The rumblings of an Indian healthcare earthquake have been gathering pace for some years but the arrival of a new government with a mandate of progressive reform promises to make the earth move for pharma.
Prime Minister Narendra Modi’s pledge to shape an ‘accessible and affordable’ health system for his nation’s 1.2 billion people should increase opportunities despite India’s weak infrastructure.
He wants to revitalise a health market which has not had a policy revamp since 2002. It is an ambitious cradle-to-grave ideal that chimed well with an electorate already seduced by his track record of tackling and conquering tough economic challenges during his tenure as governor of the province of Gujerat.
If India is committed to establishing the right healthcare infrastructure, it will find the industry very ready to engage with them, which will improve access to medicines
India’s creaking and out-dated healthcare system is a concern for investors but the landscape still looks attractive. Rising wealth amid a burgeoning middle class, increased health awareness and a technologically advanced workforce are powerful components for growth. Predictions are that pharmaceutical sales can rise by 15 per cent to $56bn, from a current level of $21bn, by 2020.
But his Finance Minister’s first budget did not exactly shift the tectonic plates for a European pharma industry poised to invest and collaborate to improve healthcare for a nation where around 70 per cent of the population live on $2 per day.
A budgetary balancing act
More than 100 drugs were this month added to the National List of Essential Medicines, which price caps drugs, impacting pharma shares and adding to uncertainty about whether Modi can balance the equation of providing treatments for the nation’s poorest while convincing the EU market to invest in India.
Price controls now cover up to 30 per cent of the medicines sold in India. Analysts believe his new Health Ministry’s first steps have been cautious rather than the revolution promised in the Modi’s manifesto.
“For the healthcare sector, the government’s pledge towards ‘Health for All’ through two initiatives announced, namely Free Drug Service and Free Diagnosis Service, does not go far enough in addressing the challenges of universal health access,” says Aparna Krishnan, GlobalData’s analyst covering industry dynamics. “The measures, including setting up of two National Institutes and dedicated tuberculosis diagnosis treatment centres at the All India Institute of Medical Sciences (AIIMS), are only a small step towards achieving treatment access to a high number of undiagnosed patients in India.
“Other measures such as setting up rural research centres, scientific warehousing as well as increasing the number of specialty hospitals – AIIMS – in four other states will help satisfy some of the demand for treatment access in chronic disease conditions.
“Despite these steps, the budget announcement does not address key demands from the pharmaceutical and healthcare industry namely, increasing healthcare expenditure from the current 0.9 per cent of Gross Domestic Product and expansion of tax incentives to healthcare infrastructure projects and excise duty rationalisation on Active Pharmaceutical Ingredients (API).”
European pharma supportive
Nonetheless, the direction of travel seems inexorably positive for pharma even if there are a number of crucial hurdles to be negotiated over the price capping and devising an intellectual property (IP) protocol that encourages innovation.
“The paradox has been that India is an incredible powerhouse economically but access to medicines is poor and government investment in healthcare as proportion of GDP is way below comparable emerging markets such as Brazil,” said Brendan Barnes, of the European Federation of Pharmaceutical Industries and Associations (EFPIA). “Health has not been a high priority for Indian governments so we are very pleased to see this new focus.
“If India is committed to establishing the right healthcare infrastructure, it will find the industry very ready to engage with them which will improve access to medicines. This a technologically sophisticated country so there is clearly scope for India to create significant innovations. The encouraging element is that a space has opened up to talk to the new government about how companies can collaborate with them to expand healthcare coverage.”
He called for the Indian government to pursue a ‘balanced evolution’ so that any new healthcare system could synchronise with pharma over the provision of drugs and services. But he also urged transparency and greater dialogue over price capping.
The nation’s need to get basic drugs to the masses in poor and rural areas is a powerful motivator for cost controls because it is a simple measure to reduce costs. But the expanding list of essential medicines has caused litigation and anger.
A number of court cases are proceeding and earlier this year the Indian Supreme Court denied Novartis patent protection for its cancer drug Glivec. Roche, Merck, Pfizer and Gilead have encountered similar difficulties which could discourage the investment that will be so crucial for a new healthcare system.
Whether these are growing pains or enduring fundamental differences remains to be seen as Modi continues to push the health agenda as a shining light in his business-friendly legislation.
India is still attractive for investment as highlighted by GSK which recently announced that it had increased its stake in its Indian subsidiary from 50 per cent to 75 per cent.
But close to the top of India’s ‘To Do’ list are the bureaucratic kinks and tangles that can make it a difficult place to do business. Its World Bank rating for ease of doing business is poor.
“There is a real sense of the industry wanting to do business but the other side of the equation is for problems that make business difficult to be addressed,” adds Barnes.
“The potential is huge and the societal pay off could be huge. It could be very good all round if we get the right dialogue going between the European industry and the Indian government.”
Expanding healthcare insurance will also be critical if the nation is to provide the 1.8 million hospital beds needed by 2025 and create new doctors and nurses in their millions to meet demand from a growing population. A McKinsey report – India Pharma 2020 – predicted that 650 million Indians will be enjoying heath insurance cover by 2020.
Krishnan, although cautioning about the need to remove uncertainty over IP rights, believes growth will flourish across the market with generics and biosimilars proving a good fit for India’s desire to reach the poorer sectors and keep a handle on its drugs bill.
“Huge markets could open up for European pharma, particularly in generics, and also open European opportunities for Indian manufacturers” she says. “The trade benefits could go both ways.
“I don’t think the price cap will vanish in the near or medium term so pricing and affordability are huge issues.”
Pharma is likely to explore tiered pricing systems to fit in with India’s vast spectrum of poverty and wealth, she adds.
Finance Minister Arun Jaitley did announce a range of benefits to fulfil the mandate that swept Modi to power in the June General Election.
A Special Economic Zone to fund domestic drug makers and boost start-up firms along with a 15 per cent investment allowance should help pharmaceutical entrepreneurs get the plant and machinery needed to set production lines running. Other kickstarter initiatives are financial support for scientific warehousing, setting up 12 more medical colleges and 15 rural health research centres.
India is also well placed for telemedicine and e-health with the sector predicted to jump from $7.5m to $18.7m by 2017. Medical tourism – Indian prices can be as low as a tenth of European charges – could double to $2bn over the next 12 months.
“There is a lot of potential but pharma will need flexible strategies,” adds Krishnan. “It is a large nation with a patient population that is largely untapped so there is undoubted room for growth.
“These are very exciting times which present huge potential for local industry. It could also establish India as a regional hub for other Asian nations and into Pacific but restrictive legislation will need to be addressed.”