Key to India’s healthy future?
Health is wealth, as the saying goes. India’s total expenditure on healthcare was four per cent of the country’s gross domestic product in 2013 (Rs 104.7 trillion of which healthcare was around Rs 4.2 trillion). However, India trails not just developed countries like USA and UK, but also developing countries like Brazil, Russia, China and Thailand in healthcare spending as a proportion of GDP. This is mainly due to under-penetration of healthcare services and lower consumer spending on healthcare. India’s average healthcare expenditure from 2004 to 2013 is four per cent of GDP. The total healthcare expenditure in 2013 improved – compared to the average 3.8 per cent of GDP between 2010 and 2012. The share of Government expenditure on healthcare in India has improved from 21.9 per cent in 2004 to 32.2 per cent in 2013. India’s per capita total expenditure on healthcare was $215 in 2013 against $9,146 for the USA, $3,311 for UK and $1,454 for Brazil.
In 2000, government expenditure on healthcare was 27 per cent, which increased by 5.2 per cent to 32.2 per cent in 2013. The healthcare market in India comprises: Healthcare delivery market (Rs 3,800 billion in 2014-2015); Pharmaceutical Industry (Rs 746 billion in 2014-2015), Diagnostics Industry (Rs 377 billion in 2014-2015) and Healthcare Insurance Industry (Rs 175 billion in 2013-2014, according to IRDA). According to a WHO survey, Indian healthcare industry size in 2014-2015 stood at Rs 3.8 trillion with in-patient department accounting for 81 per cent and OPD at 19 per cent.
The healthcare delivery market is expected to grow at CAGR of 12 per cent and reach Rs 6.8 trillion over next five years alongside changes in age demographics, rising incomes, improvements in health awareness, increase in life-related ailments, rising penetration of health insurance and increasing opportunities from medical tourism.
The Indian diagnostics industry was around Rs 377 billion in 2014-2015 and is expected to grow by CAGR of 16 per cent to 17 per cent over next three years to over Rs 600 billion by 2017-2018. Due to rise in chronic diseases like diabetes and cardiovascular problems, doctors are prescribing more tests to identify them and blood sugar and lipid profile tests have a dominant share within the biochemistry segment. These two types of tests contributed to between 29 per cent-31 per cent of overall revenues from biochemistry testing in 2014-2015 and this segment is expected to grow more rapidly than tests for urine, routine and microbiology tests, with tests for chronic diseases being 30-32 per cent of overall revenues by 2017-2018. India’s urban population (approximately 28 per cent of India’s total population) contributes up to 67 per cent of revenues of the overall diagnostics market. Midsized to large diagnostic chains and hospital-based diagnostic centers are increasingly packaging and marketing their available test menu in the form of preventive and wellness test packages that help identify pre-existing diseases or likely risk of particular diseases before onset of actual symptoms. The overall market for wellness and preventive diseases was six per cent to eight per cent of total diagnostic services market in 2014-2015. Rising literacy levels are expected to increase awareness of preventive and curative healthcare and, in turn, boost demand for diagnostic services, which segment is expected to grow to 23 per cent-25 per cent over next three years. The preventive and wellness segment of the diagnostic industry market is estimated to grow from
Rs 26.4 billion in 2014-2015 to Rs 48 billion in 2017-2018.
With rising income levels and changing lifestyles, the share of infectious diseases is decreasing and share of lifestyle diseases like cardiac diseases, diabetes, hypertension and cancer are increasing, thus boosting demand for diagnostic facilities. India’s population is expected to grow to over 1.42 billion by 2026, from around 1.21 billion in 2011. Nearly eight per cent of it was above 60 in 2011 and is expected to rise to 12.5 per cent by 2026. A UN Population Fund report on status of elderly in Himachal Pradesh, Kerala, Maharashtra, Odisha, Punjab, West Bengal and Tamil Nadu in November 2012 highlighted chronic ailments like arthritis, hypertension, diabetes, asthma and heart disease as being common among the elderly with nearly 66 per cent reporting one of these diseases. Men were found to be more likely to suffer from heart, renal and skin diseases, and women from arthritis, hypertension and osteoporosis. With more people being added to this age group, demand for healthcare facilities in India is expected to surge in the future.
Lifestyle-related illnesses have been increasing rapidly in India over last few years by accounting for nearly 56 per cent of all deaths in 2008 and tend to increase in tandem with rising income levels alongside increased demand for healthcare services. With close to 48 per cent of market share in 2014-2015, standalone centers dominate diagnostics industry and absence of stringent regulations and low entry barriers have helped small pathology labs and radiology centers proliferate in India. Diagnostic chains adopt a hub-n-spoke model which helps them increase their catchment area. Radiology centers for diagnostics chains are mainly present in major urban centers but do not operate on the hub-n-spoke model. Samples collected at collection centers and transported by road in one hour to one day, besides also by air and rail.
