Driven by manufacturing advantage, investors flock to India’s MedTech sector

India has long relied on global giants for medical devices to equip a healthcare network burdened by a lack of doctors, expensive treatments, and inadequate technology. But now, domestic MedTech firms are taking the fight to their international peers, attracting interest from top-tier global investors and pharmaceutical giants.

According to Indian government estimates, India is the fourth-largest market for medical devices in Asia. Globally, though, India’s MedTech sector claims a meagre 1.5% share, which market experts predict will grow substantially as global investors, including KKR & Co., Morgan Stanley, and Warburg Pincus, rush to back domestic medical equipment makers.

Anish Bafna, chief executive and managing director of Healthium Medtech Ltd, sees India’s MedTech sector seizing a 10-12% global market share by 2030, backed by India’s National Medical Devices Policy of 2023.

“This ambitious target,” Bafna said, “underscores India’s potential to become a global MedTech hub.”

Bafna has good reasons for his optimism. Last month, US private equity firm KKR & Co. won a bidding war to acquire Healthium from British PE firm Apax Partners for $700-800 million. The MedTech company manufactures and sells surgical products in about 90 countries.

India unveiled its medical devices policy with ambitions for the domestic MedTech sector to account for 10-12% of the expanding global market over the next 25 years.

Mansukh Mandaviya, former Union health minister, said last year that the government was “confident of fostering the medical devices sector’s growth from present $11 billion to $50 billion by 2030″.

The challenger advantage
Several domestic MedTech firms are already credible challengers to multinational companies in India and global markets, said Anshul Gupta, managing director and head of healthcare investment banking at Avendus Capital.

The financial services firm has advised several companies in the healthcare sector, including NephroPlus and Maiva Pharma, on their deals.

Bengaluru-based NephroPlus is among Asia’s largest dialysis care providers. Last month, it secured ₹850 crore in an investment round led by Singapore-headquartered PE firm Quadria Capital.

Maiva Pharma, a Bengaluru-based injectables manufacturer, raised ₹1,000 crore last month from a fund managed by Morgan Stanley Private Equity Asia and India Life Sciences Fund-IV.

“In certain segments of MedTech, (multinational companies) have been defocused and have shrunk their incremental investment dollars due to lower return versus investment,” said Gupta.

But “for Indian MedTech companies who are playing the challenger strategy and hence starting from a low base, returns on investments in technology, clinical trials, and marketing infrastructure to capitalise on a large global opportunity remains an attractive proposition”.

A global demand for affordable quality
The growing global interest in the domestic MedTech space is largely driven by India’s low-cost manufacturing advantage.

The domestic MedTech sector is catching up with its global peers as investors recognise the need for high-quality products at affordable prices to meet the demands of an ever-expanding global healthcare network.

“Private equity and venture capital players have rightfully recognised the existing industry gap and corresponding market opportunity,” said Bafna of Healthium Medtech, “and are backing category leaders who can challenge the status quo, gain market share from the MNCs in India, and also leverage the potential in larger export markets.”

Earlier in April, US private equity firm Warburg Pincus struck its largest deal ever in India’s healthcare sector, picking up a 65% stake for about $300 million in Chennai-based Appaswamy Associates, a maker of ophthalmic equipment.

Earlier in June, domestic private equity firm Jashvik Capital invested $25 million in Bengaluru-based Futura Surgicare, which sells surgical devices to more than 10,000 hospitals in India and has regulatory approvals in over 70 countries.

“The Indian medical devices opportunity is large and growing,” Jashvik Capital had said in a statement announcing the deal, adding that “roughly ~$11.25 billion of domestic demand and about $3 billion of global demand… can be serviced from India”.

When pharma meets MedTech
In October, Sun Pharmaceutical Industries Ltd acquired a stake in EzeRx, a Bhubhaneshwar-based maker of a portable device that can screen for anaemia without drawing blood. In February last year, Sun Pharma acquired stakes in digital healthcare startups Agatsa Software and Remidio Innovative Solutions.

Agatsa is an early-stage digital diagnostic devices company, while Remidio’s flagship portable camera can detect eye conditions such as diabetic retinopathy and glaucoma.

Cipla Ltd, another domestic pharmaceutical giant, last month agreed to invest up to ₹26 crore in Achira Labs, which would take its stake in the maker of medical test kits to 27.27%. It had earlier acquired a 21.05% stake in Achira in 2022.

For pharma companies, MedTech firms are a natural adjacency, said Avendus’ Gupta.

“India has a strong pharmaceutical and medical supply chain, which supports the growth of the MedTech industry,” added Vipin Singhal, associate director at Anand Rathi Investment Banking. Even so, the sector faces several challenges, he said, including a fragmented market and the need for better “cost-effective” distribution network.

Singhal also underscored innovations driving growth in India’s MedTech sector: True North-backed Trivitron Healthcare’s cardiology and operating room equipment; Terumo Penpol’s blood bags, Agappe Diagnostics’s reagents for vitro diagnostics, and Perfint Healthcare’s devices for image-guided minimally invasive surgeries, among several others.

A government booster dose
Domestic medical device makers also benefit from the government’s drive to encourage local manufacturing through its production-linked incentive, or PLI, scheme.

The Indian MedTech industry is “in the early to mid-phase of development where the Indian pharma industry was perhaps 15-20 years ago”, said Gupta of Avendus Capital.

According to Singhal of Anand Rathi Investment Banking, India’s MedTech market is likely to expand from $12 billion today to $50 billion by 2030. “This will reduce India’s import dependence (for medical devices) from current 64.6% to 35%,” he said, “and boost exports from current $3.4 billion to $18 billion by 2030.”

The growth in the MedTech sector will also be driven by the rapid expansion of India’s broader healthcare sector, which Singhal said is expected to expand at a compound annual growth rate of 14% annually to reach $600 billion by 2030.

The MedTech sector’s potential growth is evidenced also in the offtake of the government’s PLI scheme for medical devices.

In February, the government’s Standing Committee on Chemicals and Fertilisers said in a report that under the PLI scheme for medical devices, the government will provide an incentive of ₹3,420 crore to new projects between 2022-23 and 2026-27.

“As of June 2023, 26 applicants have invested ₹852 crore out of committed investment of ₹1,330 crore (64%),” the committee said in its report.

Such government initiatives will fuel innovation in MedTech, said Hariharan Subramanian, managing director of Siemens Healthcare Pvt. Ltd, who sees telemedicine, remote patient monitoring, and AI-powered diagnostics as areas with immense potential in India.

“The global MedTech industry is predicted to reach $800 billion by 2030, with India’s contribution rising to $50 billion,” he said. “This translates into a big potential for Indian medical device manufacturers to not only meet domestic demand but also become global exporters.” LiveMint