This article is based off Bloomberg Intelligence analysis and panel discussions at the virtual Bloomberg India Economic Forum 2020.
Indian pharmaceutical companies offer potentially rich returns to investors as the industry mobilizes its sprawling infrastructure to help in the fight against coronavirus. With the New Delhi government pouring resources into the sector and coordinating what will be one of the largest vaccine production efforts in the world, Indian pharma is a strong buy, said Uday Kotak, Managing Director and Chief Executive Officer of Kotak Mahindra Bank Ltd. “I have found in India that when things look the most challenging, that’s the best time to put your money to work,” Mr. Kotak told this year’s Bloomberg India Economic Forum. “If you make it right, this is as good a time as ever.” India’s pharmaceutical industry is substantial: McKinsey valued it at between $55-$70 billion earlier this year, from $12.6 billion in 2009. The sector benefits from a large pool of low-cost labor, as well as high levels of medical and scientific education and expertise. Companies including Cipla and Cadila Healthcare rank among the world’s largest generic drug manufacturers, and the Serum Institute of India is the biggest vaccine manufacturer, bar none.
Facing challenges
India has been one of the countries worst hit by the pandemic, which as of mid-November had infected 55 million people worldwide and killed at least 1.3 million, according to analysis by Johns Hopkins University of Medicine. Indian casualties are around 130,000 and climbing from almost 9 million infections. India's economy has similarly suffered. A severe lockdown early in the pandemic put millions out of work and is expected to have reduced gross domestic product for the financial year through March by a tenth. India is nevertheless expected to feature heavily in the global rollout of a vaccine to halt the spread of Covid-19. After sinking $1.3 billion into the industry in March, the government is now behind a push to put the industry to work; External Affairs Minister Dr. Subrahmanyam Jaishankar said more investment would be plowed into bringing production capacity up to full strength. Adding to the appeal of India’s pharmaceutical industry is a government that is keen to join the international effort to produce and distribute treatments. The nation has signed up to the COVAX collaborative effort and is already shipping home-grown drugs used to mitigate the effects of Covid-19, such as Remdesivir, to its stricken neighbors, said Kiran Mazumdar-Shaw, the Executive Chair of biotech firm Biocon Limited.
Growing investment
Private funding is already helping to drive India’s own search for a vaccine. Ahmedabad-based Cadila recently said it would ratchet up capacity by 70% as it sought partners to help develop its own candidate. And Bharat Biotech International is also in late-stage development of a vaccine. At the same time, the Pune-based Serum Institute is helping in tests for a candidate under development by Oxford University and AstraZeneca. And Dr. Reddy’s Laboratories plans to distribute the Russian-made “Sputnik-V” vaccine. A successful candidate is seen as valuable by investors not only because it has the ability to alleviate the economic impact of Covid-19, but also because it will almost certainly guarantee huge earnings and prestige for developers. Stocks of drugmakers surged in early November when Switzerland-based Pfizer said a candidate it had created with German startup BioNTech indicated a 90% success rate. It also said doses could be distributed as soon as the first week in December. A week later, U.S. biotech Moderna said initial results suggested its candidate, also an RNA-based treatment, had a similar efficacy. Russian officials made similar claims for the Sputnik-V treatment. India is likely to attract a large share of global capital allocated to drugmakers. Before the pandemic, McKinsey's report identified vaccine-making as one of five targets for investment in India, with the sector forecast to grow by a fifth over the next decade. It’s likely that Covid-19 will have accelerated that growth.
Ample capacity
Challenges still remain. Some of the leading vaccine candidates, such as Pfizer’s, require cold-chain logistics infrastructure that can keep doses at temperatures far lower than India’s supply lines can currently manage at scale. The nation’s hospital and clinic networks are also very patchy and may be unable to cope initially with such a far-reaching domestic vaccination program, according to Biocon’s Kiran Mazumdar-Shaw. Additionally, analysis by Bloomberg Intelligence suggests that the fast-flow of vaccine candidacy approvals could be slowed globally if President-Elect Biden decides to tighten regulations on the pharmaceutical industry in the U.S. Nevertheless, money is being put into upgrading India’s cold-chain capabilities, and the capacity to produce enough vaccine to inoculate all Indians is there, says Mazumdar-Shaw. In a recent report, Credit Suisse said Indian producers could manufacture 2.4 billion doses annually but will only need 1.7 billion domestically. The government experts a third of them to have been given their shots by July and
there is already ample production capacity for vials and syringes, the bank noted. “Vaccine output can be done at scale by spring-summer of 2021,” Mazumdar-Shaw told the forum.
Watch our interview with Dr. Kiran Mazumdar-Shaw, from the Bloomberg India Economic Forum 2020, here.
