Markets Shrug Off Middle East Tensions
Indian markets continue to show resilience against all the Middle-East tensions.
On Episode 615 of The Core Report, financial journalist Govindraj Ethiraj talks to Sheetal Sapale, Vice President (Commercial) at Pharmarack. We also feature an excerpt from our upcoming weekend edition interview with Mark Kaplan, Co-Founder and Partner at WholeChain, part of our “Build on Blockchain” Series.
SHOW NOTES
(00:00) Stories of the Day
(01:00) Markets shrug off middle east tensions, for now
(04:33) Oil prices fall sharply as markets breathe easy
(05:43) Tata Motors says no rare earths problem for now
(07:41) More action in India’s weight loss drug market as more MNCs muscle in
(08:34) Understanding drug MNC strategy in India and what we can learn from it
(21:48) Building traceability for shrimp farmers in India exporting to the west
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Wednesday, the 25th of June, and this is Govindraj Ethiraj broadcasting and streaming weekdays, usually from Mumbai, India's financial capital, but in transit right now.
Our top stories and themes,
The stock markets shrug off Middle East tensions for now.
Oil prices fall sharply as markets breathe easy, but the cost of transportation rises.
More action in India's weight loss drug market as multinationals muscle in.
Tata Motors says no rare earth problem for now.
Understanding drug multinational strategy in India, what we and other industries can learn from it.
And building traceability for shrimp farmers in India, exporting to the West.
New Directions
Before we come to the markets, a ceasefire between Israel and Iran is already falling apart within hours of US President Donald Trump announcing it.
He expressed particular frustration with Israel, which had announced major new strikes on Tehran. Israel, he said, did not drop those bombs. If you do, it's a major violation.
Bring your pilots home now. He wrote on Truth Social, that's his social media company and account, shortly after he left the White House for a trip to a NATO summit in The Hague in the Netherlands. It does appear that most of the impact of the goings on in the Middle East will be second order and take time to play out, whether in overall risk premium on oil prices, availability of oil, or more critically, new geopolitical shifts.
But the markets are reacting to the here and now and more out of relief at something worse not happening, as opposed to something bad happening, which clearly is. Meanwhile, airlines, including Air India and Indigo, which rushed to cancel flights flying West, including the Middle East yesterday, or rather day before, are now resuming some operations. National carriers and the Gulf also resumed flights during the night, with operations restarting at some of the world's busiest airports, including Doha and Dubai, which had closed briefly in preparation for Iran's missile strike on Monday at a U.S. airbase in Qatar.
Airports in Bahrain and Kuwait were also operating again on Tuesday, said Bloomberg, though foreign carriers remained cautious, cancelling flights and staying away from a region through which millions of passengers pass every month. Qatar Airways had resumed almost full flights into Tuesday. Now, as disruptions go for Indian travellers, this has been amongst the worst since perhaps COVID-19, particularly for Air India, whose passengers have had to face the double whammy of reduced international flights following the Ahmedabad crash of a Boeing 787 that was going from Ahmedabad to London Gatwick on June 12th, and the Middle East war, and tensions in the last few days with Iran's missile attack against Iraq on Tuesday, as well as, of course, Qatar.
There is nothing to suggest that tensions are, or will ease, basis a deal brokered and announced by the U.S., so we have to wait and watch. Remember, companies like Indigo are also listed on the stock markets. Meanwhile, Indian markets do continue to show resilience against all these changes.
As somewhat expected, the BSE Sensex and Nifty 50 were actually firmer on Tuesday in the morning, but then turned around after reports of the breakdown in the truce, and yet stayed in the positive. So the Sensex hit an intraday high of 83,018 and closed at 82,055. That's up 158 points, up 158 points, I repeat, for Tuesday.
The Nifty 50 was up 72 points at 25,044. Except for Nifty oil and gas and media indices, all other sector indices were up, and gains were led by Nifty PSU Bank and Nifty Metal Indices, according to a Business Standard Report. The broader markets continue to do well, with the Nifty Mid-Cap 100 and Small-Cap 100 indices closing with gains of 0.7% each, respectively.
Elsewhere, oil prices dropped even as stocks rose after the announcement of the truce, which, of course, did not hold for too long. Brent had fallen close to 6% and erased all gains accumulated since the onset of Israel's attacks on Iranian nuclear sites and the ceasefire that was announced, according to Bloomberg, and the benchmark is now around $69, and more on that in a moment. Meanwhile, the rupee had its best day in a month on Tuesday as oil prices fell, the dollar weakened, and Asian currencies also rallied.
