The CII-BCG Team shows what it shall take India to traverse the path to a USD 50 billion opportunity and gain a prominent position in the global medical MedTech market.
India as an emerging market continues to be relevant in the global medical technologies space, not just from a market point of view, but also as a global hub for innovation and manufacturing. However, India has not reached its true potential, both in terms of market opportunity as well as in building a hub for innovation and manufacturing.
Last year, the CII (Medical Technology Division Members) and BCG (Boston Consulting Group) Team assembled a think tank to brainstorm and determine the key levers required to be able to unlock the true potential of India. After several months of deliberation, they charted a roadmap to create a USD 50 billion opportunity by 2025 in the medical technology space in India.
This year, they focused on what it would take to make this vision a reality. They structured the discussion in five areas - manufacturing, innovation, regulation, adverse environment and skill building. Industry leaders brainstormed and put forward a 2-3 point near-term agenda under each of these sections.
This white paper puts forward a ten-point agenda of what needs to come together in the next year. Achieving this agenda will require all the stakeholders to work together to ensure these priorities are realized.
Next year, at their annual conference, they shall take stock on progress against this ten point agenda. This roadmap will be a scorecard for the vision and help assess if we are on the right track to realize the USD 50 billion opportunity or will we be one more also-ran industry in this decade of vast opportunity in India.
Manufacturing - Make in India for India and the World
With the current Make in India campaign, there is a huge opportunity for growth and expansion of the medical devices industry. Medical equipment segment is gaining increasing importance in the field of healthcare, and the need of the hour is for India to manufacture such equipment, as part of the Make in India program.
Supporting Tailwinds. Several elements have come together at the right time. 100 percent FDI through the automatic route has set the stage. This has been followed by focused attention on the medical devices sector in terms of the draft National Medical Device Policy (NMDP) being proposed. Overall, the NMDP-2015 is a step in the right direction as it presents a landmark policy initiative toward making India self-reliant in the medical device field while posing certain challenges. The focus is on promoting research and development, innovation and manufacturing in India. The policy sets out several steps forward in terms of a single window mechanism, incentives for Greenfield and Brownfield projects, as well as for medical device mega parks. The policy also suggests a duty structure to promote local manufacturing of quality medical devices and equipment. If implemented well, these initiatives will give a significant boost to the industry.
Besides the proposed policy support, several government departments are encouraging MedTech companies to set up manufacturing plants in India. Many companies have taken steps to capitalize on this opportunity. GE has invested in three manufacturing plants with 240,000 sq. ft area, Polymed manufactures more than 100 products covering over 400,000 sq. ft of manufacturing floor space. BD has a manufacturing plant at Bawal, Haryana that has a capacity to manufacture over a billion medical devices and Terumo Penpol with an annual production of 30 million units has become one of the leading manufacturers of blood bags which are used in 80 countries.
Headwinds to Investment. India currently imports an estimated 70 percent of medical devices. Imports of high-end medical devices make up as much as 87 percent of that demand. This needs to change. However, there are four major challenges that India is facing while expanding its manufacturing footprint.
The market in India is small today, and this is the first thing that limits investment in India. Additionally, the industry has inverted duty structures in many sub-sectors which limit local value addition. Developing a compelling business case for India-based manufacturing becomes challenging in such scenarios. Till this is addressed, critical medical devices will continue to be imported hindering the growth of a domestic manufacturing base.
Investors struggle to deal with the multiple government agencies to set up projects in India. This combined with significant regulatory uncertainty such as the proposed price control rapidly increases the risks of any project. There are challenges on meeting project timelines with lack of coordination not only across various government agencies but also between state and central government agencies.
One of the major challenges is getting well-trained technicians to work in factories. The current curriculum does not have a focus on medical technology and therefore the industry has to invest tremendously in training fresh talent.
The component supply chain needs to be put in place. This is challenging when a large part of the supply chain is imported. Additionally, addressing dealing with infrastructure challenges to create good cold chain operators, stable power supply, and an ecosystem of schools for workers, is very important. The lack of a plug-and-play environment typically delays the first investment by companies that make in India.
Challenges remain, but to realize the vision of USD 20 billion local medical technology manufacturing, several things need to come together. If this can be achieved, investments in India will surely increase as the cost advantages and the future market potential in India are undeniable.
The team has proposed three areas for the government to act upon.
