The new norm will be supply chain stress tests to build resilience
The COVID-19 crisis has thrown up unprecedented challenges and opportunities for the Indian pharma sector. Dr Arun Singh, Chief Economist at Dun and Bradstreet India, shares his insights on how this industry will have to reorient itself as the world wakes up to a new normal, in interaction with Lakshmipriya Nair
What short-term and long-term economic shifts do you anticipate in the pharma sector after COVID-19 crisis subsides, globally and in India?
The latent costs of reliance on a single destination sourcing have been exposed by COVID-19. In the short-term as companies scramble to identify alternate vendors, the trend of multi-sourcing will increase rapidly. In the long-term, we envisage an overhaul of the global supply chain. Countries will make it a priority to secure their national interest. Economic policies will be rolled out to increase domestic manufacturing and nearshoring of critical goods. These trends will hold true for both India and other countries.
PM Modi has given a call for Atma Nirbhar Bharat. But, in the pharma sector, the need for self-reliance has already been emphasised. How can India Pharma Inc reallocate their resources and funds to make this a reality?
India is the largest supplier of generic medicines globally and its pharmaceutical market is the third-largest in terms of volume. However, India imports about 85 per cent of its total requirement of active pharma ingredients (APIs) from China. This is one of the key areas where we need to improve our domestic capabilities. The government is committed to ensuring the production of critical drugs and medical equipment within the country and has approved schemes worth Rs 100 billion and Rs 40 billion respectively. Indian pharma companies should make use of these approved schemes to develop a strong domestic network.
What are the strategies that the sector needs to adopt, in terms of policy reforms and business plans, to grow and thrive in these times of great volatility?
Companies need to stress test their supply chain based on various scenarios of containment such as slow burn, the second wave of infections etc. as a part of their business continuity planning. They also have to create a communication plan and make frequent connect with their suppliers and contract manufacturers regarding their capabilities to fulfil orders. Companies can further look to collaborate with each other, pool their manufacturing capacities to meet domestic and global demand or even form joint ventures to expedite the containment measures.
How can companies in this sector build more immunity from global crises? What can be done to be more resilient?
Every crisis in the past has offered an opportunity to improve operational efficiency and resilience of companies. The Great Recession led to stringent regulation of financial institutions across the globe. To improve resilience, financial institutions have been required to stress test their balance sheet. The surge in cyber-attacks over the last decade has led to increasing adoption of penetration tests to evaluate the security system of companies. Likewise, in the post-COVID-19 era, the new norm will be supply chain stress tests to build resilience.
Post-COVID-19, what more can the government do to incentivise pharma manufacturing in India?
The government is cognizant about the importance and potential of this sector. While many schemes have already been announced, these initiatives need to be followed through to completion. In addition, the government should focus on two areas. A number of patents will expire in the coming years resulting in an increased demand for generic drugs. This opens up investment opportunities for pharmaceutical companies. Hence the government should improve the investment climate and strengthen the pricing policy. Second, R&D of new products has to be incentivised.
Which areas can emerge as new areas of strengths for India Pharma Inc? Opportunities/potential that it hasn’t leveraged yet?
India has a huge export potential gap for both medicaments and medical devices. For instance, the International Trade Centre estimates an untapped potential of $7.3 billion for medicaments consisting of mixed or unmixed products, for retail sale, alone. Export potential can be realised by two means. One, an intensive margin which is exporting existing products to our existing trade partners. Two, an extensive margin which is exporting new products or to new trade partners. To realise intensive margin companies need to climb up the quality ladder. Extensive margin can be gained by investing in R&D.
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