Indian Life Sciences Industry – An Overview

The Indian life sciences industry witnessed consistent growth over the last three decades and continues to demonstrate a promising future. After the liberalisation in the 1990s, domestic life sciences companies began expanding their footprint and started focusing on the development of new products and filing of patents. The industry witnessed extensive expansion overseas as well, primarily driven through the pharmaceutical industry.

• Indian pharmaceutical industry in numbers:
• Supplies over 50% of global demand for various vaccines
• Supplies 40% of generic demand in the US
• Supplies 25% of all medicine in the UK
• Accounts for 20% of global exports in generics
• India’s pharmaceutical exports stood at USD 6.7 billion in FY20

Future Bright

Overall, the size of the Indian healthcare sector, one of the fastest-growing sectors, is expected to cross USD 133 billion by 2022. The Indian pharmaceutical sector is expected to grow at a CAGR of 22.4% in the near future, with the export estimates to reach the size of USD 20 billion by 2020. The medical devices market is expected to grow to USD 55 billion by 2020 in India.

Key Components of Indian Life Sciences

The Indian life sciences industry comprises of the following key segments:

Growth Drivers

• Pharmaceuticals
  • Cost Efficiencies (manufacturing and R&D)
  • Skilled manpower
  • Key manufacturing hub for generics
  • Improving government and regulatory policy framework as well as investment environment
  • Increased penetration of diagnostic facilities, chemists, health insurance
• Medical Devices
  • Demographic changes (urbanisation, ageing population, lifestyle changes)
  • Regulatory changes (100% FDI, make in India, patent laws, favourable business environment, price controls)
  • Focus on R&D (dedicated medical device labs & parks, ICMED - indigenous quality assurance system for medical devices)
  • Increased insurance coverage and penetration

• Healthcare
  • Rising income, ageing population, access to better healthcare services
  • Medical tourism
  • Improved healthcare infrastructure, FDI
  • Government healthcare schemes 

Key Risk Issues

As the Indian life sciences industry is entering its next phase of growth, the risks it is exposed to are becoming complex. Let’s assess the three key risk areas of the life sciences industry, namely: product liability and product recall, business interruption and supply chain.

1.       Product Liability & Product Recall

Product Liability would trigger if a defective product caused bodily injury or property damage to a third party. Pharmaceutical product liability defects would be categorised as manufacturing defects, design defects or labelling/failure to warn defects. A product liability case for a life sciences company could involve defectively manufactured drugs or medical devices, design defects with a medical device, inaccurate warning labels or defective marketing of drugs or medical devices and so on.

Product Recall is a growing risk area for life sciences companies. Not only have the recalls increased in quantum, they have also become very complex and have the potential to cause serious financial and reputational loss to pharmaceutical companies. A recall incident would involve removing or recalling the entire contaminated batch of products from the market, re-manufacturing the products to replace the defective batch, potential interruption of business and a loss of profit. Large recall incidents result in liquidated damages, including, but not restricted to, delayed deliveries, loss of market share and loss of reputation.

Insurance Solutions: Comprehensive General Liability Insurance, Products Liability Insurance, Product Recall Insurance, Contaminated Products Insurance.

2.       Business Interruption

In the event of physical damage to an asset of a pharmaceutical manufacturing facility or business operation insured under a policy, there is a likelihood of a disruption of production or business operations, which may result in a loss of revenue and profit. While a property damage policy will cover the physical damage to the asset, it is very important to insure the loss of profit arising out of the temporary shutdown of production or business operations. Even in situations where the business isn’t generating revenue or cash flow, the organisation will still incur fixed costs (or standing charges) to keep the business running. This is where a business interruption policy steps in to prevent the organisation’s potential loss of profit or fixed cost arising as a consequence of an insured loss. The intent of the business interruption policy is to protect the profits and cash flows of the business.

Besides the traditional loss of profit cover, the key forms of Business Interruption that are relevant for life sciences companies are Contingent Business Interruption, Inter-dependent Business Interruption, Non-Damage Business Interruption and Increased & Additional Increased Cost of Working.

Insurance Solutions: Business Interruption, Increased & Additional Increased Cost of Working, Non-Damage Business Interruption.

3.       Supply Chain

As Indian life sciences companies have grown and expanded overseas, their supply chain risks have not only become complex but also very critical. There are risks associated at every stage, starting from the supply of raw materials to all stages of manufacturing, and then to the final packaging and storage of finished products till the delivery to the end customer.

Hence, it has become imperative for life sciences companies to manage supply chain risks effectively. While some losses can be transferred to insurance, there would be consequential risks associated with delayed deliveries and loss of market share, which will lie uninsured on the balance sheet of the organisation. The overseas expansion of Indian life sciences companies has made it necessary for companies to invest in supply chain management solutions to address a wide spectrum of risks associated with different geographies, legs of transit and regulatory requirements.

Insurance Solutions: Marine Cargo Insurance (Open Cover/Open Policy), Marine Sales Turnover Insurance, Marine Stock Throughput Insurance.