Medical Industry Diagnosis: Triage for Health Care and New Vision for Life SciencesPublished: April 17, 2008 in India Knowledge@Wharton
If inefficiency is the path to opportunity, the future for India's health care sector may be bright. Just how close that future is varies by market segment. In the case of life sciences, its arrival could coincide with industry participants' greater willingness to accept risk, while health insurance could seize its day amid rising treatment costs. As for health care delivery's chance to shine, that could be more in the distant future, stymied by a lack of infrastructure investment and trained professionals.
Two recent conference panels, one at Wharton and the other at Harvard University, explored the state of India's health care system. Among the conclusions: Government and industry need to increase health care investment and employment and make high-quality care more affordable and available to all.
The Wharton India Economic Forum panel titled, "India's New Mandate: Addressing the Health Care Paradox," portrayed a system of contradictions. On the one hand, medical tourism is on the rise. On the other, tuberculosis seems unstoppable in certain states. "Paradox is one characterization," said Bhaven Sampat, professor of health care management at Columbia University and panel moderator. "But challenge is another. Like every rapidly developing country, India is faced with the challenge of how to manage growth with distribution, how to balance equity with efficiency, and how to ensure that as parts of the Indian health care sector enter the worldwide elite, the masses are not left behind."
An assessment of Indian health care reveals poor performance on the key dimensions of coverage, purchasing and delivery. "Despite India being the largest exporter of generics, most people have never seen a tablet," said Rajiv Gulati, director of India-China strategy at Eli Lilly. "Patients from the U.S. and the UK come to India for treatment, but approximately 70% of Indian patients have never seen a doctor."
'A Good and Sustainable Growth Rate'
But everything starts somewhere, and "despite the woefully inadequate infrastructure, the health care sector is growing at a compound annual growth rate of 15%, which is a good and sustainable growth rate due to the ever-widening gap between demand and supply," said Suneeta Reddy, finance director at Apollo Hospital Enterprises, a network of 41 hospitals with a combined 8,000 beds.
India has only 1.5 beds per thousand people, while China, Brazil, Thailand and Korea have an average of four beds per thousand people. Investments of $20 billion may be needed over the next five years to increase the availability of doctors and hospital beds. In the meantime, changing demographics and disease profiles, as well as rising treatment costs, may cause spending on health care delivery to double over the next 10 years. Reddy noted that one driver of this growth is "the move from chronic to lifestyle diseases. India is becoming the diabetic capital of the world and Indians have a predisposition to heart disease." Other drivers include a demand for tertiary care that had not existed before, medical tourism representing a $2.5 billion dollar opportunity, and the growth of preventive health care, she said.
In addition, consumers have become far more knowledgeable about what is available in the market and more demanding about quality and service. The typical Indian is looking at clinical outcomes, with a focus on success rates and infection control similar to those of their U.S. counterparts, Reddy said. Two-thirds of India's spending on health care is out-of-pocket, due in large part to an inefficient and inequitable coverage and prepayment system. Despite this, Reddy hopes that rapid growth in the insurance sector will "necessitate a credible provider network to grow simultaneously."
For now, though, the health care paradox is entrenched. In a nation of 250 million cell phone users, there are no statistics on immunization control, noted Prakash Khubchandani, founder and managing director of KrimsonHealth, a developer of healthcare infrastructure based in Mumbai. He linked this to the nation's acute shortage of medical professionals and stated that "if we can increase education levels to what we are gearing up for over the next decade, India can be the next health care superpower." However, education is not the only hindrance. Primary health care and immunization programs fall on the government, whose infrastructure is inadequate. Forty percent of primary health centers are understaffed. Asked whether this was a technical issue or a matter of priorities, Khubchandani pointed to a "lack of private-public partnerships, policy regulations and proper regulatory authorities."
Reversal of the Brain Drain
Yet whereas the lack of opportunity often takes people overseas to find their careers, "the brain drain process is being reversed at a very rapid pace," Khubchandani said. "In the past, India lacked the education and paying capacity and people often went abroad to make the right kind of money." He noted the experience of a 750-bed hospital being built in Mumbai. Owing to the shortage of domestic professionals, foreign doctors are eligible to apply. To make the move to India more attractive, foreign doctors are offered amenities, including apartments, and are guaranteed five-year contracts.
"The lack of professionals directly correlates to the number of colleges, which are extremely few and difficult to set up," Reddy said. "Health is a state subject and therefore government permission is required for the setup of any medical or nursing facilities. This is a dichotomy that needs to be addressed in order to meet India's health care aspirations." That said, India offers an attractive value proposition for doctors based abroad. Its private-sector infrastructure and clinical outcomes match those of developed nations. Patient volumes are large, living standards are comparable and, most important, doctors don't need to set aside large amounts of their salary for legal insurance.
