Report
A combination of demographic, regulatory and technological changes sweeping the Indian life sciences industry has created an inflection point, which is set to alter its future direction.
We believe that it is not just important for companies to innovate to serve the peculiarities of this new environment, but also to support doctors in their ability to provide quality and cost-effective patient care and treatment.
Written in collaboration with
Written in collaboration with
This research focusses on key trends affecting Indian life sciences as well as the doctors who lead the change in healthcare delivery at the front line. The insights are designed to:
• Understand key existing trends at play that are changing the life sciences ecosystem.
• Amplify the voice of doctors–their challenges, expectations and opportunities and how life sciences companies can support them.
• Highlight implications for life sciences companies and the industry at large.
Indian life sciences is on the cusp of significant change. Several locked-in trends–demographic, regulatory, technological and financial, are shifting the trajectory of the industry. With a record 140 million households expected to enter the middle class in the next decade, consumption of healthcare services is set to increase. The Indian government’s thrust on universal healthcare through
Ayushman Bharat will also increase healthcare demand and drive up patient volumes. However, this high volume environment will be accompanied by pricing and margin pressures as regulations continue to focus on enabling access to low-cost drugs and services.
Meanwhile, life sciences players will continue to witness shifts in the relative attractiveness of global geographies and product segments. The focus on India and other emerging markets will grow, with the US market becoming less attractive compared to five years ago. Complex generics and biosimilars will be the key growth drivers marking a shift away from the more commoditised generics that have historically dominated Indian life sciences. Further, seismic technological shifts towards digital will affect the industry.
India’s success in driving widespread improvements in healthcare access and quality will hinge on doctors at the front line of care, but they remain apprehensive about the future. They allude to the rise of chronic and lifestyle diseases, more informed and demanding patients, a growing focus on wellness and prevention, and advances in health information technology as the most important trends which will shape their jobs in the next five years. These changes are transforming their approach to patients, practice and ways of working. Doctors believe that they have the right skills but require additional support to provide high-quality patient care while keeping up with the rapid evolution of medicine.
Consequently, all ecosystem stakeholders need to redefine their operating model and offerings to provide the right doctor support to manage the future. With the right changes in commercial and operating models, we believe that this moment in the evolution of Indian life sciences holds great potential for innovation and growth.
Winds of change
Rising middle class and growing healthcare coverage drive up sales volume
India’s income profile is changing: the next decade will witness the addition of 140 million new middle-income households which will transform India’s income pyramid into an income diamond. These households will drive about two times increase in healthcare consumption, with much of the incremental demand coming from metros and “developed rural”, which are villages with a population of 5,000 to 10,000 where awareness and aspirations are at par with urban markets.
Further fueling this consumption is the Indian government’s flagship universal healthcare scheme Ayushman Bharat which aims to provide healthcare coverage of up to INR 5 lakh per family to 10 crore families. With a planned coverage of 50 crore beneficiaries, Ayushman Bharat is one of the largest schemes of its kind globally and has the potential to transform Indian healthcare. Even as the scheme matures and ambiguities clear, seven states–Gujarat, Himachal Pradesh, Karnataka, Kerala,
Maharashtra, Tamil Nadu and Telangana are likely to be front-runners and see early volume expansion.
This incremental demand is likely to come through new channels where life sciences companies are currently under-penetrated. Nursing homes are expected to be the largest beneficiaries of increased patient volumes and will become an important institutional sales channel for life sciences companies.
Margin pressures driven by regulations
The life sciences industry has witnessed margin contraction in the last five to six years as a slew of regulations aimed at increasing access to affordable medications have been imposed. Currently, price caps impact more than 820 formulations representing about 18% of the Indian Pharma Market (IPM). Regulatory focus on drug pricing is likely to continue and expert views indicate that 20 to 40% of the IPM could potentially come under price caps in the next five years. Other initiatives like the expansion of Jan Aushadhi stores and competitive licensing could put pressure on drug prices and margins.
