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  1. 1. Draft Copy May 08, 2009 MEDICAL DEVICES: SECTOR ANALYSIS Submitted To Department of Pharmaceuticals Ministry of Chemicals and Fertilizers Government of India, New Delhi By NIPER - AHMEDABAD National Institute of Pharmaceutical Education and Research (NIPER), C/o B. V. Patel Pharmaceutical Education and Research Development (PERD) Centre, Sarkhej-Gandhinagar Highway, Thaltej, Ahmedabad 380054 Gujarat, India Phone: +91 79 27439375, 27416409, Fax: +91 79 27450449 Website: www.perdcentre.com
  2. 2. Draft Copy Table of Content ANNEXURE EXECUTIVE SUMMARY Medical devices have extended the ability of physicians to diagnose and treat diseases, making great contributions to health and quality of life and without any doubt, these technologies have changed the mainstream practice of medicine. These devices include not only diagnostic technology but also analytical techniques using high-resolution chromatography, polymerase chain reaction (PCR), and monoclonal antibodies, providing physicians with new, accurate, and rapid information. On the therapeutic side, devices save lives and improve quality of life. Dialysis therapy extends lives for end-stage renal disease patients, orthopedic implants enable patients to walk again, and minimally invasive technologies allow surgeries that are safer, with less pain and trauma, requiring significantly shorter hospital stays. In light of its widespread applicability, the medical device market is experiencing explosive growth. Currently valued at USD 336 billion, market growth will continue to accelerate as demographics and market drivers increase their pressure for new and innovative product offerings at affordable pricing. Market Drivers in the current global scenario includes the aging population, advancement in technology and worldwide market penetration. The medical device market is consolidating to respond to market needs. Consolidation will promote accelerated time to market, greater returns on invested capital, and transformational innovation while maintaining high quality and patient efficacy. The future is hence extremely bright for this sector. Indian medical equipment and supplies market is estimated for USD 1581 million in 2007-2008. The market for low value medical supplies and disposables is dominated by the domestic manufacturers, whereas importers dominate the costly and high end medical equipment. Historically, most Indians had very limited access to any type of modern medical service. Today, however, the situation is much improved, for several reasons. First, there is a growing awareness about health issues within India and an increasing demand for quality care at affordable prices. NIPER-Ahmedabad Page 2
  3. 3. Draft Copy Imports constitute over 50% of the market. Most imported products have high gross margins; however, the market is becoming increasingly competitive due to low entry barriers (for MNCs), an increasing number of players and an expanding consumer base. Some of the issues and constraints that are found to cripple the industry are India’s dependency on imports for supply of medical devices, strict industry regulatory environment, low level of healthcare insurance and low levels of healthcare facilities and awareness especially in rural areas. The local market is still dominated by either imports or large MNCs whereas the local manufacturers act as only small players in this market. The primary challenges facing these local manufacturers include poor infrastructure for R&D and testing facility for efficacy and safety. Further, there is a clear evidence of lack in trained personnel for serving in this industry with sufficient technical as well as pharmacy-based knowledge, which is integral for such a multidisciplinary sector. Hence, measures to promote such facilities for not only testing and R&D but also for training of professionals to serve in this segment, is the need of the hour to bring up this Pharma- Allied Sector at par with the Pharma Sector in the coming years. Recommendations for NIPER: NIPER(s) could assist the Medical Device Sector in the following three ways: Academic centres:  Meet the Technological and Regulatory demands of MD industry.  Introduction of relevant MD related courses (including market and business analysis, basic engineering, electronics, material sciences and biomaterials, testing and evaluation, etc.).  Interdisciplinary and combinatory research projects - to work in interdisciplinary groups Testing facility for devices:  Establishing a testing facility  Testing models for efficacy and quality control studies Pre-clinical and clinical studies for medical devices:  Pre-clinical/clinical studies for MD (class 2B and III) as per regulatory guidelines.  For training the personnel and providing necessary facility for the SMEs. NIPER-Ahmedabad Page 3
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  5. 5. Draft Copy 1.0 BACKGROUND A medical device is defined as any healthcare product that achieves its primary intended purpose not through chemical action or by being metabolized. Medical devices include electro-medical equipment and related software, furniture, supplies and consumables, orthopedic appliances, prosthetics and diagnostic kits, reagents, and equipment. Medical devices and equipment industry plays a crucial role in a healthcare system. These devices and equipments are used for diagnosis, therapy and patient monitoring. There has been a significant growth in pharmaceutical and healthcare sectors in the recent years. In accordance, therefore, the medical devices and equipments are set for a vibrant growth in near future. 1.1 Healthcare Industry Healthcare industry is one of the largest users of technology with its growing trends. The primary arenas of application of technology in healthcare includes,  Micro-processor based implantable in patients  CPU-driven technology supported by artificial intelligence  Robotics in OTs  Robotics in Path-labs / Research  Laser technology in surgery  Instrumentation in medical and surgical practices  IT tools for net-working examination, diagnostics, treatment rooms and OTs  IT Tools along with artificial intelligence and microprocessor technologies for equipment maintenance and trouble shooting  IT tools for generation of disease specific data  Biotechnology, Genomics, Molecular Biology and Stem Cell Research 1.2 Development and Current Status The global medical devices market is estimated at USD 336 billion in 2008 which has grown at a CAGR of 4.5% post 2000. Globally, medical equipments which include ophthalmic, dental, imaging and other medical equipment account for about 42% of the total market followed by Medical disposables (40%) and in-vitro (IV) diagnostics (12%) of the global market. Indian medical equipment and supplies market is estimated for USD 1581 million in 2007-2008 with a growth of 4.7% over previous year. The market for medical supplies and NIPER-Ahmedabad Page 5
  6. 6. Draft Copy disposables is dominated by the domestic manufacturers, whereas importers dominate the costly and high end medical equipment. The medical device market is about 50 percent of the world pharmaceutical market in terms of relative size, but is also growing faster than its drug counterpart. It is dominated by U.S. companies earning over 72 percent of the revenue. MX: Business Strategies for Medical Technology Executives reported that market reached the size of USD 300 and USD 336 billion in year 2007 and 2008 respectively. 1.2.1 Medical equipments segment The medical equipment market is presently pegged at Rs.1500 crore with a growth rate of 10-15 % per annum. Surgeons, gynaecologists, urologists, and doctors are gradually adopting techniques, which were once a specialty of certain physicians (like radiologists) only. Increased simplicity of use has resulted in short-term training before commencement and customer-user friendly operations. These simplistic operations have opened avenues for them to increase revenues at a faster rate than through conventional business models. The major promising sub-sectors include: a) Medical Imaging Equipment b) Cardiology Equipment c) Laboratory Instruments/Supplies d) Cancer Diagnostics and Treatment Equipment 2.0 AVENUES 2.1 Biomaterials 2.2.1 Degradable polymers Polymers like poly (lactides), poly (glycolides) and their copolymers have excellent properties and have thus been developed for the applications such as wound closure, osteosynthesis, nets for support while wound is healing, degradable bandages and surgical cord for reinforcement, hollow fibres for treatment of damaged nerves as well as prostheses for anastomoses. For example, a biodegradable intravascular stent prototype is moulded from a blend of polylactide and trimethylene carbonate. Furthermore, these polymers are being considered for the development of products for the treatment of paradontal diseases, fillers for tooth extraction, artificial vessels and drug carrier systems. NIPER-Ahmedabad Page 6
  7. 7. Draft Copy Besides eliminating the need for a second removal surgery, the biodegradation may offer other advantages. For example, a fractured bone that has been fixated with a rigid, non- biodegradable stainless implant has a tendency for refracture upon removal of the implant while, an implant prepared from biodegradable polymer can be engineered to degrade at a rate that will slowly transfer load to the healing bone. Advances in polymers for biotechnology are numerous. Now polymers have gone to the extent that the difference between synthetic and biological polymers has reduced to a great extent. Genetic engineering methods are being used to produce "artificial" proteins with a range of designed structures and functions. Traditional polymer synthesis techniques are being coupled with biochemistry to produce materials that interact and control biological systems and cells. Various new fields have emerged that club the role of polymer chemistry with biotechnology.  Environmentally responsive polymers for biotechnological applications  Biological production of polymers (e.g., polystyrene, polyesters)  Biopolymers and protein polymers  Polymers modified with biological -signals (e.g. adhesion peptides growth factors)  Bioactive, biomimetic, and bioinspired polymers  Supramolecular assemblies in biotechnology  Polymers in analytical biotechnology  Polymers scaffolds for tissue engineering  Biopolymer surfactants  Polymer and surface modification of tissue culture  Cell polymer interactions  Polymers for drug delivery and artificial organs 2.2 Cardiovascular and Diabetes 2.2.1 Cardiovascular device sector includes  Pacemakers  Defibrillators  Drug-eluting stents  Catheters  Valves  Grafts  Artificial hearts NIPER-Ahmedabad Page 7
