India has a rapidly growing pharmaceutical industry, it presently ranks 3rd in the Asia-Pacific region amongst the top 12 biotech destinations in the world. While the sector for a prolonged period, operated under the umbrella of manufacturing sector or ‘other industries’ and was even considered a standalone facility, it has achieved many milestones in the last two decades.
The significance of the country’s healthcare and pharma sector received stronger cognition with the COVID-19 outbreak. Spurred by the need for a vaccine drive to alleviate the crisis, the R&D and manufacturing of drugs and medicines saw accelerated momentum. Quite opportunely, India was fortuitously placed, owing to its inherent strength in the production of vaccines and generic drugs, catering to nearly 62% of global vaccine demand. Thus, not surprisingly, India became an integral part of the global ecosystem that addresses the urgent need for vaccines and treatments.
Today, the life sciences sector in India is at an interesting juncture. Right from the formation of the first biotech policies at a state level, to conceptualizing India’s first organized life sciences cluster, its growth has been buoyed by various factors.
Driving factors of the life science sector:
- Growing pharma sector– India’s domestic pharma market is expected to grow manifold in the next decade. As per the Economic survey 2021, it is likely to reach USD 65 billion by 2024, while another research pegs its medium-term growth to USD 120-130 billion, by 2030. This significant growth expected in the coming years bodes well for the life sciences sector in the country.
- Strong workforce – India has the second-largest share of pharmaceutical and biotech workforce in the world, which is one of the key factors for many companies to set up their R&D and manufacturing units here. The cost of manufacturing in India is approximately 33% lower when compared with that of the US, as per industry analysis. The country offers relatively lower manpower costs and a large skilled talent pool, thereby harbouring immense potential to attract companies to set up their R&D units.
- Increasing venture capital investment – India currently holds 4th position in attracting VC funding to the technological–health sector, with an investment of USD 4.4 billion recorded during the period 2016-2021, of which 43% was invested in 2021 alone. This can be attributed to investors having recognised the fact that investing in the sector at this stage will provide early-mover advantages, given the growth prospects envisaged in the coming years. Noteworthy mention includes Actis – a global investor in sustainable infrastructure, planning to invest USD 700 million to build and develop assets under its platform focused on providing real estate to tenants in the life sciences and related sectors in India. Meanwhile, Bharat Serums and Vaccine Limited has announced an investment of USD 25.7 million for manufacturing state-of-the-art injectables and vaccines. Another player Ferring Pharma plans to invest USD 64.4 million over the next 2–3 years to set up a facility to manufacture its product Pentasa.
- Government initiatives – The pandemic has been a major driver for increased government funding, to the health and life sciences sector, as depicted through the consistent investment efforts. Besides the government announcing incentivisation plans, in 2020, of at least USD 4.9 million over a period of five years to boost and incentivise investments in manufacturing of medical devices. Infact the Union Budget 2022-23 allocated USD 11.3 billion for the pharmaceutical and healthcare sector. Additionally, the Department of Biotechnology was allotted USD 343.56 million for developing basic infrastructure, genetic engineering, technologies and bioinformatics, agriculture biotechnology, and training skilled professionals. To strengthen the Pharmaceutical Industry (SPI) Scheme, a financial outlay of USD 665.5 million for the period FY 21-22 to FY 25-26 was also announced. These initiatives are expected to strengthen the life sciences sector substantially in the next decade.
Opportunities in the wings for real estate sector: Outlook
Today, with strategic importance on the life sciences sector owing to several global and local factors, the sector is not only poised for significant growth but also set to drive demand for real estate with the development of R&D centres. The growth and evolution of the life sciences sector relying greatly on R&D facilities, underlines the importance of investments in such projects and we expect a higher quantum of investment in the sector in the forthcoming period. While life sciences real estate labs require specific space with higher floor load capacity and the infrastructure usually costing more than traditional office space, the advent of more real estate developers and investors into the life sciences R&D arena would serve to ease such challenges.
Thus, going forward, growing demand for the life sciences sector clubbed with a dearth of ready organised space will present immense opportunity for real estate developers to come up with core assets suited for such requirements, leading the sector to emerge as a viable alternative asset class. In the backdrop of an abundant high-quality talent pool, this alternative asset class is likely to drive higher rentals in the initial period, offering attractive returns to the interested investors.