Healthcare Expansion by Ramping Up Government Spending. The size of the Indian medical technology market is a key constraint for investment in India, particularly in local manufacturing. Today, the Indian government spends less than one percent of GDP on healthcare across fragmented departments and schemes. This needs to be stepped up in line with government plans to increase public investment in health from 1.04 percent of GDP to 2.5 percent by 2020. Furthermore, a significant part of the opportunity will be with government hospitals and schemes. It is important to consolidate the opportunity so that companies can access the government opportunity through a single tendering platform.
Single Window Regulation for Medical Device Related Manufacturing. A single window clearance for not only setting up the manufacturing facility but also for day-to-day operations would go a long way in addressing the primary concerns of investors in local manufacturing in India. Alignment of policy implementation across different state and national bodies will help reduce the challenges of running efficient operations in India.
Economic Incentives and Rationalized Duty Structure. It is important to create incentives to enhance the attractiveness of local manufacturing. The cost of capital in India is high and traditional incentives such as tax holidays and soft loans will help companies consider investing in India. Finally, there is a need to establish appropriate duty structures for imported raw materials (to address the inverted duty structure challenges), which will encourage indigenous manufacturing.
Proposed Priorities in the Next 12 Months. These would be:
Unlocking demand through ramp-up in government spending on healthcare and providing a platform to participate in government purchasing across schemes and states
Setting up a single window authority for the regulation of medical technology manufacturing and enhancing the capability of designated manufacturing hubs
Specific tax incentives and soft loans setting up manufacturing plants in line with competing destinations such as Malaysia and Singapore, rationalization of the inverted duty structure for raw material and components, to make indigenous manufacturing more attractive.
Innovation for India to Apply it for the World
Recently an incubation center for medical electronics has been inaugurated at IIT Patna. The focus has been to design medical electronic devices at affordable prices for common people. The funding has been Rs.50 crore, signaling the government's intent to develop the medical technology innovation ecosystem in India.
A large number of companies have recognized this opportunity in India. Philips Innovation Campus in Bangalore has been playing a major role in its worldwide product development. Similarly, in 2013 Medtronic established the Medtronic India Development Centre (MIDC), an R&D facility in Bangalore. Stryker has been among one of the early entrants to confidently pursue Made in India by starting the product design and development center at Gurgaon in 2006. Stryker integrated this effort by encompassing an end-to-end process of concept development, clinical evaluation, prototype testing, machining, manufacturing through OEM suppliers, regulatory filings for global markets, and commercializing the product in India. Local companies too have invested in this capability building. TransAsia has a dedicated center with a team of 70 R&D engineers.
As a result, several products developed for the Indian market have been designed. The time has come to grow opportunity, and more importantly, shape local innovation for India.
Supporting Tailwinds. They could be put in four categories:
The Push for Skill India has led the way to cultivate a good talent pool across the country looking for opportunities in frugal innovation. This has been augmented by supporting programs from the Ministry of Science and Technology by creating incubators/funding programs for select business opportunities to deal with specific disease states.
Emerging Framework of Regulation. The initiation of restructuring the local regulatory framework has led to building a more robust process oriented system laying the foundation for conducting early feasibility research. This framework will better equip researchers to develop newer innovative technologies and address basic concerns within the healthcare industry.
Diverse Patient Base and Strong Medical Community. India has a rich patient pool, a set of world-class super specialty hospitals, medical colleges and a highly skilled medical fraternity. These constitute the right raw ingredients for an innovation ecosystem. The desire of clinicians to partner with the medical device industry to bring about innovative solutions is unsurpassed.
Large Pool of Raw Talent. Of the major emerging markets, the fastest annual talent pool growth will be in India (7.3 percent). India is certainly one of the top 10 countries likely to boast the largest talent surpluses a decade from now. This pool has been recognized by many companies who have invested in R&D centers in India.
Headwinds to Investment. The team sees three major challenges to expanding footprint in innovation in India.
Lack of Capabilities in Basic Research. Innovation work in India has been largely focused on development and not on research. To be able to build a research culture, institutes need to look beyond their boundary walls and partner with industry and global academia to build the right capabilities.
Partners to Manufacture and Bring Innovations to Market in India. While companies may innovate in India, there is a lack of local manufacturers who could manufacture in accordance to global standards. In addition, the component ecosystem is not in place. Therefore, even if one were to innovate in India, bringing the product to the Indian market is complicated. Combine this with unclear regulation and the oft quoted discussions on price control and local innovation will be stifled.