To stimulate a more universal growth and radically improve the quality of health care, the panelists added, the government needs to encourage private investment, define and enforce minimum standards for health care facilities, facilitate the supply of quality manpower, support the growth of insurance, and reform the government's role as payor and provider.
For many years, health insurers were reluctant to enter the business because of a one billion rupee capital requirement and unattractive market conditions. However, recognizing that the government would be unable to cover a population of 1.2 billion people, a bill was passed encouraging investment in the private health insurance sector and relaxing capital requirements. "But it's a complex industry that is fraught with issues," Reddy noted. "In the U.S., providers deal with corporate hospitals such as HCA and Tenet, while in India they have to deal with nursing homes that don't follow any standardized reporting procedures." This is changing as new hospitals that enter the sector look to protect their brand.
An Untapped Population
Tapping a population that has never been insured before in a market with a 35% compound annual growth rate opens the door for opportunity, Reddy said. "With this growth, there has to be a credible risk management framework. Institutions are publishing clinical protocols and insurance companies are looking at this data. Earlier, there was no actuarial data for people to price their products, but with the data now available, private insurance will offer many more products and we will see a growth in this sector."
Khubchandani was not as optimistic. He focused his argument on the inefficient coverage of the middle class and those in rural India. Over the last few years, the government has introduced several programs to subsidize villagers but "this will only increase the problem because the trickle down to the grassroots level of money is so bureaucratically dodged that the end consumer doesn't receive much," he said. "That is going to be the tremendous challenge; I don't see how foreign insurance companies are going to deal with this level of corruption."
Additionally, many Indians have shied away from medical insurance policies because of lengthy and costly claims processing. Reddy, however, believes that, in the future, "patients will not have access to hospital care without insurance claims as treatment costs continue to rise." Health insurance, she added, "was subsidized for a long time and the loss ratio was 200%. Currently the loss ratio on corporate health care is 100% while retail is only 60%. People are realizing that they need to be honest and hospitals are recognizing that they need to be transparent if they wish to get their money back to make this system work."
On the provider side, panelists said, more efficient delivery can be achieved by giving greater autonomy to government hospitals, forming public-private partnerships and focusing government effort on public health and rural primary care. There has been a distinct shift from public to private health care over the last decade; patients turn to private providers for most of their needs because doctors and medicines are more easily available and the quality of care is better.
Khubchandani said his group has been exploring partnerships with public hospitals, which often are mismanaged and lack adequate infrastructure, manpower or equipment to sustain patient volumes. "The red tape is so colossal that it is incredibly difficult to do these kinds of partnerships without government policies in place. There has to be an effective way to get around this roadblock." Reddy said the private sector will spur the necessary changes. "There are clear inefficiencies in the public sector, such as technology absorption, lack of adequate reward for doctors, lower quality of clinical outcomes, and absence of right to second opinion," she noted. "The private sector addresses these issues. You can't blame patients for wanting to access better levels of care."
A Need to Embrace Risk in Life Sciences
If the future of health care delivery in India remains a still-distant promise, little more than a change of mind-set stands in the way of the life sciences sector. Cost and competitive pressures on Big Pharma and India's strengths as a low-cost location combine to present huge opportunities, according to panelists at the Harvard Business School India Conference. They advised India's life sciences entrepreneurs to shed their "service" mind-set and embrace risk, while tapping into the emerging "innovation ecosystem."
Rashmi Barbhaiya, CEO of Advinus Therapeutics, a research-based pharmaceutical company in Bangalore and Pune, noted that Indian life sciences entrepreneurs "generally like to follow rather than do something different and take risks." While Indian pharmaceutical companies have demonstrated their success with generic drugs, he said, they have to make the transition from being a service provider to being an innovator. He added that he's often asked about the challenges Indian companies face from their Chinese counterparts. "When India makes the transition from service to innovation, U.S., Japanese or European companies will come to India, and [India] will not have to worry about China."
Shiladitya Sengupta, a professor at Harvard Medical School, said he doesn't like seeing "90% of research dollars go to 10% of the population." From his point of view, technology is the key to providing affordable health care to the five billion people "at the bottom of the pyramid." Sengupta encountered skeptics when he helped found Tempo Pharmaceuticals, which uses proprietary nanocell technology to create medicines at a fraction of the price of branded products. Tempo, which licenses its nanocell technology from the labs of cofounder Ram Sasisekharan, a Massachusetts Institute of Technology professor, has an asthma drug that will go into trials next year, and the company has raised $22 million in venture capital.
Tempo's asthma drug uses off-patent ingredients to lower production costs to about a tenth of that for Advair, a $4 billion GlaxoSmithKline brand that is the market leader, Sengupta said. Tempo is currently developing nanobiology-based drugs for oncology, rheumatoid arthritis, atherosclerosis, inflammatory bowel disease and other diseases.