Combined with rising demand, these pricing pressures are aggravating a low-margin and high-volume environment that requires life sciences companies to re-evaluate their cost curves. It is critical for Indian life sciences to build a “future-ready” business model in order to thrive in this new environment.
Shifts in the life sciences industry
Life sciences companies are witnessing a shift in the relative growth and profitability of different product and market segments. Beside the rise in chronic drug sales, robust growth is expected in the biosimilars market driven by several biologics patent expiries in the coming years and favourable government regulations for automatic biosimilar substitution. These products are projected to grow to nearly $25 to 30 billion globally in 2024 up from about $7 billion today, clocking a 30% annual growth, approximately.
From a geographical perspective, US headwinds are likely to continue. Generics prices have already seen 4 to 6% deflation since 2017 and a growing buyer consolidation will continue to put further pressure on prices and margins. Complex generics offer a path to win in the US market, registering more than 10% growth between 2014 and 2019. Strong growth is expected to continue, with complex generics projected to reach about $42 billion by 2024.
Digital health ecosystem
New digital models are emerging across the healthcare and life sciences value chain, shifting profit pools and patient behaviours. Digital health is the intersection of digital technology with healthcare and wellness sectors with the primary aim of enhancing the delivery of care. The digital health segment saw more than $500 million of venture capital investments in 2018.
A shift in patient attitudes and behaviours is driving the growth of digital health. India has the second-highest base of active internet users globally, with about 500 million people who use the internet at least once a month. The country has also experienced the highest leap in internet users, with an average of 40 million people gaining access each year. Further, mobile data use, which stands at about 10 gigabyte per subscriber each month, has reached the level of developed markets. Amongst internet consumers, currently 140 million individuals are healthcare browsers while only 10 to 20 million are online health buyers. These numbers will increase significantly in the coming years as the number of users of online services grow and they become comfortable with digital transactions.
Life sciences incumbents have been slow to respond to this trend, and will need to evaluate how to effectively play in this new digital ecosystem.
The doctor of the future
In this changing paradigm, India’s doctors hold the key to successfully driving large-scale improvements in health. However, India has a significant shortage of doctors–with just 0.8 doctors per 1000 population, significantly lower than World Health Organization’s recommendation. The current government’s thrust on AYUSH can partially mitigate this shortage, especially outside the metros. However, specialist shortages are likely to persist and pose a serious threat to the effective expansion of care.
In our survey of 325 doctors, we found that 28% of them feel apprehensive about the future, believing that it will become more difficult to deliver high-quality care in the next five years. Six key trends affecting patients, the practice environment and ways of working will shape doctor behaviour in the future.
Patients
Increasing complexity of diseases: In addition to the existing burden of infectious diseases, India’s tsunami of Non-communicable Diseases (NCDs) is being felt on the ground with more than 85% of doctors saying that a greater proportion of their patients have chronic diseases compared to five years ago. This is also leading to increasing complexity with 81% of Consulting Physician/General Physicians (CP/GPs) and 85% of specialists treating more complex cases today compared to five years ago. As a result, a striking majority of 79% doctors report that they find it challenging to keep pace with the breadth and evolution of disease and treatment protocols.
Doctors are looking for multiple types of support to manage this complexity—85% of doctors rank upgrading their clinical skills as the most important. Additionally, 62% of doctors believe upgrading the skills of their staff is critical. Doctors also suggest that using practice management and disease management tools can help them deal with the increasing complexity of diseases and patient care in India.
Informed, demanding and proactive patients: As digital devices integrate in the lives of more Indians, the evolution of patient behaviour is leading to a fundamental shift in the doctor-patient relationship. Patients are well informed, can research any disease with the touch of a button and expect on-demand care from their doctor. A majority of doctors which is around 83%, say that their patients are more informed about their disease and treatment options compared to five years ago, and nearly 92% of doctors surveyed, expect awareness in patients to further increase in the next five years.
Not only are patients today more informed, they are also more demanding. About 86% of doctors surveyed say that patients value convenience more than they did five years ago and 80% report that their patients expect them to answer queries through messages on phone and messaging apps.