Weak Regulatory Coordination. The industry needs a unified regulatory body that can approve bringing new products to the market quickly. The process today is unpredictable and requires the involvement of numerous government agencies. Further, there are only a handful of medical devices experts within the Central Drugs Standard Control Organization (CDSCO) as majority of them are trained in drug regulations. Clear guidelines on royalty fees, tax implications, and increased procedural simplicity would go a long way in helping companies to transfer technology going forward.
Changes We Expect to See. Many companies have recognized the potential of India as an innovation talent pool. Building innovation capabilities in India has been a pioneering effort for these companies in terms of finding and training the right talent. However, innovation still remains development (versus research) focused on the global market. Bringing products to India to target the USD 10 billion incremental opportunity from local innovation in the Vision 2025 will require focus on basic research, particularly electronic and material science capabilities.
The team has suggested three priorities in the innovation space in India.
Industry Academia Partnerships for Basic Research. Global companies can support Indian research centers in building basic research capabilities through their global industry-academia partnerships. In turn, they will benefit by developing local technologies that have a clear commercial proposition.
Reward Local Innovation Relevant to India. A National Innovation policy should be organized in a way that rewards locally relevant innovation. To further encourage innovation investments, the government could provide a longer term view (ten years window) for 200 percent weighted tax deduction of approved expenditure on R&D activities as the gestation period is high in this industry.
Streamline the Process to Bring Innovative Products to Market in India. The industry needs support to address the capability shortfall in crucial areas by building select partnerships in procurement, testing, calibration, and clinical trials. Currently, gaps in these capabilities limit the extent of investment in innovation in India. Additionally, there is a need to streamline the approval process to bring innovative products to market.
Proposed Priorities in the Next 12 Months. These include:
Invite industry to setup the first incubation centres in collaboration with a global and Indian research institutes.
Expand funding of BIRAC and increase the 200 percent weighted tax deduction on approved expenditure on R&D to ten years.
Build capabilities in crucial areas of testing, calibration and clinical trials to support bringing products to market.
Setting Up an Enabling Regulatory Framework
The past decade of regulatory uncertainty in the medical equipment and device sector has deprived the industry of its rightful place in India's healthcare universe. Select categories of high-risk medical devices are currently regulated under the same statute as pharmaceuticals in India. Regulatory uncertainty and consequently, regulatory risk have kept both domestic and foreign investors from making significant capital investments or deciding whether to enter the Indian medical device market.
Supporting Tailwinds. The industry has taken several strides forward in FDI, skill building and the sector has now been named as a Sunrise Sector. The Department of Pharmaceuticals has released a draft National Medical Device Policy in 2015. The objective of this policy is to strengthen the Make in India drive in the medical device sector by gradually reducing the dependence on imports and setting up a strong base for medical devices, especially for those having critical implications on affordability and availability for Indian patients. CII has been working closely with the relevant stakeholders to shape a focus on the Drugs and Cosmetics Act with a distinct chapter on medical devices.
Headwinds to Investment. The basic question still remains - how tall or intricate can the structure of medical device industry in India be, when the foundation is laid incorrectly? And more importantly, what is a Good Regulation for Medical Devices?
As pointed out in the last report, released last year, Medical Technology: Vision 2025 - A USD 50 Billion Opportunity for India, the lack of medical device appropriate regulation emerged as the biggest lacuna. The headwinds outlined then, still remain challenges one year since the report was published.
Lack of separate medical technology regulation. The immediate need is to have a distinct definition of medical device or technology. Currently, medical device or technology is defined as a sub-set of the definition of drug in the Drugs and Cosmetics Act, 1940. Consequently, all the regulations that are applicable to drugs are by default, applied to medical devices as well. This has created several unique challenges for the medical device industry in India, ranging from the mandatory requirement of recruiting pharmacists in medical device manufacturing units to the application of MRP on medical device packaging, even though the high-risk regulated devices are never sold at retail levels.
Regulatory Bodies, Sending Contradictory Signals. Several regulatory bodies including, but not limited to CDSCO, DEITY, BIS, MOEF, State FDA, and DoT, regulate the medical technology industry, often without the right capabilities in place. Pharmaceutical regulators, with limited medical technology background or experience are often responsible for medical technology products. These regulators can frame regulation that is inappropriate to the risk and safety profile of the product being regulated.
