SECTOR ANALYSIS

The healthcare industry in India

Prepared by The Trade Council in India New Delhi

Date File No. Our ref. Case No.

November 2010 VB

Introduction
Indias healthcare sector has made impressive strides in recent years. The demand for healthcare services in India has grown from US$ 20.6 billion in 2001 to about US$ 38 billion in 2009 and is expected to touch US$ 75 billion by 2012. The healthcare industry accounted for 6.2% of Indias GDP in 2009 and this is expected to go to 7.5% by 2012. On the one hand, the Indian middle class, with its increasing purchasing power, is more than willing to pay for better quality healthcare and on the other, the supply to healthcare services has grown steadily, as the private sector becomes more involved in healthcare industry in India. Most of the spending originates from the private sector which accounts for more than 80% of the total healthcare spending in India. Currently, the Indian healthcare industry offers promising business opportunities for foreign companies. The Embassy of Denmark in India has got the relevant experience and expertise in providing specialized services in the healthcare industry in India based on careful investigations and neutral opinions. The Sector Expert Healthcare, Vaneet Bansal is professionally qualified and has got substantial experience in the healthcare industry in India and has worked for over 14 years with reputed multinational companies in India before starting his association with Danish Embassy in New Delhi. We invite Danish companies to explore the potential in this very interesting market.

Market Indicators and Trends

Drugs and Pharmaceuticals The Indian pharmaceutical industry has carved out a unique place on the global map, not only as a manufacturer of generic drugs but also of new formulations, with growing emphasis on research and development. With an annual turnover of over US$ 8 billion, growing at the rate of over 12% per annum, the Indian pharmaceutical industry is globally ranked 4th in terms of volume. The growing population, demand for specialty healthcare and need for medicines to combat lifestyle related diseases are leading to increased demand for quality pharmaceuticals and new medicines. In March 2005, the Indian Patents Third Amendment Bill established patent protection for pharmaceutical products in India. This has and will continue to usher a change in this highly fragmented industry. Growing demand along with product patent regulations will make the Indian market an attractive proposition for international companies. Biotechnology After excelling in the IT industry, India is now shifting its focus to the most promising industry of the future, Biotechnology. With its large pool of scientific talent, world class information technology industry and vibrant pharmaceutical sector, India is well positioned to emerge as a significant player in the global biotech arena. The Indian Biotechnology sector today comprises over 325 companies generating revenues of over US$ 2.5 billion which is estimated to reach
The Trade Council, Embassy of Denmark, New Delhi The Trade Council Page 2 of 6

US$ 5 billion by 2012. The sector has been growing at between 30 per cent and 35 per cent per annum for the last three years. An Ernst and Young survey identifies India as one of the five emerging biotech leaders in the Asia-Pacific region. India is already the world's largest vaccine producer as well as the largest cultivator of BT cotton. Medical Devices & Equipment According to the official statistics, the number of clinic and hospitals has increased almost four times in the last four decades in India. The rebuilding of Indias healthcare infrastructure combined with the emergence of medical tourism has derived strong demand for medical equipments and devices. The medical device industry is today approx US$ 2.50 billion in size. Even more alluring than the size of the market is its projected growth. The demand for medical equipments is rising annually at an impressive rate of 15 % and will reach US$ 4.97 billion by 2012 (Source: E&Y). Currently over 65% of the medical equipments are imported and thus is a key area for forging partnerships across borders. Engineering excellence, cost-effective labour, increasing emphasis on intellectual property rights and most importantly a fast growing domestic market are some of the key features that India offers. Foreign participation is required as there are immense opportunities for global medical device companies. Knowledge Process Outsourcing The success of business process outsourcing (BPO) related services in India have prompted the companies to start off shoring high-end knowledge-based activities as well. These activities include clinical research, drug discovery, patent filing, and insurance claims. Indian clinical trials market in 2009 was US$ 250 million and has been growing at a CAGR of 40% for the last 3 years. India is fast emerging as a favored destination for clinical trials outsourcing, in view of the countrys advantages like large pool of patients, faster patient recruitment, well trained English speaking Physicians and IPR protection, besides lower costs. Over 100 pharmaceutical companies, including Fortune 100 companies such as Pfizer and Merck, are currently outsourcing clinical trials in the country. Also, there is an increased awareness regarding ICHGCP (International Conference on Harmonisation-Good Clinical Practice) guidelines for conduct of clinical research. Besides, Indias inherent advantage in IT skills helped in outsourcing of high-end activities like data management. All these advantages will drive the growth of Clinical Trial outsourcing industry to scale up to US$ 1 billion by 2012.