Patients are also more actively managing their health, using digital tools for fitness & prevention, doctor search & scheduling, drug & diagnostic purchase, and ongoing disease monitoring and management.
Today, about 31% of patients use digital tools for search and scheduling and about 27% patients use online booking of diagnostic services. These numbers will continue to grow to more than 50% in the next five years. These trends signify how the profile of the average patient is changing and doctors need to adapt to the demands of the new age patient.
Practice environment
Dispersion of prescription influence: The prescription autonomy of doctors is gradually being curtailed. About 46% and 44% of doctors report that drug formularies and insurance restrictions respectively, influence their prescribing decisions. Additionally, 54% of all doctors say that a pharmacist often substitutes the brand that they prescribe. These findings reflect a new and broader ecosystem of prescription influencers, with which life sciences companies must proactively engage.
Doctors for cost optimisation: An overwhelming 80% plus doctors believe it is part of their responsibility to bring healthcare costs under control. However, about 47% of doctors—CP/GP, specialists and surgeons feel that they are forced to make cost-quality tradeoffs, which are not aligned with the best patient care. In light of this tradeoff, it is crucial for providers and life sciences companies to help doctors make the most optimal choice. Towards this, 90% of doctors mention “outcomes and real world evidence data”, and 75% mention “cost-benefit assessments” as information they could use to optimise quality and cost.
Ways of working
New digital sources: While medical representatives (MRs) were historically an important source of information for doctors, their relevance is now diminishing as digital sources become more important. In our survey, we find that doctors on an average spend about 40 hours a week acquiring information, out of which only 35% is spent with the MR. The primary sources of information used by doctors today include digital channels at 83%, peer discussions at 73% with MRs a distant third at 62%. This is more pronounced in younger doctors where 85% use digital channels and only about 60% consult MRs, indicating that the future will see this trend play out in an even stronger manner. Further, about 90% doctors across the board expect to increase their usage of digital sources in the next three to five years while MRs will continue to lag at 68%.
Growing use of clinical tools: The use of clinical tools and technology to improve the quality of patient care is growing with large hospitals leading the charge. While doctors believe, that standardised treatment protocols and electronic medical records (EMRs) continue to remain the most valuable tools to improve care quality, the survey suggests a definite uptick in interest for more complex tools like robot-assisted medicine and remote patient monitoring. This trend suggests a significant opportunity for ecosystem stakeholders to step in and support the use of these tools and technologies. Our survey shows that doctors expect manufacturers to provide high impact services including training support for nurses and paramedical staff, described as high-value by 53% of specialists and surgeons and 49% of CP/GPs mention. Similarly, 47% of specialists and surgeons and 40% of CP/GPs highlight the importance of automation tools for improving practice productivity whereas 43% of specialists and surgeons and 51% of CP/GPs emphasise on the need for chronic disease management tools from manufacturers.
Implications
The Indian life sciences industry is at an inflection point. The wave of digital disruption, rise of a high-volume low-cost environment with new sales channels and buying processes are all calls for action for the life sciences industry. Besides, it also needs to address the growing influence of a broader stakeholder group in prescription decisions coupled with a changing role for the medical representatives.
For life sciences companies
Win with the next 100 million customers: The coming years will witness the rise of new channels and stakeholders that life sciences companies will have to engage with to remain relevant. Organised pharma retail is an under-penetrated and rapidly growing channel currently valued at $1.5 billion and projected to grow at about 20% annually over the next four years. This will be further aided by online pharmacy growth of more than 25%. Moreover, nursing homes are likely to emerge as an important institutional sales channel as Ayushman Bharat gains momentum, and we estimate an additional $1 billion opportunity for life sciences companies coming from increased nursing home sales by 2024. Life sciences companies must set up the right distribution, sales and marketing structure to tap into this opportunity, adequately.
