What’s new in 2019?
Nowadays, the most significant impact on the Indian industry is anything that happens in the US, more so, since most Indian majors have more than 50% revenue dependence on that market.
Trend 1: 2017-18 saw most of these companies build a very differentiated portfolio that included biosimilars, complex generics and differentiated formulations. The existing volatility around the ACA (Affordable Care Act) can mean that hundreds of thousands of Americans could lose their healthcare cover. If this happens, the FDA will look for ways to increase generic penetration and that would be big opportunity for Indian manufacturers.
Trend 2: Another mega trend could be the entry of ‘non-traditional’ players into healthcare. Amazon which is all set to become everything from an employer insurance aggregator to the next generation retailer to a global healthcare logistics specialist will probably disrupt almost every stakeholder in the healthcare arena today. Amazon’s interest spreads from primary care (tele-medicine) to healthcare at home services. The quicker Indian pharma learns to partner with such ‘non-traditional’ players, the better for them. What will be interesting to observe is will this relegate pharma to mere low-cost manufacturers instead of ‘patient care providers’ as they fancy themselves to be?
Trend 3: Increased power in the hands of patients is likely to upset a lot of current equations. Very vigilant healthcare media reporting has done well to harness patient power in some cases in India (J&J hip implants and Fortis dengue overcharge case). As patients and caregivers become more aware, pressure on the government and regulators will increase. How this plays out on pharma margins will be interesting to observe.
What about digital?
Some pharma companies have advanced capabilities of digitized process (manufacturing, quality, supply chain etc) but very few companies have actually appreciated the importance of digital technology in customer engagement. Pharma is traditionally a very product-oriented industry and therefore it is natural that it would embrace new technology into improving existing processes.
Therefore, companies are looking at how technology can help it to reduce inefficiencies in processes that are internal to the organization and I would think that internal digitization is definitely more widespread than its use externally (to engage customers / provide great experiences). Pharma still thinks of revenue as a product of volume and price. It hasn’t appreciated the possibilities of creating new service streams that patients would appreciate, value and pay for. This is the ‘white space’ that is being rapidly occupied by healthcare start-ups with billions of venture capital (VC) dollars flowing in.
A bit of shift in thought process is needed for pharma to apply digital technology externally to compete or reclaim that space.
Year of the Elections
On the political front I wouldn’t expect too much change with the general elections 6 months away. I think the govt has created enough political plank using healthcare and will tout it (PMJAY, reduction in prices of drugs and devices, hospital costs of surgeries getting reduced, implant patients being compensated etc.). Traditionally in India, healthcare (or education) has never been an electoral plank and politician understand that announcement of sops, loan waivers, direct cash transfers (DCT) etc will work more for the immediate term than announcements that will take a few years to materialize.
In a nation that depends solely on votebank politics, it is unlikely that any populist measure will ever be withdrawn. Drawing an analogy from the MNREGS scheme, even if the NDA doesn’t return to power, it is unlikely that a new govt will withdraw a scheme that has been touted to provide healthcare cover to 50 crore Indians. One may expect tweaks and small changes, but I believe the scheme will stay.
In the domestic arena on the M&A front I would expect a lot of more niche alliances. Niche alliances aren’t very expensive and offer the opportunity to buy differentiated and complex products at relatively cheap prices. However the odd large deal cannot be ruled out if the US market opens up in the way Indian majors expect it to. In a market where no one can ever challenge the need for patent-induced monopolies that are the sole reason for high medicine prices, I believe there will be a greater urgency to introduce generics as a compensatory mechanism. This augurs well for Indian pharma companies – both large and small.
Do you think 2019 will be more of the same for pharma?