  8. 8. Draft Copy  Angioplasty  Guidewires  Ventrical support systems  Echocardiography Furthermore, latest research pertaining to artificial hearts brings hope to patients who are near death from heart failure. Artificial hearts work by pumping deoxygenated blood from the body to the lungs. The device then pumps oxygenated blood through the body. The device newly approved by US FDA, called AbioCor, made by Massachusetts-based Abiomed, uses an implanted hydraulic pumping system to simulate a natural heart beat. But an alternative design, conceived by O.H. "Bud" Frazier, a prominent heart surgeon and pioneer in the development of cardiac devices at the Texas Heart Institute in Houston, pumps blood through the body continuously, rather than with the periodic beat of the normal heart. Thus, research directed towards cardiovascular aids seem to have a promising future. 2.2.2 Insulin metering devices The various designs of insulin metering devices that are now available make diabetics more independent and improve their quality of life. Using Opti Pen 2 developed by Hoechst Marion Roussel the patients can inject the requisite amount of insulin into their bodies themselves. The metering device administers exactly the stipulated amount of insulin, releasing it on rotation. Acetal copolymers having good mechanical properties, good mouldability and good slip properties are the best materials for such devices. 2.3 Orthopedics 2.3.1 Joint replacement 2.3.2 Fracture management  Plates  Nails  Dynamic Hip Screw  Screws  Hemi-Arthroplasty 2.3.3 Limb deformity correction  Paediatrics  Spine NIPER-Ahmedabad Page 8
  9. 9. Draft Copy 2.4 Opthalmology Though several products are available for ophthalmic management, the Intra ocular lens (IOL) is the product that attracts primary attention due to its maximum usage and convenience in use. An intraocular lens (IOL) is an implanted lens in the eye, usually replacing the existing crystalline lens because it has been clouded over by a cataract, or as a form of refractive surgery to change the eye's optical power. It usually consists of a small plastic lens with plastic side struts, called haptics, to hold the lens in place within the capsular bag inside the eye. IOLs were traditionally made of an inflexible material (PMMA) though this largely been superseded by the use of flexible materials. Most IOLs fitted today are fixed monofocal lenses matched to distance vision. However, other types are available, such as multifocal IOLs which provide the patient with multiple-focused vision at far and reading distance, and adaptive IOLs which provide the patient with limited visual accommodation. Insertion of an intraocular lens for the treatment of cataracts is the most commonly performed eye surgical procedure. Phacoemulsification cataract surgery is a procedure in which an ultrasonic device is used to break up and then remove a cloudy lens, or cataract, from the eye to improve vision. The insertion of an intraocular lens (IOL) usually immediately follows phacoemulsification. Viscoelastics, also referred to as ophthalmic viscosurgical devices, or OVDs, are viscous substances that makes phacoemulsification easier and safer. Once the first incision is made into the eye, it has a tendency to collapse as the aqueous leaks out. The larger the incision, the greater the propensity for the eye to collapse and the greater the risk to the patient. By replacing the aqueous with a thicker viscoelastic, collapsing of the eye can be prevented. At the end of surgery, it is important to thoroughly remove the viscoelastic from the eye. Otherwise it can block the trabecular meshwork, and the patient will experience high IOP. Use of a viscoelastic can make phacoemulsification easier for the surgeon as well as safer for the patient. It is for this reason that is has become an integral part of surgeries. 2.5 Oncology The field of oncology is greatly benefited by radiation technology in terms of diagnostics as well as treatments. Several routinely used techniques along with newly defined procedures increase patient safety as well as chances of survival. Examples of recent developments in this field includes Radio Guided Neuro Surgery that will benefit people suffering from brain tumour in which a gamma probe is used which localizes NIPER-Ahmedabad Page 9
  10. 10. Draft Copy the tumour from the brain and is easy for the doctors to isolate the tumour as it sometimes resembles the brain. Further, newer range of genetic diagnostic kits and reagents are also being developed for diagnostic labs and medical research institutions across the country. 2.6 Neurology Medical devices are becoming more important in the diagnosis and treatment of neurological diseases. In the 1980s and 1990s, diagnostic technologies, in particular, computed tomography and magnetic resonance imaging, improved the accuracy of neurological diagnosis and helped to define new diseases. Now, medical devices are becoming an important part of the treatment armamentarium for neurological diseases. The most obvious examples are in the treatment of stroke. Coiling of aneurysms; angioplasty and stenting of carotid, vertebral, and intracranial arteries; extraction of thrombus in patients with acute stroke; and closure of patent foramen ovale are some prominent examples. Outside the vessels, deep and surface brain stimulators have been used for a variety of conditions, and neuroprostheses are also coming to the fore. 2.7 Diagnostics and Imaging Techniques for diagnosis and imaging include Radiology, Ultrasound, CT, MRI, X-ray etc. Medical Devices have advanced in the field of Cardiac imaging, CT Colongraphy, Digital X- ray, Molecular Imaging, MRI, Musculoskeletal, Nuclear, Ultrasound, Women’s Imaging. 2.8 Miscellaneous 2.8.1 Medical disposables Over the past three decades, the disposable medical market has undergone a variety of changes including the types of devices produced, substrates selected, and sterilization procedures employed. In the early 1970s, device manufacturers were utilizing materials such as glass, rubber and metal to assemble syringes, surgical instruments, and other devices. Such materials were typically assembled and fastened and /or machined or molded in the appropriate configuration. In the 1980s, as medical technology advanced towards intricate and high performance medical device designs, the need for engineering plastics became apparent. During this same period, a shift to single use devices (due to advances in contagious disease) forced design engineers to evaluate engineering plastics such as acrylic, polycarbonate, and PVC. NIPER-Ahmedabad Page 10
  11. 11. Draft Copy The following facts indicate the recent trends in the use of medical disposables:  Medical devices are becoming lighter, more portable and more user-friendly, with more functionality.  A steady stream of new and innovative medical devices has been made possible by advanced polymer research.  Advanced medical polymers are now capable of biological processes and can become a functional part of living organisms.  A "Slight shift" from commodity thermoplastics has been predicted to engineering resins, styrencis, thermosets, etc. Major non disposable markets include testing / diagnostic equipment, surgical instrument and related equipment, prostheses / implants, and dental / ophthalmics. Disposable products include syringes, lab ware, tubing, blood bags, utensils, gloves, trays, and catheters. Medical disposable products are used by practically all hospitals and private nursing homes in the country, including diagnostic and pathological laboratories. In hospitals, disposables are used, both in the ward as well as the OPD. Some of the products being manufactured indigenously include fluid administration sets (I.V. sets), I.V. cannulae, blood bags and products such as condoms and copper–T . Majority of the low-end devices and disposables are manufactured by small-scale enterprises. 3.0 GLOBAL INDUSTRY SCENARIO 3.1 Market Size The global medical devices market is estimated to be USD 330 billion in 2008 (Figure 1). The market has grown at a compounded annual growth rate of (CAGR) of 4.5% post 2000. New technological innovation in the treatment and diagnosis front; growing aging population and shifting disease pattern, which needs long term medical care and diagnosis are some of the major factors that drive the growth of global medical devices market. NIPER-Ahmedabad Page 11
  12. 12. Draft Copy Figure 1: Global medical devices market size US and Medical Device Market  US produces half of the world’s medical devices – USD 70 billion  Domestic Consumption = 40%  17 Biggest companies account for 65% of the total revenue  Total < 6000 medical device manufacturers  Nine of the top ten in the world are based in the US  Cardio vascular products form the single largest sector  Orthopedics - fastest growing  Spinal & Pain Management and Cosmetic & Elective surgical form the next 3.2 Segmentation 3.2.1 Segmentation by geography Global medical devices market is classified in the following geographical markets - a) North America (The US and Canada) b) Europe (Germany, France, Italy, the UK, Spain, and the Netherlands) c) Asia-Pacific (Japan, China, Japan, Singapore, India and Taiwan) d) Rest of the World North America, which includes the US and Canada accounts for 47% of the global medical devices market (Figure 2). The US alone accounts for 45% of the total market. European market, which includes Germany, France, Italy, the UK, Spain and The Netherlands, accounts for 33% of the total market. Germany alone accounts for 13% of the total market. Asia-Pacific market, which includes India, China, Japan, Singapore and Taiwan accounts NIPER-Ahmedabad Page 12
  13. 13. Draft Copy for 17% of the total market. Japan alone accounts for about 10% of the total market. The rest of the world, which includes Brazil and Russia accounts for 3% of the total market. Figure 2: Segmentation of global medical devices market - By geography 3.2.2 Segmentation by application Globally, medical equipment, which includes ophthalmic, dental, imaging and other medical equipments account for about 42% of the total market. Among the medical equipment, ophthalmic equipments account for 18% of the total market and the imaging and other medical equipment account for 16% of the total market (Figure 3). Medical disposables account for 40% of the total medical devices market followed by in-vitro (IV) diagnostics accounting for 12% of the global market. Figure 3: Segmentation of global medical devices market - By application NIPER-Ahmedabad Page 13