The rupee closed at 85 rupees 97 pesos against the US dollar, up 0.9% on the day, its biggest single day rise since May 23rd, according to Reuters.
Oil Prices Are On A Swing
Oil prices are now seesawing, quite wildly, actually, and are currently over $69 a barrel, which makes it quite a roller coaster within days.
It's tough to predict ahead, but the larger bet is, of course, that unless something more drastic happens, Middle East oil is likely to continue flowing, even if not smoothly. Meanwhile, tanker rates have risen, with ship owners demanding bigger fees to call it ports in the Persian Gulf after those strikes by the United States on Iran over the weekend, according to Bloomberg, which also added that the benchmark rate for a supertanker carrying 2 million barrels of crude from the Middle East to China has gone up 12% to about $76,000 a day, the highest since March 2023. Trade rates have also now doubled, adding about $1.4 a barrel to the cost of shipping oil, since the first missiles were fired at Iran, and ship owners are now asking for larger premiums to continue allowing their vessels to sail through the Strait of Hormuz and into the Persian Gulf.
Bloomberg says navies have also cautioned about an elevated risk to shipping in the region, though for now flows appear largely unaffected.
Tata Says Supply Of Rare Earth Is Fine
Tata Motors, which also owns Jaguar Land Rover, said on Tuesday that the rare earth export curbs imposed by China have not caused it to press any panic buttons yet, and that its electric vehicle launches were on track, according to a Reuters report.
China's curbs and rare earth exports have disrupted the global auto industry with several companies warning of a severe supply crunch. Rare earth magnets are used across the board, mostly in motors, but even anti-lock braking sensors. Top Tata Motors officials said that currently, I think there's no panic because we believe the supplies are coming through and there is no production curtailment, and nothing is being planned at this point of time, and that all the electric vehicle launch plans are on track.
Maruti Suzuki, which is India's largest carmaker, has already cut near-term production targets for its electric vehicle eVitara by two-thirds because of rare earth shortages, Reuters reported earlier this month. A Tata Motors official also said that they were looking to see how to reduce the composition of rare earth magnets in their cars and how to completely eliminate them over the longer term. China, as has been pointed out in the past, controls more than 90% of the global processing capacity for magnets, which are used for automobiles, clean energy, and home appliances.
And in April, it issued customs guidelines, which called for companies to obtain import permits from Beijing as part of its retaliation against tariffs in the United States. The problem with these import permits is that they take a long time to execute or drive through what essentially is a bureaucratic process.
More Action In Weight Loss
A month after Eli Lilly's launch of Monjaro, Novo Nordisk officially launched its blockbuster weight loss drug Vigovi on Tuesday as a once-in-a-week injection in India.
India has a potential market of nearly 250 million people fighting generalised obesity and 350 million with abdominal obesity. Novo Nordisk said that Vigovi is prescribed to help manage weight and lower the risk of serious heart-related events in adults who have existing cardiovascular disease and are either overweight or obese. Vigovi is a prescription medicine, so I hope if you encounter it for whatever reason or if you see someone encountering it, you will suggest or tell them that they should be taking a prescription for it.
But it will be available across India to the medical fraternity by the end of June and could be priced between 17,000 to 26,000 rupees depending on the dose.
Decoding Drug Multinationals' India Strategy
With Novo Nordisk and Eli Lilly launching weight loss medicines within months of each other, there is an interesting strategic question at play.
Also remember that Novo Nordisk's oral semaglutide tablet, Ribelsys, was launched in India in January 2022 and is already believed to hold about 65% of the anti-obesity drug market. Now, obesity is a major problem in India, as we've already said, and linked to many other comorbidities as we will also further delve into. Now, this was an area waiting for a solution and came, in this case, from two drug multinationals.
The interesting fact is that multinationals, that's drug multinationals, are now operating in a much smaller corner of the market in India than they were a few years ago. So they've shrunk in absolute sales numbers from about 22% of the Indian pharma market in 2013 to about 15% today, according to figures from industry tracking firm, PharmaRack. So in recent years, multinationals have either exited business or struck joint venture partnerships, even as they have stepped up their presence and play in super speciality businesses.
So the larger, somewhat logical, but yet discussable part of their strategy is identifying disease conditions and working on solutions over the longer term. MNC R&D budgets touch up to 28% of sales, like in the case of giants like Merck, Roche, and close to 25% for companies like AstraZeneca, Johnson & Johnson, Bristol, Myers Squibb, L.I. Lilly, amongst others. So this obviously puts R&D budgets into tens of billions of dollars with an incredibly long pipeline running into more than a decade in most cases.
