Wide Open Space- The Medical Device Market in India

Neesha Patel

The medical device industry consists of firms that produce a wide range of medical, surgical and dental products used for diagnosis and treatment of ailments.

What Is A Medical Device?

A medical device is defined, in part, as any healthcare product that does not achieve its primary intended purpose by chemical action or by being metabolised. Medical devices include electro-medical equipment and related software, furniture, supplies and consumables, orthopaedic appliances, prosthetics and diagnostic kits, reagents, and equipment. 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.

In the medical device industry, scientific disciplines and engineering merge in the creation of innovations that benefit the healthcare system as well as society at large. 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 controls such as crutches and band aids, while class II controls are more specialised, 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.

The Medical Device Industry

With innovation and the rapid advancement of technology, medical devices constitute one of the fastest growing industries, and the global market figure for 2006 is expected to exceed USD 260 billion. However, the structure of the medical devices industry varies across segments. For instance, the cardiovascular segment has experienced significant consolidation, with the top five participants controlling more than 80 percent of the market. Meanwhile, the disposable surgical supplies market is highly fragmented, with the top five participants representing less than one third of the market. The top 10 companies in the medical device industry generate a substantial portion of revenues and invest substantially in research and development. Infact, in 2003, the top ten companies accounted for 70.5 per cent of the industry R&D expenditure and invested as much as 10-14 per cent of company revenues in R&D.

Over the last decade, the structure of the medical device industry has been changing due to M&A activity. 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 such as 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.

The Indian Market

Over the last decade, Asia has accounted for an increasing percentage of medical device sales and manufacturers are pursuing opportunities in Asian markets to remain competitive. 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 was valued at USD 1260 million in 2004 and 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 per capita spending of less than USD 1.

In order to reach its healthcare goals, the Indian government acknowledges that increased foreign involvement is necessary, especially in high-technology and highly specialised areas such as equipment for plastic surgery, cancer diagnosis and medical imaging. Several favourable factors, such as economic growth, free market environment, a developed industry and investment in health infrastructure, are driving increased demand for high quality medical devices in India.

Firstly, rising income and health consciousness amongst the Indian population are driving people to seek specialised 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.

Secondly, the government has introduced a National Health Policy that aims to upgrade public sector facilities; increase the number of hospital beds, improve the quality of care in rural areas (move from curative to preventive care) and acquire advanced medical technology; while reducing import duties on medical equipment. Thirdly, most medical devices do not require an import license and import duties vary depending on whether the buyer is a government agency, charity or private hospital. Research laboratories and hospitals pay no import duties on devices that are life-saving and not manufactured domestically.

There are four types of Indian healthcare facilities that use foreign medical equipment namely, rural hospitals (or primary health centers), government hospitals, private hospitals and teaching institutions. Private hospitals outnumber the state facilities and generally invest in sophisticated foreign medical devices (that account for approximately 40-50 per cent of market sales), as they perform more complex procedures such as open heart surgery, which wealthy Indians previously travelled abroad to obtain. 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.

Imported Medical Device

Although imports constitute over half of the total Indian market, medical device suppliers seeking to enter India’s market typically arrange joint ventures/ licensing agreements to manufacturer their products locally or employ local agents to distribute them. Prominent joint ventures include Wipro-GE, Hewlett-Packard, Toshniwal Brothers, Medi Systems Ltd., among others. One of the most successful tie-ups is between General Electric Medical Systems (US) and Wipro. In three years of entering the Indian market, GE has achieved second position in the Indian equipment market and using India as a low cost manufacturing base, plans to export its Indian-made products to the rest of South Asia.

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, some of the best sales prospects include cancer diagnostic, medical imaging, ultrasonic scanning, plastic surgery equipment and polymerase chain reaction technologies. Analysts predict a continued demand for the following medical devices- ECG and EEG monitors; DC defibrillators; patient monitoring systems; radiography equipment; therapy equipment; surgical diathermy units; apnea/respiratory monitors; color Doppler ultrasound scanners; CT and MRI systems; digital subtraction angiography systems; laser and fiber optic devices such as endoscopes, colonoscopies, laparoscopes, laser lithotripters etc; linear accelerators; X-ray equipment, including dental and general purpose mobile C-Arm; ophthalmology equipment; radiotherapy equipment; simulators and treatment planning systems.

Regulation of Medical Devices

The regulation of medical devices is a vast and rapidly evolving field that 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, (for classification purposes) the Global Harmonisation 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. Similarly, devices that have a long duration of contact are assigned higher classes of potential hazard or risk.

In 2004, the Mashelkar Committee called for the creation of a specific medical devices division within the Central Drugs Standard Control Organisation to address the management, approval, certification and quality assurance of medical devices. In 2005, the Maharashtra Food and Drugs Administration directed manufacturers and importers to obtain a licence from the Drug Controller of India (DCI) for all in-vivo devices, especially drug-coated stents. The FDA initiative followed reports that a leading hospital in Mumbai had used illegal stents on its patients.

In a nutshell, continued investment in private sector infrastructure, coupled with increased healthcare funding from the government, have resulted in a steady increase in the market for medical equipment and supplies. Analysts estimate the market will continue to grow by an average of 4.7 per cent over the next few years, driven largely by health tourism and the size of the Indian middle class. The recent liberalisation of trade and investment laws, together, with a growing commitment to national healthcare, makes India one of the most promising emerging markets for medical device manufacturers.