  14. 14. Draft Copy 3.3 Major players Multinational manufacturers are consolidating in order to establish greater presence around the world, and some of the largest medical device companies have a number of subsidiaries. Examples include Johnson & Johnson (like Ethicon, DePuy, Cordis, J&J Medical, Critikon), Boston Scientific (like SciMed, Microvasive, Schneider, EP Technologies) and Baxter (like IV Systems, Edwards Division, Hyland Division, Clintec, Renal Therapy). Yet, many countries lack access to high-quality devices and equipment that are appropriate for their specific epidemiological needs. This is particularly true in developing countries, where health technology assessments are rare and where few regulatory controls exist to prevent the importation or use of sub-standard devices. 4.0 INDIAN INDUSTRY SCENARIO Historically, most Indians had very limited access to any type of modern medical service. Today, however, the situation is much improved, for several reasons. Firstly, there is a growing awareness about health issues within India and an increasing demand for quality care at affordable prices. Secondly, the government has made large investments in health care, as part of a five-year-plan to provide better health-care facilities. And thirdly, a growing middle class of approximately 200 million Indians are demanding more sophisticated medical treatment, a demand largely answered by private institutions. There are four types of Indian health-care facilities that use foreign medical equipment: primary health centres and rural hospitals, government hospitals, private hospitals, and teaching institutions. A majority of the Indian hospitals are located in major cities such as New Delhi, Chennai, Mumbai, Kolkata, Hyderabad, and Bengaluru. Recently these have spread beyond Metros to 2nd and 3rd tier cities like Lucknow, Ahmedabad, Indore, etc. which have also developed superior private hospitals. Private hospitals outnumber state facilities by two to one and purchase 40 to 50% of imported devices. Private hospitals tend to invest in sophisticated foreign medical devices because the doctors there are mostly trained abroad, particularly in Europe and the United States. India's Apollo Hospital in New Delhi, for example, the world's fourth-largest hospital, is well stocked with high-technology medical equipment from abroad. Indian doctors play an important role in purchasing medical devices for hospitals and other health-care facilities, and their influence is growing. But their demands for quality and sophistication in medical products are counterbalanced by another key factor: price. Because most of the population cannot afford to pay for health care, institutions in turn pay careful attention to costs in making their purchasing decisions. NIPER-Ahmedabad Page 14
  15. 15. Draft Copy Public hospitals lack funds to upgrade their equipment and expand their services, while domestic medical device manufacturers cannot produce high technology equipment essential for such procedures. Consequently, the demand for high technology devices is met predominantly by imports. 4.1 Market Size The medical equipment industry plays a crucial role in healthcare system. These equipment are used for diagnosis, therapy and patient monitoring. Apart from the pharmaceutical sector, the medical devices and equipments are set for a vibrant growth. Medical equipment and supplies market in India was estimated for USD 1581 million in 2007-08 with a growth of 4.6% over previous year (Figure 4). Market for medical supplies and disposables is dominated by the domestic manufacturers, most of who are in unorganized market. Whereas the high end medical equipment market is dominated by the MNCs. Though the demand of these equipment is in double digit, the local production is only around 5% of the requirement leading to increased imports. 4.1.1 INDIA – Facts and figures regarding the medical device market  The fastest growing Medical Devices market : Rs. 5750 crores  Growth Rate : 23% annually for next 5-6 yrs 4.1.2 Market segments  Diagnostic Equipment : Rs. 2000 crores  Surgical Equipment supplies : Rs. 1300 crores  Imaging : Rs. 1300 crores  Electronic treatment devices : Rs. 1000 crores The medical devices market is showing a double-digit growth. In India, the growth of the market is estimated to be between 10-15 percent. This is because of affordability by patients, increased awareness on health care, improved hospital infrastructure and the increased disease patterns. With steady growth in GNP, population numbers and standard of living, India represents one of the most promising markets. The Indian market for medical equipment and supplies is expected to reach USD 1.7 billion in 2010. However, despite strong growth rates, the market remains disproportionately small, ranking among the top 20 in the world, but with a very low per capita spending. NIPER-Ahmedabad Page 15
  16. 16. Draft Copy Favourable factors for high quality medical devices are  Free market environment  A developed industry  Investment in health infrastructure Firstly, rising income and health consciousness amongst the Indian population are driving people to seek specialized care. The urban consuming class is expected to grow from 78 million in 2001 to 250 million in 2010. India’s increasingly affluent middle class is demanding access to better healthcare; many Indians are now choosing to purchase health insurance with either full or partial coverage, so a large percentage of the population can afford to receive high technology treatment. Several corporate houses have expanded into the hospital business, while leading healthcare providers such as Harvard Medical International and Cleveland Clinic have entered India through joint ventures. Figure 4: Medical equipment market in India 4.2 Segmentation 4.2.1 Medical equipments Majority of the Indian medical equipment market is dominated by the medical instruments and appliances used in specialties such as ophthalmic, dental and other physiological classes. This segment accounts for 26% of the total market followed by orthopedic/ prosthetic goods segment accounting for 19% of the total market (Figure 5). Medical supplies such as bandages and disposables such as syringes, needles and catheters together constituted 21% of the total market. The other equipments which are in demand are high end speciality electro NIPER-Ahmedabad Page 16
  17. 17. Draft Copy medical equipments that accounted for 11% of the total market. X-ray apparatus accounted for 10% of the total market. Figure 5: Segmentation of Indian medical equipment market 4.2.2 Diagnostic kits Diagnostic kits constitute a high growth segment in the medical devices market with a growth rate of 30% and a market size of USD 133 million in 2005. They include the reagents and the medical kits. With over fifty companies operating in diagnostic kits, the market has seen several interesting trends. The market is dominated by Roche diagnostics followed by Transasia, Bayer and others (Table 1). Indian companies like Nicholas Piramal, Orchid have significantly consolidated their market position. Table 1: Top 10 India Players in Diagnostics kits Rank Players 1 Roche Diagnostics 2 Transasia 3 Bayer Diagnostics 4 Span Diagnostics 5 Nicholas Piramal 6 Orchid 7 Tulip Diagnostics 8 Zephyr Biomedical 9 Biorad 10 Liliac Source: biospectrumindia.com NIPER-Ahmedabad Page 17
  18. 18. Draft Copy 4.3 Market Trends 4.3.1 Outsourcing of laboratory services by large private hospitals Large private sector hospitals have started to outsource their laboratory services. For instance, Mumbai-based Metropolis Health Services manages the laboratory of Chennai based Malar Hospital. Metropolis also manages the laboratory services of the Dubai-based Gulf Medical College in Ajman. 4.3.2 Raising of private equity funds Healthcare organizations in India raise funds through private equity to invest in their aggressive expansion and infrastructure upgradation plans (Table 2). Table 2: Equity funds raised by major healthcare organizations Value of fund raised Healthcare organization Equity investor (USD million) Manipal Health Systems IDFC Private Equity Fund II 20 Private Ltd. Metropolis Health Services ICICI Venture 8 Ltd. Healthcare Global IDFC Private Equity Fund II 11 Enterprises Ltd. Apollo Hospitals * - 115 Source: Cygnus Research * Announced plans to raise funds 4.3.3 Increasing healthcare awareness Increasing medical awareness among the urban population, which are the middle and upper income groups and high dependence of the doctors on the laboratory reports have led to the development of well-networked medical infrastructure in large Indian cities and urban centres. 4.3.4 Imports and exports Imports constitute over 50% of the market. Most imported products have high gross margins; however, the market is becoming increasingly competitive due to low entry barriers (for MNCs), an increasing number of players and an expanding consumer base. Currently, the high value imported products include cancer diagnostic, medical imaging, ultrasonic scanning, plastic surgery equipment and polymerase chain reaction technologies. Figure 6 gives category wise distribution of medical devices imports and Figure 7 gives year wise imports of medical equipments by India. NIPER-Ahmedabad Page 18
  19. 19. Draft Copy Figure 6: Medical devices import by category Figure 7: Medical equipment imports by India The demand of medical devices has greatly influenced its export potential (Figure 8 and 9). With the growing demand for medical facilities across the country, the market for medical equipment in India is fast expanding. The Medical devices market for exports from India is estimated around USD 509 million with a CAGR of 22.15%. The exports mainly consist of dental instruments, surgical items and other laboratory equipments. Indian manufacturers of good quality mid tech products struggle with a stigma for unreliability. Indian purchasers are, however, price-sensitive and seek value for money. The market for medical supplies and disposable equipment is dominated by domestic manufacturers. Figure 10 gives the estimated medical equipments export value in India. NIPER-Ahmedabad Page 19
  20. 20. Draft Copy Figure 8: Medical devices exports by category Figure 9: Medical devices exports by different countries NIPER-Ahmedabad Page 20
  21. 21. Draft Copy Figure 10: Medical Equipment Exports from India 4.4 Major Players in India Prominent MNC’s operating in the Indian market include B Braun, Becton, Dickinson and company, Bayer, Johnson and Johnson, Phillips ,Roche, Siemens and GE. Some of the domestic players hat have consolidated their market position include, BPL Healthcare, Godrej Healthcare, Nicholas Piramal India Ltd., Opto Circuits India Ltd. and Advanced Micronic Devices Ltd. Moreover, benchmark institutions functioning in India for R & D in medical and surgical products include Sree Chitra Tirunal Institute of Medical Sciences and Technology, Thiruvananthapuram and Shriram Institute of Industrial Research, Delhi. The key local units for manufacture and testing of medical devices in Gujarat are a) Sahajanand Vascular Technoventions, Surat: Innovative drug eluting stent manufacturer b) Omni Lens Pvt. Ltd., Ahmedabad: Wide range of quality IOLs from US FDA approved raw materials using state of the art technology c) Susruta Instruments, Ahmedabad: Microsurgical tools for Cataract and IOL implants d) Nidhi Meditech Systems, Ahmedabad: High-tech urology products including intracorporeal pheumatic lithotripter e) Inmed Equipments Pvt. Ltd., Ahmedabad: Nerve locator and nerve mapper in locating nerve joint position during anesthesia, oxygen analyser, high radio frequency bipolar units NIPER-Ahmedabad Page 21