The payoff is huge, as are the problems addressed, like in this case, weight loss. So what can we take away from the MNC approach to markets in general and specific like India, whether within the pharmaceutical industry or outside? Remember that low R&D spends is a lament and a challenge across Indian industry. I reached out to Sheetal Sabali, Vice President at PharmaRack, who authored a new report called Role of Multinationals in Driving the Growth of the Indian Pharma Market.
And I began by asking her the straight question, why multinationals were standing out in this form?
INTERVIEW TRANSCRIPT
Sheetal Sapale: The big role that multinationals have played in the Indian market is shaping a therapy or shaping treatment protocol for a disease. So they look at disease in a very scientific way, they focus more on the patient journey. It's not that you know I am suffering from a condition like diabetes and that's why I take any OID.
They look at the patient journey or how the disease is progressing for a patient and they identify in which particular stage of the disease a particular medication has to be given and that's a very scientific way of shaping the patient journey within a therapy protocol and this is done in a very good way and that's the reason why MNCs have been able to give targeted therapies. It's not that it's a general therapy for any disease, it's a targeted therapy given for different stages of a disease. That's a very important lesson and learning and that's the reason why you will also see MNCs, they focus on typical segments of a disease.
So segmentation, patient profiling, identifying the right stage in the disease journey is something which they have done really very well.
Govindraj Ethiraj: And what's the best current example of that?
Sheetal Sapale: The best current example would be the diabetes segment and the cardiac segment. Of course this segment is something which is talked about too much in the context of Indian healthcare today but then these are relevant segments because if you look at diabetes, diabetes is a typical condition where the pancreas is not able to produce insulin or less amount of production of insulin happens. This is type 2 diabetes and type 1 diabetes, genetically pancreas is not able to produce insulin.
So type 1 diabetes, the only medicine is insulin injection whereas type 2 diabetes, the traditional sulfonylureas, they help the pancreas to produce insulin but as the medications have to change or the patient upgrades to type 1 diabetes and the only medication there is insulin. Insulin many patients can't afford because they are expensive or some people are scared of the prick and they continue with their sulfonylureas so the quality of life gets compromised. Now these DPP4s or the SGLT tools, the newer OEDs that have been launched in the market, actually take care of this aspect so the patients who would have had to jump to insulin, they have something in between which again comes as an oral anti-diabetic.
This is you know understanding the patient journey, patient disease complications and giving medication in that particular stage. Now what we have seen is after these DPP4s and SGLT tools were launched, things of patent, today almost 35% of the consumption of OEDs is happening, 35% falls in the DPP4 and SGLT2 segment. This also essentially means that 35% of the type 2 diabetes patients have already moved in the advanced stage, not yet to the insulin stage but the advanced stage where sulfonylureas would not work.
So this is a very important understanding and a sort of solution that the MNCs have given for this stage of diabetes as a condition. The second aspect is obesity. Obesity, we consider obesity as a part of life but bringing out that this is a disease that needs treatment is something which has been done very well and obesity treatment that they have come out with is not just you know focussing on weight reduction just by focussing on the diabetes of a patient.
There are 3-4 centres, it is the gastrointestinal segment, the CNS segment and the pancreas part which needs to be taken care of. So this is again shaping the therapy wherein all these aspects need to be considered for weight loss. So this is done very nicely by MNCs and also the third area is the cardiac wherein you know it's like there are many drugs for hypertension, there are many anti-hypertensives but not necessarily very effective in managing the heart problems.
So there are drugs which have come for heart failure therapies. Now besides managing the functioning of the heart, the important aspect that they do is they improve the quality of life, they reduce the rate of hospitalisation. So if you see the cardiac patient, whenever there is an emergency, the patient lands in an ICU, the patient doesn't go to a normal ward.
So the rate of hospitalisation gets reduced, the quality of life gets reduced and all this is very important because today these conditions are seen in much younger populations who really need to be productive for themselves as well as for the economy. So this is something the gaps in the current therapies which the MNCs have addressed very well.
Govindraj Ethiraj: Right but I was looking at the R&D budgets which is usually for some of the top 10 MNCs. Let's say even globally it will be about between 20 and 25 percent of revenue. Now all of that R&D is not happening in India or I mean even if it's happening to some extent in India it is really part of the global chain. So what can Indian companies take away from this because drugs take between 10 and 15 years to you know materialise.
