 2022Deloittepharma budget recommendationpharma industry
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