  22. 22. Draft Copy f) Online Infocom Pvt. Ltd., Ahmedabad: Software systems for Tele-medicine, Continuous medical education and complete patient monitoring and management NIPER-Ahmedabad Page 22
  23. 23. Draft Copy 4.5 Issues and Challenges Some of the issues and constraints that are found to cripple the industry are India’s dependency on imports for supply of medical devices, strict industry regulatory environment, low level of healthcare insurance and low levels of healthcare facilities and awareness especially in rural areas. 4.5.1 Dependency on imports Indian medical devices supply is heavily dependant on the imports from other countries like the US, Japan, the UK, France, Finland, Germany, etc. It is estimated that around 50% of India’s medical devices sales is through imports. Although imports constitute over half of the total Indian market, the proliferation of new joint ventures will erode this share slightly. The Wipro-GE is a successful joint venture in India; foreign players like Roche Diagnostics India, Johnson & Johnson Medical India (JJMI), B. Braun group are operating through their subsidiaries. These joint ventures and other business collaboration modes are slowly changing the landscape of the Indian medical devices industry. The import of some of high- end technology medical devices and products during 2001- 06 is listed in Table 3. Table 3: Import of some of high-end technology medical devices and products during 2001- 06 Products Import (INR m) CAGR % LCDs, laser , other optical appliances & instruments 24.64 34.36 Instruments and appliances used in medical, surgical, 601.96 15.65 dental and veterinary sciences including electro medical apparatus and sight testing instruments Orthopedic appliances, artificial parts of the body: 68.28 23.23 hearing aids & other appliances which are worn/implanted in the body to compensate defect/disability Other appliances of previous class, Beta/Gamma 170.54 26.81 radiation including radiotherapy apparatus, X- ray tube & Generators, high tension generators screens etc. Parts & accessories for machines, appliances, 124.48 19.27 instruments/apparatus Total medical devices import 1116.33 17.69 Source: DGFT, GoI Typically, domestic production consists primarily of low technology products (like surgical textiles and other medical supplies), whereas the demand for high technology devices is met predominantly by imports. A further analysis based on the level of technology involved in the NIPER-Ahmedabad Page 23
  24. 24. Draft Copy manufacture of devices indicates that the import of high-end technology products have increased during 2001-06. Similarly, the import of LCDs, laser, other optical appliances & instruments (34.36%), Instruments and appliances used in medical, surgical, dental sciences including electro-medical apparatus and sight-testing instruments (15.65%), orthopedic appliances and artificial parts of body (23.23%), radiotherapy instruments, X-ray generators and screens (26.81%), parts used for advanced instruments (19.27%) have grown tremendously. The import of a few other products like spectacles and goggles (50.83%) and frames & mountings for spectacles (29.38%) during the same period have also increased. The high volume of imports of medical devices and its consistent double-digit growth indicates India’s dependence on imports for medical devices. One possible reason for higher dependence on imports can be traced back to low level of R&D spending by Indian medical devices industry. Moreover, import duty exemption for devices and technologies that are not available in India in turn encourages the import rather than investing in domestic R&D and manufacturing; also, domestic manufacturers cannot offer their products at a competitive price against that of the imported products that have the benefit of tax exemption. 4.5.2 Low levels of health insurance coverage The health insurance in the country presently covers only 1% of the population. The share of health insurance in health financing accounts for a mere 1.2% of the total expenditure on health. In terms of high life insurance penetration, measured as % ratio of premium to GDP, South Africa (11.43%) ranks first in world, whereas India had only 2.53% in 2004. The global average life insurance penetration is 4.55%, higher than that of India’s. India’s life insurance penetration is a paltry 15.7%, which is even less compared to the global average of 291.5%. One of the reasons for low penetration of health insurance in India is the lack of regulations in the health sector resulting in an exposure of the beneficiaries to various wrong practices present in the system. Therefore, it is stressed that any regulation on health insurance should ensure that the patient is provided with the choice of provider and insurer while managing the cost environment. Other measures to increase the health insurance coverage in India includes encouraging the establishment of a stand-alone health insurance company with a minimum capital requirement of INR500m to make it viable, allowing it to write Personal Accident covers as combined and add-on covers, permitting them to sell overseas travel policies, to cover the eventuality of sickness and accident while on overseas travel, allowing the agents of both life NIPER-Ahmedabad Page 24
  25. 25. Draft Copy and general insurance companies to take up the agency of stand-alone Health Insurance companies, and finally permitting foreign direct investment (FDI) in stand-alone health insurance ventures up to 51%, etc. There is also lack of standardization of medical definitions across all health insurance products from different companies, as inconsistent definitions by the insurers result in inconsistent pricing and inconsistent incorporation of health insurance products. Another reason for the low levels of health insurance coverage in India is the low levels of awareness about the essentiality of health insurance in India and less popularity of health insurance. 4.5.3 Recent stringent regulatory amendment India’s medical devices market has been experiencing a healthy growth of 4.6% over the last few years. However, this fast growing market has not been regulated until recently. The controversy over the marketing of faulty imported drug-coated stents in Maharashtra has forced the Central Drug Standards Controlling Authority of India to draft regulations for the medical devices industry recently. However, these regulatory changes could have a significant impact on the industry. While drugs and cosmetics have been regulated in India since the passage of the Drug and Cosmetic Act in 1940, medical devices (until recently) were largely unregulated. The issue of marketing of faulty stents prompted the Drug Controller General of India (DCGI) to issue a notification in October 2005 reclassifying 10 types of medical devices as drugs so that they could also be regulated under the Drugs and Cosmetics Act. In March 2006, the DCGI issued new guidelines regulating the import and manufacture of those 10 medical devices mentioned in the October 2005 notification. Under the new medical device regulations, importers of the notified medical devices are responsible for applying for import licenses and filing product registrations with the DCGI, as a pharmaceutical importer would normally do. The re-classified products list includes the sterile devices such as cardiac stents, drug eluting stents, catheters, intra ocular lenses, I.V. Cannulae, bone cements, heart valves, scalp vein set, orthopedic implants and internal prosthetic replacements to be considered as drugs that require central clearance prior to import, manufacture or marketing in the country with effect from March 1, 2006. The new guidelines concerning the import of medical devices makes it mandatory to make application for import and registration for the importers for which a period of 60 days would be provided from the date of publication of these guidelines, which was later extended by another 60 days. The guidelines also notified that in case of devices, which have not been imported in the country before the date of notification, no import would be permitted without NIPER-Ahmedabad Page 25
  26. 26. Draft Copy an approval of a competent authority. Further, in case of stents or drug eluting stents the import will not be permitted if the applicant has not sold less than one thousand stents of the particular specification prior to the date of issue of these guidelines. Such stipulations restrict the entry of new players into the devices sector. The cause of concern for the industry is the high cost of obtaining athe required documentation for these regulatory submissions. The importer has to pay USD 1500 towards the registration of the manufacturer from whom he is importing; and he has to pay a fee of USD 1000 for registration of a single Medical Device (which may include variation in sizes or shape without any change in the material or method of use) and an additional fee of USD 1000 for each additional device. The high fee could become a burden for smaller manufacturers and also affect the available range of products in India as the sales per device are usually quite small. It is expected that the cost of devices is expected to rise primarily because of registration costs, which include the registration fee, salary of additional staff hired to follow registration process and paperwork and increase in countervailing duties to 4% announced in the 2006-07 budget. As there are increases in duty and dollar appreciation, the financial burden will be passed down the value chain to patients, rendering devices more expensive and treatment unaffordable for those without insurance coverage. Smaller devices constitute approximately 5% of the total medical bill, so an 8% increase is marginal and barely noticeable. However, for larger devices such as stents, that constitute 70% of the total medical bill, any increase in cost will definitely make treatment significantly more expensive. This should be viewed on the background of price sensitivity of Indian market and low coverage of health insurance. A high registration fee can create a barrier to innovation by local and smaller manufacturers to develop low cost devices suited for the Indian market. Also the requirement for imported devices to conform to local labelling requirements may create a issue of logistics for supplies while increasing the cost of surgical products. 4.5.4 High import duties to escalate the cost of medical devices A 4% Special Additional Duty for medical devices and instruments announced in the Union Budget 2006-07, is expected to increase the cost of diagnostic scans and high-end tests. Therefore, after the new impost, medical instruments such as CT Scanners, MRI machines, Cathlab and ventilators which was earlier under the 5% Customs duty slab will now attract 9% duty while ultrasound machines, patient monitors, defibrillators and blood cell counters will be charged under the 26.8% Customs duty category. In conjunction with various taxes at the State-level, the cost on patient will increase by 10-20% in diagnostics. Another point of NIPER-Ahmedabad Page 26