Sheetal Sapale: Yeah so when we talk about R&D investments as we had seen in the presentation that the success rate is just 10 to 15 percent. So you really need to shortlist a lot of entities to arrive at the final entity that's going to work after 10 to 15 years. So understanding the disease progression, how the disease is going to progress after 10 to 15 years and what is the type of medication that would be required is an intense scientific study, a demographic study, the scientific study, the predictive analytics study that Indian companies will definitely have to do to arrive at the final molecule that needs to be launched to meet the disease requirements. Probably how the disease is going to evolve 10 to 15 years down the line. So it's not just investing in R&D for a molecule but investing in the study of how the disease is going to progress for the general population or if the companies plan to go globally for the global population over a period of time.
Govindraj Ethiraj: So two questions. One is what are the kind of conditions you see multinational pharmaceutical companies who are also present in India working on right now for which results might be seen or products might be seen in a couple of years to do with India that is or where India could benefit. The second is the same question in a way for Indian companies.
I mean do you see some Indian companies working on you know all these aspects that you described you know looking at patient journey, evolution of disease and really trying to find solutions which are several years ahead.
Sheetal Sapale: So in India today almost 70 to 75 percent of the disease conditions are connected with cardiovascular diseases, diabetes diseases and obesity and another upcoming or another stronger disease segment is the oncology segment. Even globally a good amount of research is happening in the cardiometabolic conditions, obesity conditions and oncology because these are some of the topmost conditions which are being seen today and which will be seen going forward. Major research is happening in these areas.
Of course there are some other rare diseases as well but then if you see even the Indian companies there are close to more than 6000 biologic research centres in India. They may not be very big but in terms of biologics even India is catching up in terms of producing new products and when it comes to these new therapies biologics really play an important role. So India is definitely gearing towards that.
We may not be on a very fast track but we have initiated research which will be prominent in cardio, diabetes, obesity and oncology.
Govindraj Ethiraj: Correct and where do you see in any of these areas some kind of let's say solutions in the near term as in the question is really if I were to take the top four or five Indian companies including listed companies do you feel that any of them have that kind of pipeline which could produce drugs that are indigenous which could actually solve some of these problems?
Sheetal Sapale: Yeah, if you look at a company like Zydus, their own molecule saroglitazar which is in the cardio-diabetes space has already been launched and saroglitazar is something which Zydus has produced through their own R&D. Not all of the companies have their own R&D, 100% R&D segment but many have tied up with a lot of global companies for R&D. So the process has started, not 100% done indigenously but then a partnership with a global partner who is equally good and can guide us to take us to that stage has already started in many of the top Indian players.
Govindraj Ethiraj: So as your last question, so as you now look ahead between let's say the historical and current advantage that many multinationals have in India versus Indian companies. So would you say Indian companies are catching up fast or the distance is still a long way to go? How are you placing it?
Sheetal Sapale: The distance is still a long way to go as far as R&D is concerned because R&D is really not an easy game. Why we may say that now we are entering in several sectors. It is very easy to enter the cardio-diabetes space through a branded gene because it's like we are just launching a proven drug at a lower cost but then creating a market for a disease or a different stage of a disease, it's a very long journey.
It's not a very easy journey. That's the reason why you will see that multinationals usually are present in very limited segments. You will see a multinational which is known to be a cardio company, a diabetes company or onco company whereas Indian companies are present everywhere because our focus is more on the generics and theirs is more on innovation.
So we have a long way to go.
Govindraj Ethiraj: That's something that the data is also showing right. I mean if you take from 2013 till now, the overall contribution of MNCs is actually reduced in the Indian pharmaceutical market for various reasons including patent concerns and so on but equally at the same time they've moved to much specialised and super specialised areas.
Sheetal Sapale: Yes because what happens is the lesser the specialised area, the more is the mass population for consumption of that product and so getting branded generics at an affordable rate gives you an exposure to a larger patient base which is commercially viable. Now if the patient base itself is very small for example for a condition like aplastic anaemia, the patient base is four to seven people per million. So in terms of absolute numbers it becomes just five thousand to eleven thousand people who are suffering from that condition.
Commercially it doesn't become viable to come out with branded generics in that segment. So if the MNCs restrict themselves to the niche areas still they stick to the super speciality guys, the limited set of patients and with their USP of you know scientifically connecting to a disease.
Govindraj Ethiraj: Right Sheetal, thank you so much for joining us.
Sheetal Sapale: Thank you.
Build on Blockchain
Welcome back to your new segment of Build on Blockchain. And today we are tackling a challenge that affects everything from what we eat to what we wear, fragmented supply chains. In sectors like agriculture and retail, tracking where products come from and ensuring they're sourced responsibly is often slow, siloed, and unreliable.