Diagnostic centers have a 15 per cent market share and are split into pan-India and regional chains. The share of diagnostic chains in the overall market will increase to 16 per cent by 2017-2018 due to robust CAGR of 19 per cent over next three years, led by rapid expansions in number of outlets by major chains and standalone centres. However, to stay ahead of the competition, they have to constantly upgrade their technology – involving significant capital investments and increased maintenance costs that increase cost overheads for service providers. One such major player is Dr Lal Pathlabs headed by Brigadier Dr Arvind Lal, CMD, which is offering 1,16,000,000 shares at Rs 540 to Rs 550 per equity share on December 8, 2015 to December 10, 2015. Noting that there are facets of medicine that are unheard of, Dr Lal said Lal Pathlabs diagnostics touched the lives of 10 million patients in 2014 itself. He said India, whose population is expected to touch 1.42 billion by 2016, is burdened by two types of diseases: communicable diseases and non-communicable diseases (lifestyle diseases – of which 60 per cent Indian died of including diabetes). With the company’s turnover being FY15 Rs 6,625 million, Biochemistry remained the company’s bread-n-butter, besides being the pioneers in microbiology testing and tuberculosis today could be detected in barely two hours – compared to six weeks earlier. Genetics/Cytogenetics: is the latest field of technology where “Downs Syndrome” can be diagnosed in a baby, while Histopathology can diagnose malignant tissue, he said while stating that the company did 1,000 biopsies per day and cancer cause was found to be due to genetic and lifestyle diseases. The diagnostic services market (Rs 377 billion in 2014-2015) – which is highly-fragmented (48 per cent standalone centres, 37 per cent hospital-based and 15 per cent being diagnostic chains) – is growing faster than healthcare (16-17 per cent) and is expected to grow to Rs 600 billion by FY18. He said Dr Lal Pathlabs is expanding its presence in existing markets, besides targeted expansion in South and West India with two central labs in Kolkata and Lucknow – alongside its Delhi Central Lab. Noting that there are about 50,000 unorganised labs in India, he said the company’s focus would be on enhancing its quality standards of technology.
Meanwhile, the Pharmaceuticals segment too is witnessing demand for growth. ALKEM Laboratories has come out with an IPO of 12,853,442 equity shares at Rs 1,020 to Rs 1,050 per share from December 8 to December 10 to increase its manufacturing capacity in meeting the needs of both domestic and foreign markets. Jt Managing Director Sandeep Singh said ALKEM is the third fastest-growing company among India’s top 10 Pharma companies with Rs 37,887 crore revenue and CAGR of 22.30 per cent since 2011. “The domestic market remains critical to us as 75 per cent of our revenue comes from it and we are well positioned to grow in the US market – our key focus area where we clocked Rs 645 crore revenue (besides earning Rs 957 crore revenue in international markets comprising 54 countries like Europe, Australia, Philippines, Kazakhsthan and Chile). We plan to market and sell US product portfolio to other developed markets. Our 2014 CAPEX was Rs 150 crore to Rs 200 crores and besides USA, Australia is an important focus market for us where we, in 2009, acquired majority stake in an Australian company – Pharmacor Pty Ltd. We have 16 manufacturing facilities – 14 in India and two in USA,” he said, adding that the present focus is on brand-building; growth in prescription and prescriber base in key specialty areas; investment in training; increasing market share in other geographies including Eastern Europe, Vietnam, Colombia and South Africa – besides our key markets: Australia, Europe, South-east Asia, Latin America, Africa and CIS.
The pharmaceuticals industry is one of the largest industries in the world and is globally expected to grow at CAGR of 4.7 per cent from 2014 to 2019 to reach sales of $1,334.2 billion from $1,060.7 billion in 2014. Since 2005, India has begun to grant product patents but several countries do not recognise product patents. The US is the largest pharmaceuticals market in the world and recognises both product and process patents. Historically, the global pharmaceuticals industry has been dominated by the US, Germany, France, Spain, UK and Japanese markets with combined sales of $637.9 billion in 2014 – constituting 60.1 per cent of global pharma industry – while the US accounted for sales of $385.9 billion in 2014 and is expected to remain the largest market. The growth of global pharmaceuticals market is expected to be heavily driven by rapid growth in certain countries called “Pharmerging” countries – whose absolute pharmaceuticals spending is expected to grow by over $1 billion between 2014 and 2019, with the IMS Health identifying 21 such countries. These countries had combined sales of $260.8 billion in 2014 – 24.6 per cent of global pharma industry – and China, the largest market in the group, accounted for 42.0 per cent, while Brazil, Russia and India accounted for 12.3 per cent, 6.4 per cent and 5.8 per cent respectively. The pharmemerging countries are expected to account for 10 of the leading 20 pharmaceuticals markets in 2019.
The growth of the global pharmaceuticals market is attributed to; improvement in overall macroeconomic environment in major developed markets; rapid growth in pharmemerging markets; changing demographics; improving life expectancies; and innovation of new products. Key growth drivers of this industry include; Patents expiry of brand-name and blockbuster products; government targets to raise generics usage levels; healthcare reforms and payer cost-containment efforts; and increased healthcare insurance coverage. The Indian pharmaceuticals market is estimated to be worth $36.8 billion in revenues in 2016 and is witnessing rapid growth due to; high demand with nearly 80 per cent spending borne out-of-pocket by patients and nearly 90 per cent drugs sold being generics; increased demand for drugs to treat chronic illnesses; and demand for generics in US, Europe.
The domestic formulations industry is currently the largest component of the Indian pharmaceutical market and was valued at Rs 745.8 billion in 2015 with recorded CAGR of 12.3 per cent from 2009 to 2015. This industry’s size is expected to increase at CAGR of 13 per cent between Rs 1,359.0 billion and Rs 1,484 billion by 2020 in being primarily driven by enhanced medical infrastructure; expansion of medical facilities; rise in chronic illnesses like cancers, diabetes, respiratory and cardiovascular disease; rising income; and greater health insurance coverage. Government encouragement has witnessed fast expansion of corporate hospital chains. High demand in the anti-infectives therapy area is expected to grow at CAGR of 8.9 per cent between 2014 and 2019. However, compared with developed countries, there is low penetration of the pharmaceuticals market in India with much of the population not having access or affordable access) to healthcare. The government’s draft “National Health Policy 2015” highlights plans for increased availability of free or subsidised medicines and, under the planned national health Assurance Mission, had made States responsible for providing free access to drugs. One such policy initiative is the “Jan Aushadi” scheme which aims to establish a network of low-cost generic dispensing outlets, where patients can access these products in 50,000 such outlets over next five years.