  27. 27. Draft Copy contention is that the duty exemption for diagnostic kits used to detect life threatening diseases continues to only apply to basic techniques that are increasingly replaced by newer and more precise methods like the Polymerase Chain Reaction (PCR) test. At present only tests like the ELISA and CLIA enjoy the duty waiver while the PCR kits attracts 37%. Customs duty in spite of applications in the diagnosis of diseases like TB, Hepatitis or bird flu, increase the cost of tests done using the advanced technique. These budgetary tax measures coupled with an already anomalous customs tariff structure are expected to escalate the cost of treatments and burden the patients and ultimately constraint the delivery of modern healthcare. Though increased cost of treatments will not affect the insured patients, but the coverage of health insurance which is less than 1% then becomes a concern. From a company’s perspective, margins are expected to shrink, as device companies have to accommodate a 4% increase in custom duties. The other possible fall out is that India may loose its cost advantage in medical tourism in a country that is mostly dependent on imports for medical devices supply, if higher investments to sustain the imports for medical tourism requirements results in higher treatment costs to visitors. 4.5.5 Poor medical infrastructure facilities and low level of awareness in rural India Major medical infrastructure facilities like hospitals, testing labs and diagnostic centres are concentrated in urban areas whereas the rural areas do not possess equally such facilities. The doctors and healthcare specialists are neither well acquainted with the new technologies and equipments nor afford to purchase such high cost equipments. The affordability by the rural population of the costly healthcare treatments is also less, hence the scope of establishing and running costly medical infrastructure facilities and equipments is not bright. Considering the fact, that 72% of Indian population lives in rural areas, non or underavailability of such medical infrastructure in rural areas leads to missing opportunity. 4.6 Critical Success Factors The Indian medical devices industry is a growing sector. Though the strong demand factors are driving the industry, the criticality of certain factors determines the sustaining demand for the industry and hence the growth of the industry in the future. The success-determining factors are as below: 4.6.1 Striking alliances with overseas companies The high-end, precision technologies and the corresponding device manufacturing technologies are not readily available in India. Most of medical devices and diagnostics that NIPER-Ahmedabad Page 27
  28. 28. Draft Copy are manufactured in India involve low- to mid-end technologies, while majority of high-end technologies and devices are still imported from countries like the USA, Japan, Germany and France. Reasons could be technical superiority of foreign companies acquired from their vast experience spanning over years, lack of R&D in Indian companies, lack of skilled workforce in high-end R&D in India, apart from other geo-economic considerations of the foreign companies. Therefore, Indian companies are looking forward to having alliances with foreign companies either to import and distribute their products in the Indian territory or become licensed manufacturers and distributors of the foreign companies. Therefore striking an alliance with foreign manufactures is beneficial in the following ways- 1. Licensed manufacturing and distribution mode virtually eliminates the huge import logistics and distribution costs incurred by domestic companies. 2. Domestically manufactured products can be priced typical of those of region. The products can be competitively priced among the other locally manufactured products as well as against imported products. It also helps to widen penetration of the hitherto less-penetrated Indian medical devices market. 3. It also helps the foreign companies to reduce their unnecessary costs involved in importing parts of devices into their country, then assembling and labelling them as ‘foreign-manufactured’ and sending them back to the country of manufacturing in order to be sold. 4. Domestic companies have better understanding of the local markets and can devise and implement suitable business strategies than the foreign players. One of the successful alliances by Indian medical device manufacturers is Wipro-GE, which distributes GE’s products in Indian territory apart from Wipro’s own products. Philips, Siemens and Roche Diagnostics are operating through their Indian subsidiaries. Companies like Trivitron are distributing products of a number of foreign companies like Hamilton Medical (Switzerland), Bio-Med Devices (USA), Nihon Kohden Corporation (Japan), Thermo Electron Corporation (Finland), Sebia (France), Radiometer (Denmark), Electra Medical Corporation (USA), DPC (USA), and INOVA (USA). Nicholas Piramal India Ltd (NPIL) has R&D alliance with Morvus Technology Limited (UK), and scientific collaboration agreement with BioSyntech. Span Diagnostics Ltd is the distributor of the world’s leading diagnostic companies like Associates of Cape Cod Inc., Remel Inc., Hitachi Chemical Diagnostics Inc., and BBI Biomedica Inc. etc. These alliances and associations are viewed to be greatly beneficial to Indian companies. Therefore having an alliance with NIPER-Ahmedabad Page 28
  29. 29. Draft Copy overseas companies gives an edge to the Indian companies in terms of huge product basket, advanced products & technologies and technical expertise which actually widen their business scope. Getting into an alliance with overseas companies gives a competitive edge to Indian companies and mutually beneficial to both. Hence domestic companies should look for alliances to harness mutual benefits in the years to come. 4.6.2 Investments in R&D Medical devices industry is an innovation-driven industry. Advanced medical technology can not only save and improve patients’ lives, but also lower health care costs, improve the efficiency of the health care delivery system, improve productivity and reduce the economic cost of illness. Therefore, to deliver this value to patients, the industry invests heavily in medical technology R&D. A past study indicates that the level of R&D spending in the medical device and diagnostics industry, as a percentage of its sales, has been consistently increasing from 5.4% in 1990, to 8.4% in 1995, to 12.9% post 2000. This level of spending is on par with spending by the pharmaceutical industry. Generally, it is complained that Indian medical device manufacturers spend less than their western counterparts. It is also observed that western companies prefer to have R&D facilities in India- GE and Siemens have set up their major R&D centres in Bangalore. The share of R&D expenditure to sales of medical device and diagnostics manufactures in 2005 is listed in Table 4. Table 4: The share of R&D expenditure to sales of medical device and diagnostics manufactures R & D expenditure % share R & D expenditure to net sales in 2005 Johnson & Johnson ( Medical devices division ) 2.05 Roche diagnostics Ltd ( Diagnostic division) 8.72 Bayer AG (Group business) 6.88 Godrej group 1.42 NPIL (Group business) 5.76 Becton and Dickinson ( Group business) 5.02 Beckman Coulter ( Group business) 8.55 Source: Respective company website and Cygnus Research Investing in R&D holds a competitive edge for manufacturers as the advanced technologies and devices will have a clear value advantage over the existing and competitive technology/products. It is also realized that making a breakthrough innovation is more NIPER-Ahmedabad Page 29
  30. 30. Draft Copy incentivising than making incremental innovation. The R&D efforts also have to be selective; for products that command premium price ask for a larger pie of the total R&D efforts. Therefore, investing in R&D is strategic to both domestic and foreign companies, in their country or in any of the cost-effective locations. More than 50% of India’s medical device demand is met through imports from overseas companies, which could also be a reason for laxity on the part of Indian companies to rely on foreign companies for technologies and not focus on their own R&D. Indian companies need to gear up their R&D efforts in product/technology development, manufacturing, products designing, so as to sustain their business and reduce dependency on imports. 4.6.3 Low cost devices It is a known fact that the cost of medical devices that involves high-end technology and sophistication are much costlier in India. This is partially attributed to the fact that most of the medical devices and diagnostics are imported hence logistic cost, cost of technology import duty and other taxes, which add up the cost of devices, leads to a spiralling of the cost of the device. The other costs that include technical know-how fees/royalty charges and user fees in case product/technology are patented. However, from the manufacturers’ point of view, the present day’s medical devices and diagnostics industry faces intense competition. Products range from commodities to highly specialized equipment, and each offering must be manufactured to stringent quality standards, but at the lowest possible cost, which is almost difficult to balance. Moreover, the industry is precision-centric and needs high levels of process automation, which also increases the production cost (that includes fixed and variable costs). Adding to the woes are the new regulations that make it mandatory for the Indian importers to register their foreign manufacturers as well as the devices with the Indian authorities, which proves to be too costly for the Indian importers. On the demand side, the high cost of medical devices and diagnostics devices, affects the level of penetration of medical devices in India and other developing/less developed countries. It also affects the affordability of treatments, in a country where the health insurance coverage is already poor. Moreover, in a country where private healthcare service providers share a larger share of 63% of total healthcare services with the remaining delivered by public services, efforts to bring down the cost of medical devices will be a boon to the Indian healthcare industry in a larger perspective. However, it is also argued that though the cost of devices is brought down by way of cutting duties and taxes, the benefit is not expected to be passed on to the patients because test charges are levied based on the number of times the devices can be used. NIPER-Ahmedabad Page 30
