The Indian MedTech industry has entered a phase of more moderate growth. The market will still outperform within the Asia-Pacific region, underpinned by a strong economy, but y-o-y growth rates will be a long way off the dynamic growth achieved up until 2012, reflecting an increasingly competitive operating environment and increasing market share for lower-cost domestically produced products in some areas. The expanding private sector will remain the main growth driver.
Indian MedTech equipment industry valued at Rs.21,466 crore in 2014, is expected to reach Rs.30,554 crore by 2019, growing at a CAGR of 7.3 percent. Currency, weakness will weigh on growth rates at the start of the forecast period with mid-single-digit growth in 2015, followed by high single-digit growth for the remainder of the forecast period. This is the essence of a recent report by Espicom.
MedTech equipment import performance will remain subdued during 2015, confirming the slowdown in growth rates recorded in 2013 and 2014. Imports grew by just 1.6 percent in value terms in the period July 2014-June 2015. Diagnostic imaging and orthopedics and prosthetics were the only product areas to maintain a sustained growth trajectory.
The export performance will remain volatile due to the reliance on a comparatively small number of product areas for the bulk of export activity and a pattern of one-off shipments to many developing markets. Exports grew by 3.2 percent in the period July 2014-June 2015. Performance varied by product area, ranging from a 4.3 percent fall for consumables to a 34.9 percent rise for orthopedics and prosthetics.
Investment in manufacturing facilities is driven by the private sector, with only limited public funding and government support available for the industry. Total output is estimated to be in the region of Rs.12,800 crore, with production focused on consumables and diagnostic imaging products.
Some Trends and Developments
MedTech equipment imports fell by 0.7 percent to Rs.4196.5 crore in Q2 15. The performance by product area was mixed, ranging from a 19.5 percent rise for diagnostic imaging to a 25.8 percent fall for consumables.
MedTech equipment exports fell by 4.5 percent to Rs.1670 crore in Q2 15. Despite the overall decline, all product areas made gains, apart from consumables, which suffered a 25.2 percent fall.
The Ministry of Health and Welfare (MoHW) is set to increase its oversight of the MedTech equipment market through the introduction of a materiovigilance program (MvP), intended to ensure the safety of devices.
The Department of Pharmaceuticals is planning to set up three dedicated medical devices testing laboratories in the states of Gujarat, Haryana, and Uttar Pradesh to serve local medical devices manufacturing clusters and support the development of domestic medical devices industry.
In August 2015, the Asian Development Bank and the government signed a loan to support the National Urban Health Mission. According to the authorities, this will reinforce efforts to develop health systems in urban areas and enhance the delivery of healthcare to reach the urban poor.
Uncertainty over the issue of pricing control for medical devices sector continues after the government appeared to rule out the introduction of specific measures, despite a succession of organizations calling for greater regulatory oversight in this area, particularly for hospital-use devices such as stents and other implants.
The government has published a National Medical Device Policy, which aims to create a supportive framework for the local medical devices industry through creation of a National Medical Device Authority to promote domestic production and look at possible financial incentives for the medical devices sector.
The Make in India initiative for medical devices sector has received a further boost with the announcement that the government is to set up two industrial parks dedicated to the manufacture of medical devices, one in Gujarat and the other in Tamil Nadu.
The Reserve Bank of India has formalized the government decision to liberalize foreign direct investment (FDI) policy in medical devices sector announced in December 2014. 100 percent FDI is now via the automatic route in medical devices ventures in both the greenfield and brownfield routes.
Healthcare - Regional
Many states are lagging behind their more industrialized counterparts in terms of healthcare provision, with low per capita expenditure on healthcare, poor infant mortality, reduced literacy, and geographical barriers such as flooding.
Even where there are signs of increasing overall investment, these often do not trickle down to healthcare. Although the industrialized regions have better healthcare facilities as well as a greater number of healthcare professionals, hospitals, and better training opportunities for doctors, inequalities remain even in these states. People living outside main cities find it difficult to access healthcare. Variability across the country is also found in terms of disease burdens, with poorer areas more likely to have a high burden of communicable diseases, and areas with a higher GDP encountering more lifestyle- and pollution-related diseases.
Center. Uttar Pradesh has the most hospitals. Nevertheless, Chhattisgarh is starting to catch up and will see the largest gains in hospital and doctor numbers by 2019. Strike action in Uttar Pradesh in early 2014 led to limited healthcare provision in an area where healthcare spending per capita is already lower than in any other state or union territory with available data. However, as of August 2015, Uttar Pradesh is expected to receive a boost in hospital numbers with an expansion plan proposed by AIIMS (All India Institute of Medical Sciences).