Core Elements of a Good Regulatory Framework. A good medical device regulation should provide Indian patients access to a broad range of medical devices while promoting India's medical device industry at the same time. It should be non-discriminatory, comprehensive, predictable and efficient. The Team believes some guiding principles should be followed when framing the regulation of medical technology.
First, the foundation of the regulation should be harmonized with Global Guidance and Standards. It should be based strictly on the unique features of medical technology.
Second, undue complexity is often a challenge and good regulation should be implemented via a single window that coordinates across all departments of government and rolled-out after full consultation with stake holders.
Third, it must allow an adequate transition period for both the industry and the regulator to prepare for compliance and implementation respectively.
However, these are the basic elements.
Going forward, we put forth five crucial aspects that the regulation must consider.
Distinct Definition of Medical Device or Technology. The Global Harmonization Task Force (GHTF) has proposed a harmonized definition for medical devices which should be adopted for India. The Drugs and Cosmetics Amendment Bill 2015 has incorporated the GHTF definition of Medical Device. The draft bill also includes a separate chapter for Medical Device Regulations.
Risk Management and Risk-Based Classification. Any regulation for medical devices must have risk management at its core. Medical Device Safety can only be considered in relative terms as all devices carry a certain degree of risk and could cause problems in specific circumstances. Hazard is a potential for an adverse event, a source of danger. Risk assessment begins with risk analysis to identify all possible hazards, followed by risk evaluation to estimate the risk of each hazard.
Quality System Requirements for Medical Devices. Regulations for quality systems cover - methods, facilities, and controls used by the manufacturer in the design, manufacture, packaging, labeling, storage, installation, servicing and post-market handling of medical devices. The key advantage is that they represent a preventive approach to assuring medical device quality versus the previously reactive approach by inspection and rejection at the end of the manufacturing line. It is critical for manufacturers to conform with quality system standards and for this conformity to be subject to periodic audit by governmental or third party agencies.
The Concept of Substantial Equivalence in the Indian Context. The adoption of the concept of substantial equivalence device is recommended as it would ensure that the new device is at least as safe and effective as the predicate already approved in India. Establishing Substantial Equivalence assumes greater importance for new technology and innovation in medical devices. Both Incremental and Reverse Innovation are critical for unlocking the growth potential of the Indian Medical Device Industry.
Medical Device Safety and the Role of Conformity Assessment. Medical device safety must be visualized as a risk management process that must encompass the life span of medical devices from their conception to disposal.
Proposed Priorities in the Next 12 Months. These would be:
India urgently needs an independent regulation for Medical Technology. Such a distinct regulation will enable the Medical Technology Industry in India to reach its full potential. For the reason of expediency, a first step could be to pass the Drugs and Cosmetics (Amendment) Bill 2015 which separately defines medical sevices. This should be accompanied by a completely independent set of rules, schedules, and guidance documents for medical devices.
The implementation of this regulation should also be pursued through an independent set of appropriately qualified and suitably independent (from drugs) set of resources. The systems and processes should also be devised keeping in mind the unique nature of the MedTech industry.
India needs to set up an autonomous body, e.g. a National Medical Device Authority, which will regulate the industry with an objective of promotion of the medical device industry to make the country not only self-reliant but also a global hub of production and innovation in medical devices.
Adverse Environment Undermining Make in India
India has announced the Make in India initiative with expectations of significant investments in capacity to serve the domestic demand. At the same time, price control measures are also being discussed. The inherent assumption is that prices will be held below market clearing price to ensure patients are adequately served and alleged profiteering in the industry is curbed.
However, these two initiatives are at cross purposes. New investments will only enter the market when firms are confident that the additional supply can be absorbed and prices will remain stable. With artificially low prices, investment payback periods will extend leading to many investors re-looking at the business case.
Additionally, with a one size fits all price control principle, there remains little incentive for firms to innovate unless specific rewards would be earmarked. For example, if all medical devices are under price control, a better medical device (with likely higher cost) will have a lower return profile that a current device as prices for both are set at the same level. This in effect will stifle innovation and limit the latest products from coming into the market.
The medical devices industry shares the government's aim to make medical devices more affordable and accessible to Indian citizens. For the industry to be able to serve this objective, it is important to develop, an appropriate policy on pricing, taking into account the provisions that the system already makes. CGHS-funded procedures already account for nearly 40 percent of some medical devices (especially implants) used by patients.
