Indian pharma market — Ernst & Young unveils `Health Quotient'

Hyderabad: ERNST & Young unveiled its first-ever dedicated report on the issues and opportunities in the Indian pharmaceuticals, biotech and healthcare sectors, titled `Health Quotient', at a CEO Conclave held here on Friday.

According to the E&Y India Health Sciences Industry Leader, Mr Utkarsh Palnitkar, 'Though E&Y's annual global pharmaceutical and biotechnology reports are recognised around the world today, `Health Quotient' is the firm's first-ever health sciences report dedicated to the Indian bio-pharma market.'

The report indicates that the heightened M&A activity in the generics industry will continue to sustain momentum with several global majors viewing India as a key manufacturing destination. Globally, one of the key drivers for generics consolidation is the vertical integration into active pharmaceutical ingredients (APIs), which demonstrate relatively more resilient profit margins.

Indian companies offer an attractive option with both strong API cash flows and more than 75 US Food and Drug Administration (USFDA) approved plants, the report says.

Reforms in distribution: `Health Quotient' has forecast that the next wave of reform in the Indian pharma sector will be in the distribution network. Unlike pharma, R&D and manufacturing, which have seen significant transformation in the last decade, distribution, which accounts for almost 35 per cent of the retail cost of the drug, has been slow to change.

The report has pointed out that this is due to both regulatory impediments such as the delay in implementation of VAT and the highly fragmented nature of the distribution framework. This has resulted in high distribution margins and logistics costs, ineffective controls on inventories and sub-optimal penetration of the rural market.

The forces driving change in the distribution structure, according to E&Y report, include the implementation of VAT, growing institutional sales, emergence of pharma retail chains and the manufacturer's focus on cost rationalisation.

Further, the report says that unlike most other biopharmaceutical markets, vaccines possess certain distinct facets that enhance India's competitiveness. These facets include the presence of large institutional buyers, the generics-driven nature of the market and relatively lesser interest from large multinational players, who are increasingly focussing on developing `blockbuster' drugs.

Medical tourism: The report has also highlighted the overburdened health infrastructure in the West coupled with high costs that were driving the strong growth in the global medical tourism market. With its relatively low cost, high value medical care, which is well distributed across several regional centres, India is emerging as a popular healthcare destination, the report said.

The report said the country faces stiff competition from other Asian destinations such as Thailand, Singapore and Malaysia. 'Though the usage of advanced technologies has increased the confidence level of foreign patients in Indian hospitals, what distinguishes other Asian countries, especially Thai medical care, is their service-orientation.'

The E&Y report has recommended that to harness its true potential in the emerging medical tourism market, the sector needs greater public private partnership, adoption of a more holistic approach towards healthcare delivery, intensive marketing efforts of medical facilities and building brand equity through delivering consistent quality services.