India’s Pharma Industry and Pharmaceutical Insolvency

The Indian pharmaceutical industry is a study in contrasts. While it stands as the world’s third-largest producer by volume rightfully earning the title “Pharmacy of the Developing World” individual companies often struggle behind the scenes. These businesses operate in a high-pressure environment where smart resolution strategies aren’t just an advantage; they are a necessity for survival.

The Unique Pressures of the Pharma System

Unlike other sectors, pharma companies must navigate a rigid landscape:

• Price Controls: The National Pharmaceutical Pricing Authority (NPPA) sets ceiling prices on essential drugs. This protects public health but leaves manufacturers with fixed margins and zero flexibility when raw material costs spike.
• High Compliance Costs: Constant investment is required for GMP certifications, drug licensing, and strict quality standards. For smaller players, these costs eat up a massive portion of operational budgets.
• The Capital Gap: This is a capital-heavy industry with long gestation periods. Between creating formulations and building distribution networks, companies face a “waiting game” for revenue, often managing grueling working capital cycles of 120 to 180 days.

Evolution of Capabilities in Pharmaceutical Insolvency

The way the industry handles financial distress is shifting from “panic mode” to “professional management.” We are seeing five major evolutions in how companies approach pharmaceutical insolvency:

1. Proactive Monitoring Over Reactive Panic

Forward-thinking leaders no longer wait for the bank to call. They watch for early warning signs like rising Days Sales Outstanding (DSO) and short-term debt spikes. By tracking debt-to-equity and current ratios, they act while they still have the power to make choices.

2. Strategic Assessment Over Emergency Liquidation

Instead of selling off assets at a loss, companies are now pausing to evaluate their true business viability. They look at their product portfolio and regulatory standing to decide: Is this a temporary cash flow hiccup or a fundamental business model problem?

3. Using Frameworks as Tools, Not Symbols of Failure

Formal structures like the Insolvency and Bankruptcy Code (IBC) and Corporate Debt Restructuring now function as legitimate business tools. They provide a legal “breathing space” (moratorium) that protects the company from aggressive recovery while management builds a plan.

4. Erasing the Stigma

Promoters are realising that the IBC and CIRP frameworks, when used early, actually protect employment and assets. It’s no longer seen as “giving up” it’s seen as strategic planning to preserve what they’ve built.

5. Prioritising Operational Continuity

In pharma, if the machines stop, the value dies. Manufacturing licenses and GMP validations are tied to active operations. The industry now understands that maintaining production during a restructuring is the only way to keep the business worth saving.

Why Pharma Resolution Is Hard

Managing financial stress in the pharmaceutical sector is far more complicated than in most other industries. The business is tightly regulated, time-sensitive, and highly dependent on trust. When financial trouble arises, several industry-specific hurdles make resolution difficult.

Waiting Too Long

• One of the most common problems is delay. Many promoters believe the situation will improve on its own with the next order, approval, or market cycle. This optimism often results in postponed action. By the time professional help is sought, creditors may have already lost patience, legal notices may have been issued, and negotiation power is significantly reduced. Late action limits options and increases value erosion.

The “License” Trap

• Pharmaceutical companies operate entirely on manufacturing licenses, drug approvals, and quality certifications such as GMP. These approvals require continuous operations and compliance. If manufacturing stops, even briefly, regulators may suspend or cancel licenses. Unlike other industries, pharma businesses cannot simply restart operations later. Once approvals lapse, restarting can take months or years, often destroying the company’s core value.

Personal Risk and Guarantees

• Most pharmaceutical promoters have provided personal guarantees to lenders. The fear of losing personal assets homes, land, or savings often leads to rushed and emotional decisions. In panic, promoters may sell valuable assets at heavily discounted prices or accept unfavorable terms that permanently damage recovery prospects. These decisions, driven by fear rather than strategy, frequently reduce overall outcomes.