  31. 31. Draft Copy Therefore, to bring down the cost of medical devices or manufacturing low cost devices can be achieved through intensive and continuous R&D efforts, high levels of process automation in the manufacturing facilities, striking manufacturing alliances with foreign companies to manufacture them locally so as to cut logistics and other import-related duties and taxes, lowering product registration fee and other documentation costs. 5.0 RECENT INDUSTRY TRENDS Primary areas of research and development pertaining to Medical Devices have shown consistent growth in the following arenas in the recent years: 5.1 Artificial Limbs Market Set to Grow The Indian artificial limbs market is estimated to grow by USD 7.5 billion in 2009 from USD 2.5 billion in 2005. The share of artificial limbs and joints in the overall growth of the market is also expected to be about 80% in the next five years time. One indicator for such a rapid growth is the rise in orthopedic surgeries registered in the country in the past five years. It has been estimated that close to 0.5-0.6m orthopedic surgeries per year are being performed in the country. With a sedentary life-style on the rise, this number is expected to grow by 6% annually in the next five years. 5.2 Italy Keen to Invest in Bio-Medical Sector The Italians are collaborating with Indian companies to set up four plants to manufacture safety syringes, Four Italian companies and seven to eight Indian companies are likely to be involved in the project and the first batch of 100m syringes would be manufactured. 5.3 Andhra Pradesh to Buy Forty Lakh Disposable Syringes The Andhra Pradesh Government bought 4m auto disable (AD) syringes for Phase-I immunization in 22 districts of the State from Hindustan Syringes & Medical Devices Ltd (HSMD). The State Government would again buy 4m AD syringes for its phase-II immunization program. 5.4 Vascular Concepts Plans to Enter European Market Leading stent manufacturer Vascular Concepts is planning to enter the European market with its `Pronova' brand of drug-coated stents. The company plans to set up a chain of distribution network in various European countries. Vascular has a 35% share in the Indian stent market. NIPER-Ahmedabad Page 31
  32. 32. Draft Copy 5.5 New Products 5.5.1 New device for tumor surgery The Manipal Institute of Neurological Disorders and the Department of Nuclear Medicine at Manipal Hospital have jointly introduced Radio Guided Neuro Surgery that will benefit people suffering from brain tumour. A gamma probe is used which localizes the tumour from the brain and is easy for the doctors to isolate the tumour as it sometimes resembles the brain. 5.5.2 Life- saving device for heart patients Wockhardt Heart Hospital, which has launched specialize services for heart care in Hyderabad in association with Kamineni Hospital, has successfully implanted life saving automatic implantable cardioverter defibillator (AICD) or a pacemaker on a patient. This device sends alerts if there is any abnormality in heartbeat and would help initiate preventive care early. This device when implanted in a patient can detect their potentially fatal rhythm disorders and correct them by delivering a well-synchronized direct current shock directly to the heart. This is typically done for patients who face high risk of developing ventricular tachycardia/ fibrillation. 5.5.3 Modern CT scanner installed at Sunrise hospital, Kochi The Sunrise hospital at Kochi has installed a modern diagnostic system Light Speed Volume CT Scanner which is the first of its kind in South India. This Scanner can capture images of any organ in the human body in less than 10 seconds. The significant application of this technology will be the non-invasive imaging of the heart and coronary arteries. 5.5.4 Single system to diagnose dengue The Dengue Genotyping kit, developed by the Korean bio-company Seegene, uses a multiplex Polymerase Chain Reaction (PCR) system based on their trademark Dual Specific Oligonucleotide technology to detect multiple pathogens at one time. This diagnostic kit not only detects chikungunya or dengue at an earlier stage of illness than most other kits, but also identifies if its chikungunya or any one the four stereotypes of dengue, all in a single test. 5.6 Company Developments 5.6.1 GE-health launches hi-definition magnetic resonance system GE Healthcare's engineering and scientific set-up in Bangalore launched the High Definition Magnetic Resonance (HDMR) system. The HDMR system has been priced in around INR55-60m range in India. The HDMR system would provide the doctors high-resolution image clarity in cases where patients are difficult to manage on account of movement, NIPER-Ahmedabad Page 32
  33. 33. Draft Copy including uncontrollable patient motion owing to Parkinson's disease, trauma, stroke and pediatric patients who do not respond to sedation. 5.6.2 Chitra Tirunal Institute to set up test centre for medical devices The Thiruvanathapuram based Sree Chitra Tirunal Institute for Medical Sciences and Technology (SCTIMST) has plans to set up a national test centre for medical devices. The national test centre for medical devices, which would be established with funds provided by the Union Government, will provide comprehensive testing services under `good laboratory practices' to the Indian medical devices industry. Major areas of testing that will be covered at the facility include functional and safety evaluation of medical devices using in-vitro simulated systems, functional and safety evaluation using small and large animal models, evaluation of device packaging including aspects such as shelf life. 5.6.3 Widex launches new hearing aid Widex India Private Ltd has introduced in India a `user-friendly' digital hearing aid having certain features to meet the needs of people with hearing loss that are not available in the relatively cheaper versions. The company, which imports hearing aids from its partner Widex A/S of Denmark, expects the market for hearing aids, estimated to be around INR300m to grow at an annual rate of 10% in the country. 5.6.4 Opto Circuits buys German stent company The Bangalore-based Opto Circuits (India) Ltd has acquired Germany's EuroCOR, a company that designs and manufactures stents for INR60m. EuroCOR has about 120 employees and a manufacturing facility at Bonn (Germany). 5.6.5 Corning launches distribution channel Corning India Pvt. Ltd., in collaboration with Prime Ophthalmics Products Ltd, launched a new distribution channel in Chennai. Corning India is a subsidiary of Corning Inc, a leader in ophthalmic technology. Prime Ophthalmics will exclusively manufacture glass lens at its Chennai laboratory for Corning India, which will in turn distribute these products to opticians, wholesalers, dealers and other distributors in India. The company also launched prescription lenses under the brand name, Visual Eyes, for the Indian market. 5.6.6 Indo-US venture to launch cancer detection tools Genetics Specialties' a new Indo-US venture in cancer diagnostic tool kits in cancer diagnostic tool kits was launched in Bangalore in February 2006. The company introduced a range of genetic diagnostic kits and reagents to diagnostic labs and medical research NIPER-Ahmedabad Page 33
  34. 34. Draft Copy institutions across the country. Genetics Specialties' future plans include manufacturing reagents in the country after a few years. 5.6.7 Indian medical devices market regulated The government of India in 2004 constituted an advisory committee which suggested for the creation of a specific medical devices division within the central drug standard control organization (CDSCO).This division addresses the management, approval, certification and quality assurance aspects of the medical devices. The CDSCO has made some guidelines mandatory since June 29, 2006 in order to regulate the medical devices sector. The rules specify that all the importers, stockists and retail sellers of medical devices should obtain appropriate license from the concerned state licensing authorities by September 2006. 5.6.8 US Company develops device to monitor autonomic nervous system DyAnsys Incorporation, a leading US based company has developed a device called ANSiscope to monitor the autonomic nervous system (ANS). Its first big application came in diabetes for the detection of a complication called diabetic autonomic neuropathy (DAN). By early screening and detection of dysfunction in DAN, it could be possible to take steps to prevent damage to organs like the heart, kidney etc., which diabetes tends to impact. 5.6.9 GE healthcare plans radio pharmacy centres Medical diagnostics major GE Healthcare plans is setting up a radio pharmacy centre in Delhi to provide nuclear medicine for hospitals around the capital. Similar centres would follow in Mumbai, Bangalore and Hyderabad, according to a release here. The main objective is to provide the imaging systems based on nuclear medicines which are used to detect a range of diseases from cancer, coronary artery disease, infection, renal disease, Parkinson's, Alzheimer's diseases, epilepsy and stroke. 5.6.10 Poly Medicure applies for eight new patents Poly Medicure Ltd, manufacturers of medical devices and disposables under the brand, Polymed, applied for 8 new patents and two USFDA (Food and Drug Administration) approvals for its new range of safety syringes and safety blood collection holders. 5.6.11 GE Healthcare hopes to double revenues Global healthcare equipments major GE is targeting to double its revenues from its South Asia operations to USD 800 million in the next three years. About 90-95% of the revenues come from India. The company would focus on making need-based investments in India in manpower, manufacturing and technology. The company also plans to increase its manpower NIPER-Ahmedabad Page 34
  35. 35. Draft Copy in India. The company has around two thousand employees in India, who form about 40% of the company's global engineering and technology expertise, and would be employing about 10% more. 5.6.12 Zydus to market diagnostic kits Sarabhai Zydus Animal Health Ltd is set to launch high-tech diagnostic kits to diagnose and control newly emerging infectious animal diseases that include avian influenza (bird flu) and bovine viral diarrhoea. The Immuno-diagnostic Reagent kits will be sourced from Lillidale, UK, which holds marketing rights for Veterinary Laboratories Agency (VLA) diagnostics kits. VLA is one of the reputed referral laboratories based in the UK. The diagnostic kits will enable Indian animal health researchers in differential diagnosis of different of pathogens present anywhere in the world. 5.6.13 Strides acquires Warsaw-based sterile unit Strides Arcolab has announced that its Polish subsidiary has acquired a Warsaw-based sterile manufacturing unit formerly owned by ICN Valeant, a mid-sized US speciality pharma company. The Bangalore-based Strides group will install additional capacity in sterile dose form at the Warsaw plant and increase its workforce. Strides Polska will supply globally as well as in Europe. 5.6.14 EuroCOR gets CE okay for products EuroCOR, a wholly owned subsidiary of Opto Circuits (India) Ltd (OCIL), has received CE approval for marketing and sale of Amadeus Super cross, a coronary dilation catheter and EWire, a guide wire for interventional use. Both products are used in Coronary Angioplasty (Percutaneous Transluminal Coronary Angioplasty — PTCA). The two products are expected to add 3-5m and 1m, respectively, per year to Opto's top line. 5.6.15 GE Healthcare ties up with Manipal Health Medical diagnostics major GE Healthcare has roped in Manipal Health Systems as its India partner for its ongoing global clinical studies on its diagnostic products. These are imaging agents being tested for diagnosis in oncology, neurology and cardiology. In the study starting in September, a GE integrated development centre (IDC) equipped with GE medical devices is to be set up at Manipal Hospital, Bangalore. Using its doctors as investigators, Manipal will conduct 1,000 scans a year, initially contracted for three years, and return the raw data from these imaging’s to GE. NIPER-Ahmedabad Page 35