Even within the traditional channel, the role of stakeholders is evolving. Our findings suggest that formularies, insurers and pharmacists influence 76% of the total prescriptions. This creates a clear imperative for life sciences companies to engage with this broader stakeholder set in a meaningful manner to drive prescriptions.
Omni-channel outreach to transform the front end: The growing availability of tools to capture, integrate, visualise and analyse large amounts of data today mean that life sciences companies can become more effective in generating and targeting demand (e.g. at a micro-market level). Additionally, digital supplementation of MRs by life sciences companies can dramatically increase doctor reach while providing more customised information based on individual doctors’ information-seeking behaviour. Life sciences companies can also build and deploy value-added services like disease management and practice productivity tools, which doctors call out as a clear unmet need today.
In addition to fostering higher doctor engagement and advocacy, such tools have the potential to drive up drug sales. For example, medication adherence rates in India for chronic disease treatment is estimated at a mere 7% compared with more than 20% in developed markets like Europe. Disease management tools can help drive up this rate—an increase in drug adherence to about 10% can result in $8.5 billion in additional drug sales by 2024.
Invest in Engine 2.0: The full set of adjacent businesses that a company might pursue as it searches for new models capable of taking over is referred to as Engine 2.0. In this context, the life sciences industry will be disrupted and transformed by new digital players emerging across the value chain from R&D and manufacturing to analytics and front-end tools. Additionally, the surrounding ecosystem (providers, pharmacies, diagnostic centres, etc.) is also witnessing a rapid growth of digital insurgents. The growth in VC investments to more than $500 million in 2018 in emerging digital models and tools, bears out this trend. Thereby, life sciences companies must seriously evaluate how to play in this emerging digital landscape in a way that allows them to remain relevant and build the next engine of growth.
Disrupt the cost curve to build a “future-ready” operating model: Current trends point to an industry that is going to evolve into a high-volume, low-margin market. Incremental efficiency gains will not be enough—life sciences companies must zero-base and aggressively remove costs from the system. Bain & Company’s experience suggests that when properly done, zero basing can result in a 10 to 15% improvement in profitability.
For the industry
Shape Ayushman Bharat 2.0 for quality and access: While Ayushman Bharat has the potential to drive dramatic healthcare access, efforts must be made to have a quality lens on it as well. The industry must work with the government to deliver comprehensive and high-quality care through co-development of protocols, standard treatment guidelines and coverage inclusions based on a holistic evaluation of clinical and economic benefits.
Pay for quality, services and outcomes: Public procurement today largely revolves around lowest price tendering without taking into account post-tender outcomes. The industry must work with the government to bring in more holistic procurement models, which evaluate quality, beyond-the-pill services and outcomes of care in addition to price. This will enable the government to maximise patient outcomes, while allowing the industry to participate as true partners in improving India’s health.
Help shape digital health policy: The boom in digital health in India presents a unique opportunity for the industry to steer its evolution, set guardrails and amplify its positive impact on the quality of care. However, there is much ambiguity around the legality of business models and few widely accepted protocols and standards are available. The industry must take the lead to help demystify this ambiguity, and help the government craft forward-looking regulations and policies governing digital health that will further fuel innovation (e.g. refining of the National Digital Health Blueprint, guardrails around National Health Stack).
Conclusion
The world of Indian life sciences is changing rapidly. Doctors today are as challenged with rapid increase in patient volume and complexity as they are restrained by cost and quality considerations. To respond to these challenges, life sciences companies must react promptly to meet the needs of the future by revamping their commercial and operating models to safeguard future profitability. Moreover, all ecosystem stakeholders must proactively come together to shape the future direction of the industry in a way that allows them to support broad-based health improvement in India while enhancing the ease of doing business.
About the Authors
Parijat Ghosh and Satyam Mehra are partners in Bain & Company's New Delhi office and leaders with Bain India's Healthcare practice. Satish Reddy is the chairman of Dr. Reddy's Laboratories and deputy chairman of the Confederation of Indian Industry (CII) Southern Region. Aarthi Rao is a principal with Bain India's Healthcare practice.
First published in settembre 2019