If big pharma came calling first in the emerging markets, can its not-so-distant cousins — the medical device majors — be far behind? The world’s leading device companies are currently showing a lot of interest to gain a pride of place as they flock to India, one of the foremost “pharmerging” countries.

India, along with the other emerging markets such as China, Brazil and Russia, is reportedly contributing one billion new patients to the global healthcare delivery system. These rather treatment-naïve patient populations provide a great window of opportunity to both drug and device makers. Also, the medical devices sector gets a big stimulus from India’s $50 billion worth healthcare market, which is growing at the rate of more than 20% per annum during 2010-11.

Valued at $3.6 billion in 2010, the medical devices and equipment market is expected to almost double, reaching $6.4 billion in next three to four years at a compounded annual growth rate of 15.5% annually, according to a report released recently by Cygnus Business Consulting and Research Pvt Ltd, an industry analysts’ firm based out of Hyderabad, southern India.

The market is driven by rising standards of living and the resultant increased affordability of quality health care, coupled with faster growth of lifestyle diseases. The equipment segment leads the medical devices business in India, accounting for 55% of the total market, followed by medical implants and disposable segments contributing approximately 25% and 20%, respectively.

Investments in the healthcare infrastructure are steadily on the rise, from both India and overseas, reports indicate. Apparently, the expanding and largely import-dependent healthcare market in India will become important for device manufacturers in the next three to five years, playing a major role in changing the business mix of medical device manufacturers.

The Affordability Challenge

However, companies looking for growth options elsewhere to offset dwindling revenues in their home markets face certain challenges in India, especially when it comes to cost realizations. “A medical device conceived and successful in America is not likely to sell in China or India as it is,” according to Jyotirmay Datta, global industry head for Medical Devices, Wipro, a leading global IT services company headquartered in Bangalore.

The affordability of products for the Indian consumer is extremely low, as the healthcare spend in this country is less than 3% of its GDP. In order to make the product suitable for India, manufacturers either have to find a way to bring costs down or come up with new lines of products, he remarked in a recent media interaction.

Companies can achieve cost-efficiency by changing their R&D, processes and technology, averred Mr. Datta. Wipro, which is one of the leading R&D services outsourcing companies in the world, has a joint venture with GE Healthcare, named Wipro GE Healthcare Pvt Ltd, to produce cost-effective medical gadgets.

To make use of the cost benefits in production, many of the device makers have already set up manufacturing bases in India. While larger players building own captive centers, medium-sized firms are forming joint ventures with local players. Others without sizeable investments to embark on full-fledged production are focused on R&D to develop low-cost technologies.

Huge Outsourcing Potential?

“There are about 120 local Indian medical device companies in the country. Except for 25 of them, all are small and medium-sized companies, good in manufacturing low-cost products with minimal R&D,” said ORS Rao, director, Cygnus.

Therefore, the potential is huge to outsource complete production of simple medical devices for Indian market, as well as for export to the developed markets, which can save significant costs without compromising on quality parameters. Besides, multi-national companies can partner with the medium-sized Indian manufacturers to outsource contract manufacturing of non-critical parts of the devices. Mid-caps with proven skills would face no problem to take up more sophisticated parts provided they get access to the technology, Mr. Rao contended.

Technology continues to pose a major hurdle to make the latest products for Indian medical device makers. Even if a company is able to come up with an innovative product despite the low economies of scale, successful marketing of the new product could still be a challenge.

Device makers also see the lack of a proper regulatory framework a hurdle; medical devices are currently regulated as pharmaceutical products in India. However, the scene is expected to get more clarity as soon as a draft regulation is ready.

Another important issue is of compliance with global regulatory standards. The majority of Indian manufacturers are in the process to follow Conformite Europeane Mark (CE Mark), Good Manufacturing Practices (GMP) standards and International Organization for Standardization (ISO), anticipating a huge churn in the sector.

S. Harachand is a pharmaceutical journalist based in Mumbai. He can be reached at [email protected].