  36. 36. Draft Copy 6.0 REGULATORY ENVIRONMENT 6.1 Global Perspective Clinical investigations of medical devices must comply with the Food and Drug Administration (FDA) informed consent and Institutional Review Board (IRB) regulations. Federal requirements governing investigations involving medical devices were enacted in the US, as part of the Medical Device Amendments of 1976 and the Safe Medical Devices Act of 1990. These amendments to the Federal Food, Drug, and Cosmetic Act (the Act) define the regulatory framework for medical device development, testing, approval, and marketing. 6.1.1 Industry classification Medical devices are generally divided into class I, II and III, based on the level of risk to users/patients, corresponding to logical risk evaluations conducted by the FDA. Class I devices are the lowest risk classification and include general consumables such as crutches and band aids, while class II controls are more specialized, such as wheelchairs. Class III devices require pre-market approval, as they are known to present hazards requiring clinical demonstration of safety and effectiveness. Devices in this category include heart valves, catheters, cardiopulmonary resuscitation (CPR) devices and various implants. 6.2 Indian Outlook The regulation of medical devices is often complicated by legal technicalities. In India, the Department of Health has nominal jurisdiction over medical devices, evident from the illegal re-processing and re-packaging of used syringes for re-sale and the availability of equipment that fails minimum safety and quality standards. Unsterilised implants could cause infections and stents coated with immuno-suppressant drugs are capable of impairing the body’s immune system. All devices carry a certain degree of risk therefore, the Global Harmonization Task Force (GHTF) has identified potential areas of hazard that warrant consideration. These include degree of invasiveness, duration of contact, the body system affected, and local versus systemic effects. An invasive device is usually considered to have higher potential hazard than an equivalent non-invasive one. Similarly, devices that have a long duration of contact are assigned higher classes of potential hazard or risk. The Ministry of Health and Family welfare under Gazette notification S.O. 1468 (E) dated 6th October 2005 declared the following sterile devices to be considered as drugs under Section 3 (b) (iv) of the Act. NIPER-Ahmedabad Page 36
  37. 37. Draft Copy 1. Cardiac Stents 2. Drug Eluting Stents 3. Catheters 4. Intra Ocular Lenses 5. I.V. Cannulae 6. Bone Cements 7. Heart Valves 8. Scalp Vein Set 9. Orthopedic Implants 10. Internal Prosthetic replacements It was also notified vide GSR 627 (E) dated 7th October 2005 that control over manufacture of these devices would be exercised by CLAA (i.e.) DCGI under the said Rules. The Ministry of Health and Family Welfare have now approved the following procedures to be adopted with respect to licensing of import as well as manufacture these Medical Devices in the country. 6.2.1 Current guidelines for manufacturing of medical devices 1. Application for the grant of licence for manufacture of these notified sterile Devices in the country shall be made in Form 27 to the State Licensing Authority, accompanied by the requisite fee in the Form and manner as prescribed in the said rules along with a copy to the office of DCGI. 2. A period of 60 days would be provided for making the application for manufacture from the date of publication of these guidelines. 3. In case of devices belonging to the above said categories, which have not been manufactured in the country before the date of notification, no manufacture would be permitted hence forth without the approval of the competent authority as per norms prescribed. 4. The applicant shall provide the following information alongwith the application for consideration of the licensing authority. 6.2.2 Guidelines for import of medical devices 1. For the purpose of import of Devices specified above, the procedure for registration and import licence as prescribed under the Drugs and Cosmetics Rules shall be followed. NIPER-Ahmedabad Page 37
  38. 38. Draft Copy 2. A period of 60 days would be provided for the importers to make application for import and registration from the date of publication of these guidelines. However, on 28/04/2006, it is further extended by another 60 days (i.e) till 29th June, 2006. 3. In case of devices which have not been imported in the country before the date of notification no import would be permitted without the approval of the competent authority. 4. For the time being and for a period upto six months, until an application is approved for rejected, whichever is earlier, the devices which are currently in use will be permitted to be sold. In case of stents or drug eluting stents, the import will not be permitted if the applicant has sold less than one thousand stents of the particular specification prior to the date of issue of these guidelines. 5. Separate committees consisting of subject experts and representative of DCGI office would be setup for their expert advice for evaluation of specific categories of devices. The expert committees would formulate their own benchmarks and procedures for evaluations and the standards to which such devices should conform. 6.2.3 Sale of medical devices in the country The importers, stockist and retail sellers of Medical Devices shall obtain appropriate sale licences from the State Licensing Authorities for these Medical Devices. 7.0 SWOT ANALYSIS OF MEDICAL DEVICE INDUSTRY 7.1 Strengths  Potentially Huge market with growing urban middle class population  Growing private hospital sector aiming to attract health tourists 7.2 Weaknesses  Low per capita expenditure  Lack of implementation of government policies and infrastructure  Untapped rural markets  Excessive dependency on imports  Academic know-how is not well developed in this sector  Support system from R & D not available 7.3 Opportunities  Overseas companies investing in India to set up research units and develop new products NIPER-Ahmedabad Page 38
  39. 39. Draft Copy  Increasing Joint ventures and agreements  Overseas aid assisted projects to improve healthcare infrastructure  Regulations to improve market for domestic manufacturers. 7.4 Threats  Regulation policies may slow down the development of the market  Unorganized market for medical disposables  Lack of regulations in Medical disposables and surgical items leading to spurious products. 8.0 GROWTH DRIVERS The growth of Indian medical devices and diagnostics industry is driven by a host of factors. 8.1 Booming Economy The absolute value of GDP for the Indian economy is found to be increasing during the last decade, while its growth rate over previous year has been fluctuating. The continuous positive growth of economy (and the correspondingly increasing per capita GDP) has led to increased personal income and higher standards of life. Moreover, the ever increasing ‘class shifting’ of Indian population from ‘aspirants and climbers’ (annual per capita income between USD 100-500) class to ‘consuming’ class (annual per capita income between USD 1000-5000), which is a spill over effect of growing economy, has also increased the demand for access to better healthcare. These factors have cumulatively pushed up the demand for medical devices and diagnostic industry in the recent years. 8.2 Increasing Healthcare Expenditure In India, the role of Central Government is limited to family welfare and disease control programs, while the state governments are responsible for primary and secondary medical care with a limited role in specialty care. In India, healthcare expenditure constitutes about 12% of the national annual expenditure. Of this, 82% of the total health expenditure comes from the self-paid category, while employers account for 9% and insurance covers 5% of the total healthcare expenses. There are two types of healthcare expenditure spent by Indian households; payments to the healthcare providers, which constitute a major 98.5% of total healthcare expenditure while the rest is the expenditure towards payments to health insurance premiums. Therefore, the Indian population is spending a majority share of healthcare expenditure towards healthcare NIPER-Ahmedabad Page 39
  40. 40. Draft Copy service providers such as hospitals, thus indicating a potential for medical devices industry for its supply of medical equipments and diagnostics to these healthcare service providers. 8.3 Changing Demographic Profile Improvement of overall health status and socio-economic pressures has resulted in changes in the demographic profile. With a decline in birth rates, the population aged 0-14 has declined, while on the other hand improvement in life expectancy has led to an increase in old age population in recent years, which is projected to continue in future (Figure 11). On an average this past trend has led to higher per capita demand for health services, and has had a positive impact on the demand for medical devices. Figure 11: Age group-wise percentage distribution of population 8.4 Increasing Incidence of Lifestyle Diseases The type of healthcare service requirement and thus the demand pattern for medial devices in India has changed due to a rise of lifestyle-related diseases such as diabetes, cardiovascular diseases, and diseases of the central nervous system. There are around 0.7 million new cases of cancer each year and approximately 2.5 million cases. It is estimated that there are around 40 million people in India with diabetes, 5.1 million HIV/AIDS patients, and 14 million tuberculosis cases. In the past year, the Indian pharmaceutical industry witnessed a growth of 7%, the cardio-vascular segment (15-17%) and the anti-diabetes segment (10-12%). The increasing incidences of these life style diseases eventually increase the demand for medical devices and diagnostics. NIPER-Ahmedabad Page 40
