Healthcare spending is expected to grow at over 6% annually over the next few years and this acceleration is likely to be driven by a variety of factors such as expanding healthcare coverage, growing needs of an ageing population and new treatment methods. Global spending on medicines is likely to grow at around 6% to about US$1.5 trillion by 2023 and this growth will be driven by the launch of new and innovative products in developed markets and by increasing access to medicines in pharmerging markets. Pricing of medicines in any country, including India, is a complex process with involvement of multiple parties. Drug prices are set by the manufacturers after negotiating with payers and taking into consideration the presence of branded drugs as well as generics in that particular segment. Prices are also influenced by how the insurance programmes are designed, i.e., how much of the cost will be borne by the patient, the payer and the government. But of late, the annual increase in drug prices by the manufacturers has become a key talking point among the lawmakers as well as the public. Following the public outcry, many companies have committed to set a cap on their annual price hike at 6% for branded products. Pharmerging markets have been growing rapidly largely driven by higher per capita use of medicines aided by improvement in access to healthcare. Some markets also witnessed growth in sales of new drugs as the ability to pay for medicines improved on the back of strong economic growth. In pharmerging markets, consumers usually pay for medicines directly from their pockets, and hence, the correlation between economic growth and medicine spending is quite strong. India is the largest manufacturer of generic drugs globally. Competitive advantages such as a large pool of scientists and engineers, reasonable cost of production and strong R&D spending by Indian companies have made the country an export hub for the pharmaceutical industry with total pharma exports touching US$16 billion in FY19. India’s domestic spending on medicines stood at US$20 billion and is expected to grow to US$32 billion in the next few years. In order to promote healthcare in India, the government has taken several initiatives and one of the key developments was the introduction of Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (PMJAY) Scheme. Ayushman Bharat is one of the world’s largest funded healthcare programme targeting more than 500 million beneficiaries and should significantly enhance access to medical care across the country. The coronavirus epidemic has added to global concerns over the dependence on China for key starting materials. Of the total import of bulk drugs into India, about 70% is sourced from China while in some cases, dependence is almost 100%. While this concern had came to the fore earlier, the virus outbreak has reignited the debate on reducing reliance on sourcing of materials from China. API manufacturer, Solara Active Pharma Sciences Ltd is one of the world’s largest producers of APIs—ibuprofen, praziquantel and gabapentin and has a niche portfolio of products in therapeutic categories such as chronic kidney disease, anti-inflammatory drugs and central nervous system. Further, the company has forayed into the CRAMS business for which it is setting up a new plant at Vizag which is expected to be commissioned during the next one year. The Solara Active Pharma Sciences stock has run up in the last few weeks to touch the Rs 625 mark on the back of accumulation by portfolio investors. Many fund managers and analysts are bullish on the scrip and expect it to touch Rs 850 in the next one year from a fundamental perspective.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.