Inventory with an Expiry Date

• Pharmaceutical inventory has a limited shelf life. Medicines that remain unsold during prolonged legal or restructuring processes may expire and become completely worthless. Unlike durable assets, expired drugs cannot be recovered or reused. Long delays in resolution therefore directly destroy value, making time a critical factor in pharma restructuring.

Loss of Key People

• Pharmaceutical operations depend heavily on skilled technical professionals, quality heads, and authorised signatories. If these individuals leave during a financial crisis, the company may lose its ability to meet regulatory requirements. This can result in immediate operational disruption and regulatory non-compliance, accelerating business decline.

Loss of Market Trust

• Hospitals, distributors, and institutional buyers are extremely sensitive to supply reliability. If they sense instability or financial distress, they may immediately shift to alternative suppliers to avoid medicine shortages. Once customer trust is lost, regaining market position becomes extremely difficult even if the company later stabilises financially.

The Strategic Way Forward

Pharmaceutical companies that navigate financial stress successfully follow a structured, professional strategy rather than reacting impulsively to emergencies.

Act Early

• Early recognition of financial warning signs such as delayed payments, rising short-term borrowing, or shrinking cash flows provides the greatest advantage. Acting early allows companies to negotiate from a position of strength and explore multiple resolution pathways before options narrow.

Protect the Operations

• The top priority during any restructuring is keeping the factory running. Continued production preserves licenses, maintains regulatory compliance, and sustains customer relationships. Operational continuity protects enterprise value and keeps the business viable throughout the resolution process.

Use the Law as a Shield

• The Insolvency and Bankruptcy Code (IBC) should not be viewed as a failure or last resort. When used strategically and early, it provides legal protection against aggressive creditor action, creates structured negotiation forums, and allows businesses the breathing space needed to reorganise.

Maintain Clean and Transparent Records

• Professional financial documentation and transparent records build confidence among lenders, resolution professionals, and potential investors. Clear paperwork strengthens credibility and significantly improves restructuring outcomes.

Focus Relentlessly on Licenses

• Throughout the restructuring process, regulatory compliance must remain non-negotiable. All drug approvals, manufacturing licenses, and quality standards must be maintained continuously. Regulatory continuity is the backbone of pharma business survival.

The Solvencis Approach

The Solvencis approach to pharmaceutical resolution goes beyond financial restructuring and legal procedures. It recognises the unique nature of pharma enterprises and the realities of operating in a regulated healthcare environment.

Survival Over Process

• Success is not defined by merely completing a legal process. The true objective is ensuring that the company emerges as a functioning business employing people, producing medicines, and serving the market with regulatory confidence.

Deep Sector Understanding

• Solvencis understands that a pharmaceutical company’s value lies not only in physical assets, but in its licenses, quality systems, technical expertise, and distribution relationships. These elements are actively protected throughout the resolution process.

Beyond Just Finance

• While financial restructuring is essential, equal importance is given to regulatory continuity and stakeholder confidence. Preserving customer trust, supplier relationships, and regulatory standing is central to long-term recovery.

Reality-Based Strategy

• Rather than relying on theoretical or textbook models, teams build strategies around practical timelines, realistic cash flows, and workable capital structures suited to real-world Indian pharmaceutical conditions. The focus remains on solutions that stakeholders can actually implement and sustain.

About Solvencis

Solvencis delivers specialised Hybrid Consulting Solutions in Management, Finance, Regulatory, and Legal Consulting to the pharmaceutical, biotechnology, and life sciences sectors. Recognised for our cross-functional expertise that bridges the gap between scientific innovation and commercial reality, we empower pharma innovators, biotech startups, and manufacturing leaders to navigate complex transactions and scale efficiently. Our services span Pharma M&A Advisory, Go-to-Market Strategy, Regulatory Compliance, and Operational Restructuring positioning us as a strategic partner for companies ready to drive growth in a highly regulated global market.

• For expert consulting, Email: inquiry@solvencis.com