Much has been made of India’s rapid rise in the pharmaceutical and biotechnology arena. The country is now one of the world’s largest producers of generic drugs and vaccines. Companies like Ranbaxy and Dr. Reddy’s Laboratories are becoming well known around the world.

But with the most recent national election – in which the incumbent party was ousted largely due to its failure to address the needs of the impoverished masses – interest is growing in the Indian health care industry’s domestic agenda. How India plans to leverage its reputation on the global pharmaceutical stage to address the needs of its own people was the focus of a panel and keynote address at the Wharton India Economic Forum held recently in Philadelphia. The speakers, who represented a variety of sectors, agreed that the problem was serious, but they were optimistic that Indian health care could improve if both government and industry took some key steps.

Broken System

No matter how you look at it, the Indian health care system is in poor shape, noted Ajay Dhankar, a principal in McKinsey and Company’s Asia-Pacific health care practice. Many people who need care can’t afford it — and thus aren’t receiving the drugs and treatments they require. Most health care in the country is paid for by individual patients, explained Dhankar. “Some 66% of it is paid out of pocket at the time of the incident, and 80% of the money is spent by those who can’t afford it. So the entire payer system is broken. Two-thirds of what the government spends on health care goes to secondary and tertiary care [instead of basic services].”

The insurance industry, a key player in health care, is far from mature in India. Dhankar explained that India has a mix of private, social, and community insurance: “Private insurance is overregulated – international insurance companies were formerly not allowed to own more than a certain percentage of firms in the Indian market. Now those regulations have been relaxed a bit, but it’s still hard for them to make money in India. Social insurance is run by the government – but the same agency that collects the money also sets up the hospitals. So there’s no logic to it. In the community insurance space, a lot of innovative things are being done, and it has shown a lot of potential. But these schemes tend to go bankrupt if there’s a big event – say, an earthquake.”

Taken as a whole, the situation in India can seem daunting. Siddharth Dube, scholar-in-residence at the Center for Interdisciplinary Research on AIDS at Yale University, painted a sobering picture of the country’s AIDS epidemic. “By some indicators, it’s as bad as sub-Saharan Africa,” he said. “It’s far more serious than people have been led to believe. By the government’s own estimate, 5 million Indians are already affected – but some say it’s closer to 8 million. About 1,200 people were infected each day in 2003 – and 325,000 died that year.”

In some areas, said Dube, up to 5% of all adults are infected. “India’s capacity to check the epidemic is defeated; there’s still no political commitment around AIDS. The epidemic will only get worse in the next five to ten years.”

Basic services – which can often stem the development and spread of disease — are sorely lacking in many areas, added Preetha Reddy, managing director of Apollo Hospitals Enterprise. The gap between rich and poor is very visible: while world-class treatments are available at many facilities, many rural residents still don’t have safe drinking water. “There’s been no concentrated effort to handle this problem,” said Reddy.

Chance for Change

The dismal picture, however, also represents a tremendous opportunity. “We see no systemic barriers to fixing the problem – they are just ‘stroke of the pen’ barriers,” Dhankar said. “We just need well-thought-through policies and innovative solutions. While the core elements are being fixed, and growth and development are indeed taking place, health care can’t grow without government support,” he said.

Quality standards at hospitals are not only rising, but they are being certified and benchmarked against their global counterparts, said Reddy. “A lot of institutions are working to achieve international standards for quality.” The benefit? “We can then get patients from other countries to come here,” Reddy explained. Since many patients in the U.S. and the U.K. are on long waiting lists for treatment, it makes sense for India to position itself as an alternative location for care. Such a program, popularly called “health tourism,” can be used as a base from which to build other parts of the system. India could potentially target some 10% of the world health care market, Reddy noted, but the infrastructure isn’t in place yet. As long as the system is kept in balance, tertiary health care tourism can be used to subsidize basic services.

Hospitals are also considering the issue of affordability, said Reddy, noting that many groups were pooling their purchasing in order to negotiate lower prices from drug companies – thus reducing the cost to the end user. Keynote speaker Kiran Mazumdar-Shaw, chairperson and managing director of Biocon, said that the biotechnology sector was also addressing that problem. “The hepatitis B vaccine price has come down to a fraction of the original – from $5 to $10 per dose to just $0.25. This is having a huge impact on immunization programs.”

Big Picture Strategy

Raman Kapur, ex-president of worldwide genetics at Schering-Plough, suggested that government could play a key role in improving health care. “Perhaps it could provide the basic needs; on the pharmaceutical side, it can provide infrastructure and be a catalyst. Generics have been a success; within five years the two dominant generics producers will likely be India and China. India is now starting to develop infrastructure for clinical trials,” he said. “Continuous, inexpensive electricity and other inputs at international prices would go a long way toward leveling the playing field.”

One way Indian industry could differentiate itself, says Kapur, is to emphasize areas of research that the G8 countries aren’t focusing on – namely, non-temperate region diseases like malaria and tuberculosis. Diabetes is also a key disease for research, since it is possible that more than 10% of the world’s diabetics may be in India over the next decade, he said.

Like Kapur, Mazumdar-Shaw urged companies to focus on neglected diseases. “We need innovation and aggressive programs, directing research on AIDS, leprosy, rotavirus – why are those vaccines not being developed in India?” she asked. “We have lots of innovative capability in India but a weak research engine when it comes to academic institutions providing us with ideas as they do elsewhere. This needs to change.”

Strategic Partnerships

In 1994, noted Mazumdar-Shaw, four of the top 10 pharmaceutical companies in India were Indian. Today that figure has risen; nine out of the top 10 are Indian. India ranks third in its region in the number of biotechnology companies; only Australia and China are ahead of it. India has strong capabilities in product manufacturing, product development, and product discovery, and the sector has grown with very little venture capital funding, she noted. “Its vaccine capacity is among the world’s largest, and it’s poised to be a global hub for clinical development. For drug discovery, its analytical costs are among the lowest.”

India’s disease sector is larger than that of the U.S. and Europe combined, she added. On the flip side, “the large and diverse disease pools also provide speed of enrollment and a rich resource for research activity,” said Mazumdar-Shaw. “Many international venture capitalists see having an ‘India strategy’ as a powerful way to decrease risk. Risk capital is drying up in the West. Funding probability increases with the progress of drug development – the farther along a drug is, the more likely someone is to fund it.”

Since venture capital commitment is greater after proof of concept, she said, “valuations increase exponentially along the development curve.” Partnering with India, many companies find, is a powerful and cost effective way to climb the valuation chain. Mazumdar-Shaw’s own company, Biocon, has been successful in partnering with small biotech startups: “Such partnerships allow Indian companies to integrate backward into discovery research and external companies to pursue forward integration strategies.”