  41. 41. Draft Copy Ophthalmology: The annual incidence of cataract in India, the cause of 80% of blindness, is 3.8 million cases. The total potential for surgical cataract removal is 1.75 million cases per year. Cancer: The total number of cancer cases in India was estimated at 924,790 in 2001. This is projected to increase to 1.22 million by 2011 and to 1.56 million by 2021. Cardiovascular diseases: The mortality rate due to cardiac arrest and related causes was estimated at 2.4 million . With increasing urbanization the problem is on the rise. Hypertension, diabetes and renal diseases: These stress and lifestyle related disorders are on the rise. The diabetic population in India is projected to increase from 40 million of 2001 to 47 million people in 2010. Hypertension is lower in rural areas but on an increase in urban cities. Both hypertension and diabetes further cause renal disorders. Neurological and psychiatric disorders and addictions: The current prevalence rate for neurological disorders is 15 to 20 people per thousand. The most common ailments are epilepsy, migraine, cerebrovascular disorders, Parkinson’s disease and peripheral neuropathies. It is estimated that 1% of the population is suffering from serious psychiatric illnesses, 10-15% have neuro-disorders, and 2.5% are mentally retarded. 8.5 Increasing Number of Medical Tourists India is fast becoming one of preferred destinations for medical tourism- patients going to a different country for either urgent or elective medical procedures. Reasons vary for medical tourism; a USA patient seeking treatment at a quarter or sometimes even a 10th of the cost at home, long waiting times for medical services in Canada or patient who can’t wait for treatment by the National Health Service but also can't afford to see a physician in private practice are coming to India for their treatments with a tropical vacation. Patients are coming from poorer countries like Bangladesh where treatment may not be available. Other countries that actively promote medical tourism include Cuba, Costa Rica, Hungary, Israel, Jordan, Lithuania, Malaysia and Thailand. The entrants are Belgium, Poland and Singapore. India's National Health Policy declares that treatment of foreign patients is legally an "export" and deemed "eligible for all fiscal incentives extended to export earnings." Given India’s top of the line hospital facilities, diagnostic facilities and medical practitioners, this has become a virtual growth sector. According to the Confederation of Indian Industries, India has a potential to attract 1m health tourists per annum, currently growing at an annual rate of around 25% that is predicted to bring in at least USD 2 billion within the next 6–7 years. Another report projected that the industry is to grow by 30% annually. The positive fall out of NIPER-Ahmedabad Page 41
  42. 42. Draft Copy this would be an up gradation of medical facilities, in terms of new equipments, diagnostic lab reports, equipments etc. The growth of medical tourism industry is to complement the growth the medical devices and diagnostic equipments industry. Orthopedic or arthroscopic surgeries are some of the medical procedures for which India has become a popular medical tourism destination. Therefore, the demand for orthopedic devices in India is likely to increase in future. Many corporate hospitals in India are also entering in to medical tourism field and offer services to foreign patients. One among them is the Apollo Hospital Enterprises, which is one of the pioneers in providing medical tourism services in India. Elective treatments, such as cosmetic surgery, corrective vision surgery, and dental procedures, generally not covered by insurance, also attract many western citizens to India. Moreover, some U.S. insurance companies, such as BlueCross BlueShield, have begun collaborating with some hospitals in India. The recent regulation on medical devices, which is set to increase the cost of medical devices and the test services, are predicted to be detrimental to the growth of medical tourism industry earlier. It is argued that India could lose some cost advantage as a healthcare destination, as medical devices constitute a major portion of total hospitalisation costs. However, contrary to perceptions, the medical tourism industry has not been affected as majority of the hospitals catering to medical tourism are tertiary in nature and have existing pre-requisites for USFDA/ CE certification, prior to device purchase. In fact, the enforcement of certification of medical devices will be beneficial, as foreign patients will be able to avail locally manufactured devices that are certified, expanding the domestic market significantly. Patients availing of medical tourism are willing to pay higher device costs to ensure safety and quality, as overall healthcare is considerably cheaper in India. Moreover, a 5-10% cost increase will not affect medical tourism much, as treatment itself is two to three times cheaper in India. The regulation has indeed increased the popularity of India as a destination for medical tourists due to the above reasons. 8.6 Proliferation of Hospitals Indian healthcare system has two components, public and private services. The public healthcare system offers three-tier services at primary, secondary and tertiary-levels with differentiated units like sub-centres, PHCs, CHCs, and at village, block, and district levels. The subcentres, PHCs and CHCs have grown considerably. The tertiary care service is provided by 117 medical collages and hospitals in the country. Over 4,049 public sector hospitals and 11,344 private hospitals are providing services. In India, the private healthcare NIPER-Ahmedabad Page 42
  43. 43. Draft Copy service providers delivers 63% total healthcare services while the remaining 37% healthcare service is delivered by public healthcare system like governmental agencies. The increasing thrust on private healthcare services results in burgeoning number of private hospitals which corresponds to an increasing demand for essential medical devices and diagnostics. Therefore, increasing medical infrastructures like hospitals, specialised diagnostic centres, tele-medicine centres, laboratories are expected to fuel the demand for medical devices in future. 8.7 Government Programmes and Support Though the role of government in the promotion and development of medical devices industry in India is limited, its welfare programmes and few policy measures are indirectly supporting the industry.  The central and state government has been operationalizing various health and family welfare schemes throughout India over years. Schemes to control communicable (especially AIDS control programmes) and non-communicable diseases (for cancer, etc), initiatives on telemedicine, National Diabetics programme, modernisation of hospitals, family welfare schemes like family planning and contraception programmes, etc are operated by the central government in the secondary and tertiary healthcare service delivery. The primary healthcare service is the responsibility of the state governments. The budgetary support for these schemes in both central and state sector is continually increasing over years mainly due to an increasing span of population to be covered under these schemes and increasing incidence of diseases. This could be correlated to corresponding increase in the demand for medical devices and diagnostics, the trend of which is expected to continue in future.  The National Health Policy (NHP) – 2002 announced by the Government envisages increasing public health investment to 2% of GDP by the year 2010 from the existing level of 0.9% and the total health investment to 6% from the current level of 5.2%. The NHP-2002 welcomes the participation of the private sector in all areas of health services-primary, secondary and tertiary.  The government is also extending concessions to charity organisations, hospitals in terms of duty-free import of medical devices, in case if the device/technology is not available in India and import is unavoidable. The concessions under Export Promotion Capital Goods (EPCG) are also availed by importers and distributors of medical devices and diagnostics. NIPER-Ahmedabad Page 43
  44. 44. Draft Copy 8.8 Outsourcing/Relocating of Medical Devices Manufacturing by Western Companies European and USA medical devices companies are actively considering outsourcing or relocating their manufacturing to Asia especially India and China to take advantage of its significantly lower costs for skilled labour. Moreover, if India could provide these medical devices that meet quality requirements and international standards, then it would be highly attractive to an increasing number of healthcare providers in western countries who are struggling to contain costs and facing tightening budgetary restraints. Another advantage of relocating manufacturing to India is that it puts them in an ideal location to penetrate the vastly underdeveloped Asian medical devices market, while also keeping product prices closer to those typical of the region. In Bangalore, Siemens India Ltd set up a new R&D facility in 2004 to expand research in the medical and information technology sectors for developing user-friendly medical imaging systems in order to leverage India’s advantage of low cost of production and highly skilled manpower. The favoured destinations for outsourcing the manufacturing of medial devices are China and India. However, there are certain hiccups like lack of awareness on complying to international manufacturing guidelines and standards by most of Indian manufacturers, and fear of Intellectual property protection for devices/technologies, etc. The Asian medical devices market does not have to follow any particular standards, unlike European companies, which have to comply with the Conformité Européene Mark (CE Mark). However, increasing number of companies in India have started to comply with International Organization for Standardization (ISO) and the good manufacturing practice (GMP) standards and getting certifications like Trivitron and Wipro-Biomed. Indian Manufacturers in Asia are realising that pursuing CE Mark certification can help them compete more effectively with companies producing higher- quality goods for sales into Europe. The other concern of foreign manufacturers outsourcing to India is regarding Intellectual property rights protection. Of late, contract research organisations (CROs)- which are research and development (R&D) outsourcing companies- are starting to introduce intellectual property standards to increase confidence levels of foreign companies and to promote greater outsourcing interest in both R&D and manufacturing in Asia. Therefore, with the popularity of being the preferred outsourcing destination for other services, India can attract more foreign companies for contract manufacturing of medical devices, once the above-mentioned constraints and apprehensions are addressed. Indian medical devices manufacturing industry will benefit largely from the outsourcing activity in future. NIPER-Ahmedabad Page 44