A company like Whole Chain uses blockchain to connect the dots across global supply networks and helps businesses gain real-time visibility and prove the integrity of their products from origin to shelf. And this is something that is also in action in India with the shrimp industry. Joining me now is Mark Kaplan, co-founder of Whole Chain.
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: Mark, thank you so much for joining us here today. So we're going to be talking about what you're doing in terms of traceability in the agriculture and agriculture related or food products supply chain.
So tell us about, before we get into what you're doing and where you're doing it, and that includes India, tell us about what made you enter this particular space of traceability and how did the whole chain develop as an organization and the services that it offers today?
Mark Kaplan: Yeah, so myself and my co-founder Jason Berryhill come from mobile technology backgrounds. So we worked with the Reliance and Airtels of the world beforehand and we collaborated separately. So Jason was in the sustainability office of XL Axiata who owns or owned Idea in India.
And we worked, he worked for them in their Indonesia, in their Indonesia brand. And we partnered up with my old startup to provide mobile services for small scale fishers. And when we implemented that, it made us aware of the conditions and things at the first stages of supply chains.
And that was really the inspiration for HoldChain, which is a blockchain based traceability solution. We work with Algorand as our blockchain partner to collect primary data based on standards like GS1, who promulgates the barcode, to aggregate, to collect primary data across supply chains and facilitate data sharing and more transparency across those supply chains.
Govindraj Ethiraj: Right. And so you chose fisheries because you were already acquainted with that industry or was that a bigger problem to solve?
Mark Kaplan: Well, we call it the Frank Sinatra test of traceability. So if you can do it there, you can do it anywhere. Because the seafood supply chains, whether aquaculture like farm shrimp in India, or wild fisheries like small scale tuna boats in Indonesia or Philippines, are extremely fragmented.
And so achieving the impact opportunity is so significant because such a vast supermajority of producers are small scale. And because of the hyper fragmentation of those supply chains are very challenging to collect primary data from. So we did start there.
It was driven by our familiarity, but it was also because of the ultimate proof of concept that would provide for the system more broadly.
Govindraj Ethiraj: Right. So can you walk us through how it would work? So let's say I'm an exporter.
And since you said you're working in shrimp, I'm assuming it's in the eastern part of India or the east coast of India. And how would it work on a shipment or a set of shipments? Where does it connect to a server or a platform where the buyer can see it?
And how is that chain established?
Mark Kaplan: In the immediate term, we typically so there's this vision of collecting from the individual farmer or fisher. We do do that, but it's in it's I'd say a small subset of the time.
Most of the time we're collecting from a co-op manager, that first receiver or that first buyer in the supply chain who is currently aggregating data for their purchasing. Right. So what we try to do is mirror the current workflows and provide digitalization or automation to facilitate a reduction in the burden of compliance with the market requirements for documentation.
And in doing so, it de-risks the trade through that supply chain. Right. So the way that it works tangibly, typically at the first receiver, they're already digitalized.
So there is typically an unstructured spreadsheet. The whole chain allows for that spreadsheet to just be uploaded to the system. The whole chain then structures that spreadsheet according to global dialogue on seafood traceability data standards.
And then we're able to then work with their next receiver, which would be like an exporter or a packer or depending on the, you know, it could be a bulk packer or it could be a repacker who's putting it into individual retail units. But either way, we create a digital twin of that product. And then the whole chain then follows the movement of goods through transfers, transformations and other events pursuant to the GS1 standard.
Right. So it's standardized critical tracking events. And then we establish segment specific key data elements according to that, the details of that particular supply chain.
Govindraj Ethiraj: Right. And how are you seeing the India market and where do you see opportunity and maybe what are the areas you feel when you talk to buyers, for example, where you feel there could be or there ought to be quicker adoption of something like this?
Mark Kaplan: So I think India, particularly just given the lack of visibility in some of the key commodity categories, shrimp being an example, I think India would have a massive trade opportunity to establish some national policies on traceability. Again, as a leadership example and the government doing it themselves and providing some support to further digitalize the community, an opportunity would be between the Ministry of Agriculture and Fisheries and the telecoms industry to provide mobile services to those small scale producers. That would quickly accelerate adoption into digitalization that could then feed into a more mature, you know, food, digital food system.
I think that would be an incredible opportunity for India. And I think it would also address perceptions that have been well documented in the shrimp industry there. It would provide greater assurances on the readiness to comply with corporate sustainability policies in the more value added markets.