Market Opportunities
Drugs and Pharmaceuticals India has emerged as a major supplier of several bulk drugs, producing these at a lower prices compared to many producers worldwide. The US Food and Drug Administration (FDA) have already approved 85 Active Pharmaceutical Ingredients (API) and formulation plants in India, the highest such number outside

The Trade Council, Embassy of Denmark, New Delhi The Trade Council

Page 3 of 6

the US. India is all set to become a major exporter of pharmaceuticals, particularly generic and OTC drugs, to global markets. By 2012, India could be producing 15% of the worlds bulk pharmaceuticals and drug intermediates. However achieving that level of growth will require an estimated US$ 1.2 billion investment in production capacity. Many multinational generic companies have been sourcing products from Indian manufacturers for some years. Some also use Indian contract manufacturers to manufacture the finished product. Contract manufacturing, currently estimated at US$ 350 million, is expected to reach US$ 1 billion by 2012. Some companies encouraged by the relaxation of the rules on foreign ownership and a favorable tax regime, have gone beyond contract manufacturing, setting up their own local manufacturing facilities. The financial incentive in such a case is compelling: Goldman Sacs estimates that the cost of setting up and running a new manufacturing facility in India is one-fifth of doing so in other developed countries. On the other hand, since many of the local players are generic producers specializing in anti-infective, and as the illnesses of affluence and age continue to increase in India, the demand for innovative and new pharmaceuticals is on rise, providing enormous opportunities to new and research products of foreign pharmaceutical companies. Biotechnology The Biotechnology industry has doubled in size within the last two years in India. Indian Biotechs are taking the path of global collaborations. The biotech industry in India mainly consists of five distinct segments bio-pharma, bio-agriculture, bioinformatics, bio-industrial and bio-services. Out of the total of 325 companies, nearly 40% of the companies operate in biopharma sector, followed by the bioservices-21%, bioagri -19%, bioinformatics-14% and bioindustrial-5%. The industry in 2007 reached US$ 2.08 billion in revenues, registering a 31% growth over the previous year. Sustaining a 30% growth for five consecutive years, accounts for the fact that industry is maturing. The biopharma segment alone accounts for over two third of the industry 71% of the total industry revenues. Novozymes, one of the leading Danish Company and Biocon accounted for 50% of the total bioindustrial market. The bioinformatics is also growing in double digits. The investments (both in R&D and infrastructure) in the biotech industry have been on the rise over the past five years and offers great opportunities to foreign companies. The Indian government is also supporting the biotech industry through streamlined regulatory framework and policies and fiscal benefits. Medical Devices & Equipments The government has identified healthcare as a priority section and hence have taken some measures to promote one of its most important segment Medical Device Market. The conditions for exporting to India have significantly improved since the economic reforms started in the middle of the nineties. Import license requirements have been modified, majority-owned subsidiaries are possible, and dividends can be paid out abroad.

The Trade Council, Embassy of Denmark, New Delhi The Trade Council

Page 4 of 6

Some other measures are: Reduction in import duty on medical equipment from 25 per cent to 5 per cent. Depreciation limit on such equipment rose to 40 per cent from 25 per cent, to encourage medical equipment imports. Customs duty reduced to 8 per cent from 16 per cent for medical, surgical, dental and veterinary furniture. Customs duty on as many as 24 medical equipments, which include X-ray and tele therapy stimulator machines, has been reduced to 5 per cent. The leading international companies market most high value medical equipments, while only consumables and disposable equipments are made locally. Many multinational companies have expanded their operations in the Indian market in recent years and established manufacturing facilities to assemble equipments for the domestic market and export sales. Knowledge Process Outsourcing Pharmaceutical Research Pharmaceutical research is another area that is expected to achieve tremendous growth in the coming decade, due to Indias huge and growing population, low per capita drug usage, and increasing incidence of disease. Global pharmaceutical alliances with Indian drug firms are finally beginning to look like a two way Street, with major R&D deals being struck. For instance 7TM Pharma of Denmark has collaborated with Dr Reddys Laboratories of India for drug discovery on the selected drug targets in the area of metabolic disorders. These types of collaborations which provide the opportunity of working jointly on individual strengths can definitely provide fruitful results. Clinical Trials India has become an attractive market for clinical testing. In January 2005, Indian became compliant with the Trade related aspects of Intellectual property rights (TRIPS) agreement and formally recognized product patents. This triggered growth in Indian clinical trial activity by contract research organizations. Government taxation benefits are further boosting R&D in India. According to a study done by Rabo India finance, a subsidiary of Netherlands based Rabo Bank, the huge patient population offers vast genetic diversity, making the country an ideal site for clinical trials. Moreover, the study also mentions that clinical trials account for 40% of the costs of developing a new drug and the cost of a clinical trial in India is only 60% of what it would be in other developed nations. As a result the Indian clinical trials market currently estimated at US$ 140 million is expected to reach US$ 1 billion by 2012, according to Infomedia.

Contact information
For further details, please contact: The Royal Danish Embassy The Trade Council Vaneet Bansal (vanban@um.dk)

The Trade Council, Embassy of Denmark, New Delhi The Trade Council

Page 5 of 6

The Trade Council is a part of the Ministry of Foreign Affairs and is the official export and investment promotion agency of Denmark. The Trade Council benefits from around ninety Danish Embassies, Consulates General and Trade Commissions abroad. The Trade Council advises and assists Danish companies in their export activities and internationalisation process according to the vision: Creating Value All the Way. The work in the Trade Council follows specific procedures and quality guidelines. In this way our customers are secured the best possible quality under the varying working and market conditions at any given point of time.

Ministry of Foreign Affairs of Denmark The Trade Council, Embassy of Denmark, New Delhi 11, Aurangzeb Road Phone no: (91) 11 4209 0700 Fax: (91) 11 2379 2019 E-mail: delamb@um.dk www.ambnewdelhi.um.dk