From Bench to Bedside to Market
Health care solutions for underserved markets like those in India should not just be affordable and accessible, but also "translatable and scalable from bench to bedside and to market," Sengupta noted. In another venture, he is working on developing low-cost diagnostic kits for markets such as India. "A glucose meter costs about $350 in the U.S.; a hemoglobin injection kit costs $50 to $100. You have to actually price it at 20 cents. Those are business opportunities."
A survey of India's research and academic infrastructure conducted by Sengupta to support the development of new drugs and medical devices yielded a list of 300 universities and "a similar number of national institutes of excellence," but without any connectivity. Subsequently, he brought together heads of universities and government officials to create a strategy for collaboration and new institutions.
Within two years of launching this effort, Sengupta won Indian government approval to set up two organizations -- the Translational Institute for Health Science and Technology and the UNESCO University of Biotechnology, which received funding from the United Nations agency. Among the institutions in the pipeline over the next five years are a stem cell institute, four national institutes of pharmaceutical sciences, a national institute of medical genetics, an animal biotechnology institute, a marine biotechnology institute, three molecular medicine centers and an agri-food biotechnology center, he said.
According to Sengupta, India currently needs 5,000 PhDs annually but produces only 1,500, "most of whom are of questionable quality." He said he and his colleagues have identified areas of need in teaching, R&D, testing and validation, manufacturing, regulation and marketing. The talent needs include biologists, medicinal chemists, molecular biologists and organic chemists, he noted.
From Generics and Low Costs to Development
Rakesh Bamzai, president of marketing at Biocon, a biotechnology company in Bangalore, said new doors opened for the Indian life sciences industry three years ago after the Trade Related Intellectual Property Rights agreement brought India's patent laws closer to those of the United States and Europe. "Over the years, India has focused a lot on generics, big volumes and low-cost manufacturing," he said. "But after 2005, people are looking at more and more development. Research is still a big dream for companies in India, but development is a reality."
Bamzai said India is also emerging as a big market for clinical development. Biotech and pharmaceutical companies, he added, are extending product life cycles by looking at the development of other indications of existing products.
Already, India has emerged as a dominant player in many pharmaceutical segments. According to Bamzai, Biocon is the world's fourth-largest producer of human insulin; Biocon and Wockhardt, another Indian pharmaceutical company, make India the third-largest producer of human insulin. India is also the "leading maker of anti-diabetes drugs; we have a 20% market share in anti-retrovirals and a 40% share in hypercholesterol drugs," he added.
India's R&D labs are also cranking up 30% of the abbreviated new drug application filings in the United States, he said. And they file half the "drug master files" -- submissions to the U.S. Food and Drug Administration with information about facilities, processes or articles used in the manufacture and storage of drugs.
Indian companies also have 40 to 50 new chemical entities under development, said panelist Anuradha Acharya,CEO of Ocimum Biosolutions, which has offices in Indianapolis and Hyderabad. She described her firm as a "global genomics outsourcing partner for discovery, development and diagnostics" for pharmaceutical companies. She said more than three-fourths of the top 50 pharmaceutical companies are doing clinical development in India.
Besides supplying the developed world, Indian pharmaceutical companies are successfully tapping markets in Syria, Iraq, Iran, Azerbaijan and Algeria, Bamzai said. "If you see the [profit-and-loss statements] of companies that are doing well in India, it is because they are doing better in these countries. The values are higher and entry barriers are low in these markets."
Spotting Opportunities in Big Pharma's Challenges
Acharya, who returned to India from the United States to found Ocimum in 2000, has already made three international acquisitions --Gene Logic Genomics in the United States, Isogen Life Science in the Netherlands and the genomic diagnosis business of MWG Biotech in Germany. Previously financed by the International Finance Corp., the World Bank's private equity arm, Ocimum recently raised $17 million in venture capital.
"It's the big firms that are feeling the pressure and that pressure is becoming opportunity for companies like us," Acharya said, adding that the Indian cost arbitrage opportunity "is still a big attraction." Preclinical trial costs in India are about a tenth of what they are in developed countries, while clinical trials could be done for half the cost, she noted, citing research by Rabo Finance of the Dutch Rabobank Group.
According to Acharya, the top drivers for Indian life sciences companies are drugs going off patent, workforce reductions at Big Pharma companies, and the advance of "personalized," genomics-based medicine. Also creating opportunities are such trends as a shift in focus from "treating sickness to preventing sickness," pharmaceutical companies' preference for being "virtually integrated" rather than fully integrated, and a change in mind-set from being "U.S. centric to global centric."
As for seizing such opportunities, Barbhaiya of Advinus Therapeutics said that rather than adopting a "Just Do It" philosophy, it would be better to be able to say, "Just Done It." He reminded the students in the audience that, "If a non-MBA like me can do it, I am sure you all can do it as well."