East. Plentiful natural resources characterize eastern India, which attracts investment, although this has not been focused on healthcare, leading to a low per capita expenditure. Overall, there are large health inequalities across east India, although in Bihar state health workers are attempting to improve the quality of healthcare services in rural areas using mobile technology.
North. There is considerable variety of GDP across the large area that makes up the northern region of India. Delhi has invested in hospitals and healthcare in general, but the large population puts the healthcare system under pressure. Air pollution is also a problem here, while threats in some of the less wealthy states such as Punjab include communicable diseases such as polio, malaria, and cholera.
North-East. The healthcare markets in the seven most isolated states that make up north-east India are characterized by their geography. Arunachal Pradesh, for example, shares a border with China, and has a high proportion of immigrants, while the small state of Tripura has only one major highway and a handful of mountain ranges. These topographical barriers inhibit the provision of healthcare services.
South. Two archipelagos and four states make up the southern region of India with healthcare provision varying widely across the state. On the Andaman and Nicobar Islands, there is limited data due to the fact that tribal groups live there. However, on the islands where data are available, healthcare expenditure is high. This is because smaller islands need their own healthcare facilities. Puducherry also has a high healthcare spend per capita, which is a result of expenditure being spread across a wide area.
West. The western part of India is home to both one of the richest states, Goa, and the financial capital, Mumbai, a hub for investors. There are, however, disparities in healthcare provisions in Mumbai, particularly in rural areas, where malnutrition is a concern, which is having a negative effect on infant mortality. Goa on the other hand, the richest state in the region, boasts high quality of healthcare training, contributing to a high quality of life there.
PE Investment Activity
In India, provider activity was tempered relative to 2013; however, the sector remained the most active for PE investment activity in the country. Several deals involved hospital operators: Olympus Capital Asia Investments and India Value Fund Advisors (IVFA) invested Rs.384 crore in Aster DM Healthcare. Investments in primary and specialty care continued, spanning primary care/GP clinics and dialysis to aesthetics. Healthcare delivery in India also captured strategic interest, with DaVita HealthCare Partners taking a stake in Express Clinics, a primary and urgent healthcare delivery chain operator based in India, and South African hospital operator Life Healthcare increasing its stake investment in hospital chain Max Healthcare.
Total MedTech deal value in the Asia-Pacific region declined in 2014 over 2013. But whereas 2013 was characterized by one large deal (KKR's investment in Panasonic Healthcare), 2014 was characterized by strong activity in China, with values topping Rs.640 crore for several MedTech deals.
Looking ahead, activity in the provider and MedTech segments is likely to continue to be robust as the demand for local healthcare grows, thanks to aging population, the rise of chronic conditions, increasing affordability of healthcare, and a policy environment that encourages private sector participation. We may see some activity in India's MedTech segment at the end of 2015, as the government has opened it up to 100 percent FDI.
The opportunities in India are real, and MedTech industry is changing so rapidly that success over the long run will hinge on a company's ability to tailor and adapt business models to the priorities of chosen market. In addition to product features, key considerations include the role of the product in overall patient care, life-cycle costs, ancillary services, financing, product maintenance and serviceability, and all the other ways in which a company can enhance the customer experience, improve overall outcomes with reduced costs, differentiate its offerings, and increase profitability.
The structure of local operations in India will depend on the company's internal capabilities, investment and risk appetite, the availability of specialized services, and intellectual property risks.
MedTech companies need to move quickly but with a well-thought-out strategy for market success. Given the dynamic nature of the Indian healthcare market, companies will need to reassess their business and operational strategies on a regular basis. Multinationals should not assume that opportunistic approach to this market will work in the future too. Indian competitors are improving their technologies, manufacturing capabilities, and quality standards - all while keeping costs low. In addition, more multinationals are entering India to capitalize on its market growth.
Competitors are arriving from other low-cost countries, like China, with products that have fewer features for significantly lower cost.
Multinationals that do not develop a comprehensive strategy and operating models tailored for India risk losing market share and watching their competitive position erode. Early movers - whether leaders or fast followers - that can quickly develop the right capabilities to support an operating model tailored to the local market stand to generate double-digit, sustainable, and profitable growth as India's healthcare system reaches millions of new consumers.