Given the significant differences between pharmaceuticals and medical devices, regulatory and pricing/reimbursement systems for medical devices need to be conceived differently from that for drugs. Price controls serve as a major deterrent to stimulating innovation as research based companies are unable to generate a fair return on their investments. At extremely low price points, companies will not be able (or willing) to introduce their products into India, thereby denying patients access to the latest technologies. The industry is nascent, accounting for less than 8 percent of the total healthcare spending in India. To continue to attract investments, this nascent industry with its long gestation periods should be allowed to let market forces regulate prices and should not be clubbed with the pharmaceutical industry for price control.
The team is urging the government to carve out an appropriate pricing regime that is flexible enough to accommodate the need for innovative and high-quality medical devices.
Estimates put healthcare spend today at roughly 5 percent of the GDP with less than a quarter of that paid by the government. Healthcare costs for most households are increasing and the need to control these costs is clear. The contention however, is that price control is not the answer. A focus to ensure quality supply at the right cost is.
The team sees this being achieved through two levers:
Utilize Buying Power of the Government to Develop a Low Cost Buying Platform. It is estimated that the government spends almost 1.2 percent of GDP on healthcare. By today's estimates that implies a spend of USD 20 billion on healthcare. That is substantial, but this spend is fragmented across state and central schemes as well as different government agencies. If the government were to centralize purchasing, it would lead to a USD 1.5 billion consolidated spend on devices (based on a penetration of 8 percent) accessible to a single window purchasing process. Companies would be incentivized to supply to this market as they would have direct access to a large market opportunity and don't have to incur the sales and marketing costs they would traditionally incur in accessing a market of this size. The government simplifies its supply chain and consolidates its buying power leading to tremendous cost savings to the patients. As long as quality is assured, the system is a win-win for all.
Segmented Approach to Purchasing - Reward Innovation Versus Only Lowest Cost Bid. The government can enhance funding on healthcare by reforming its reimbursement programs and systems. The government needs to partner with the industry to streamline its reimbursement system and move towards evidence and outcome based pricing/reimbursement and faster approvals. Additionally, there are several state health insurance schemes that provide some coverage for tertiary care which includes medical technologies. The administrators of these schemes need to engage more actively with insurance companies and medical device companies to not only to understand the value of new life saving technologies, but also to explore the world of non/less invasive treatments which are less traumatic for the patients.
Proposed Priorities in the Next 12 Months. These would be:
Common government procurement platform for medical technologies (across national and state schemes),
A segmented approach in purchasing which rewards innovation and quality versus just low cost.
Skill Development and Capacity Building
Two aspects are addressed in this area, the need for medical technology skills in the healthcare provider industry and skills in the medical technology industry itself.
India needs to add 100,000 beds per year this decade and faces a shortage of about 600,000 doctors, 1 million nurses, 200,000 dental surgeons and large numbers of paramedical staff. The capacity to address this skill gap is simply not there in the traditional infrastructure.
In the field of medical technology itself there is also an envisaged shortage of around 200,000 medical technologists. With this skill gap in place, the growth of the medical technology industry is under threat. Addressing this critical enabler will unlock supply side constraints in the industry and help the industry to address the growing healthcare needs of the nation. Additionally, for the medical technology industry itself, skill building in biomedical engineering, material science and other related skills is lacking.
Supporting Tailwinds. The availability of raw talent in India is a key differentiator. With a large and growing workforce, India is well positioned to become the skill center for the world. The number of people entering the workforce is expected to reach 110 million by 2020, according to Goldman Sachs. In order to ensure this workforce is ready to contribute meaningfully when they join the healthcare industry, the Healthcare Sector Skill Council (HSSC) is playing an important role in addressing the large gap in India. Besides the HSSC, there are a number of other initiatives coming up in the space.
Proposed Priorities in the Next 12 Months. These would be:
Create an industry advocacy body focused on career opportunities in the MedTech industry;
Enhance awareness of medical technology in medical/allied curriculum
Launch 1-2 course programs for continuous regulatory education to keep abreast on latest regulatory requirements and trends.
The CII-BCG Team has focused attention on the critical tasks to begin the journey on the road to the USD 50 billion opportunity. The journey has begun, and it is up to the stakeholders to put their efforts to accelerate this journey, the inflection point of which is a medical technology focused regulation that enables the industry.
With these steps, India will take a prominent space in the global medical technology market, and will start to see an acceleration of indigenous technologies addressing the needs of the Indian patient.