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Left To Their Own Devices

Business World Jul 22, 2015

The government’s efforts to boost the domestic medical devices sector do not have a serious ring about them By Joe C. Mathew The setting could not have been more perfect. At the annual World Economic Forum (WEF) summit in Davos in January this year, a small Indian firm, Hindustan Syringes & Medical Devices (HMD), found itself centre stage after Switzerland-based NGO, Global Alliance for Vaccine and Immunization (GAVI), announced a partnership with it for its injection safety campaign. What made it more momentous for HMD was the fact that announcement came in the presence of the biggest ever Indian contingent at WEF, where the Narendra Modi government’s branding exercise for its flagship “Make in India” initiative was also in full swing. Incidentally, the medical devices sector, the industry which HMD represents, was among the ones that were being showcased under the Make in India initiative. Unlike its more accomplished cousins in the healthcare sector — the domestic generic drug and vaccine manufacturing companies — Indian medical equipment makers are hardly among the headlines. Hence, the partnership served to put the spotlight on the domestic medical device makers in general and HMD, the private firm that specialises in the manufacture of auto disposable syringes in particular. Though the partnership was worth only $1.5 million, it amounted to a great deal more in terms of its symbolic importance. <img alt="" src="http://bw-image.s3.amazonaws.com/gsk-velu-250.jpg" style="width: 243px; height: 301px; float: right; margin: 3px;">A Dream And A Complusion Making India a global manufacturing hub for medical devices is the government’s dream. It is also a domestic compulsion as self-sufficiency in 14,000 different product types ranging from wound closure pads to stents to in vitro diagnostic machines is needed to provide affordable healthcare to the country’s 1.3 billion citizens. The significance of the task at hand becomes evident when one considers the fact that while India is near self-sufficient in the production of drugs and vaccines, it is heavily dependent on imports for supply of medical devices. If the domestic industry is to be believed, the government policy itself is skewed in favour of medical devices imports and thus works against the professed ‘Make in India’ slogan. Only 30 per cent of the Rs 70,000-crore worth domestic medical devices market is served by local manufacturers who mostly operate in the low-price, high-volume medical devices segments. Thus, while domestic manufacturers account for 67.3 per cent of sales in the disposable and consumables segment — the lowest in the medical device value chain, imports make up 87.4 per cent of the sales of medical electronics and hospital equipment product market, which constitute the high-end segment. That was precisely the reason why medical devices, as a standalone sector, were among the first to be considered a priority manufacturing sector during the formative stages of the Make in India mission. The quantum of work that needs to be done to promote the sector was also clear when the government asked at least half a dozen departments to suggest ways to make it a viable industry. As more and more sectors got added in the mission — currently, 25 sectors are covered — medical devices ceased to exist as a separate sector, though it continues to be one of the key elements within several broader sectors such as pharmaceuticals, electrical machinery and electronic systems. The very fact that medical devices can be part of several sectors also indicates their unique positioning and explains why the government had to ask multiple departments to fast-track measures that can help the growth of indigenous medical device sector. Policy Push Including medical devices in the Make in India initiative was just the first step. Almost a month before the WEF meeting, i.e., in December 2014, the government came up with a notification allowing 100 per cent foreign direct investment (FDI) in medical devices sector through automatic route. The significance of the development did not lie in 100 per cent FDI (it was the case earlier also, though government approved it on a case-to-case basis), but in taking out medical devices from the broader pharmaceuticals industry and giving it a separate identity. By this, the government wanted to convey that it wanted to treat the medical devices sector as a separate entity from the pharmaceutical sector as far as FDI was concerned.  <table align="center" border="1" cellpadding="1" cellspacing="1" style="width: 500px;"><tbody><tr><td><img alt="" src="http://bw-image.s3.amazonaws.com/GROWING-DEPENDENCE-lrg.jpg" style="width: 603px; height: 268px;"></td></tr></tbody></table> The domestic medical device sector received further boost with the formation of a task force under the Department of Electronics and Information Technology (DEITY) to promote the medical electronics ecosystem — an area where import dependency is highest — in the country. Based on its recommendations, several measures, including some that are common to other industries that DEITY caters to, were initiated. For instance, medical devices companies today are entitled to a subsidy of 25 per cent on capital expenditure (20 per cent in SEZs), with full reimbursement of excise / countervailing duties paid on capital equipment. More incentives have been instituted in the form of grant-in-aid, scholarships, reimbursement, skill development, etc., to promote investment, research and human resource development in the sector. However, the two most important initiatives for the sector came from the ministry of health and the ministry of chemicals and fertilisers. In the case of the former, a Bill amending the Drugs and Cosmetics Act to accord a distinct status to medical devices, with a separate set of rules and regulations for quality control, is awaiting Parliamentary clearance. In the latter’s case, recommendations of a task force set up under the pharmaceuticals department to prepare a draft “national medical device” policy for giving a long-term growth push to the medical device sector are under consideration. Hansraj Gangaram Ahir, minister of state for chemicals and fertilizers says, “The task force has recommended the setting up of manufacturing hubs in the private-public partnership mode, strengthening the ‘Made in India’ marking specific to medical devices in line with international standards like CE….” <img alt="" src="http://bw-image.s3.amazonaws.com/SANJEEV-BANERJEE-250.jpg" style="width: 270px; height: 330px; float: right; margin: 3px;">How fruitful will these measures be? The reactions from the global multinational corporations (MNCs) which control 87.4 per cent of the medical electronics, hospital equipment and surgical instruments market in the country through imports are mixed. MNC Concerns Just over a year ago, Advanced Medical Technology Association (Advamed), a representative group of global medical device manufacturers, surveyed 1,300 respondents across 17 states to understand how extensively Indians used medical devices. According to its findings, 72 per cent of the respondents said at least one person in their families had used a medical device, but 89 per cent of them did not know the significance and use of such devices. Similarly, 80 per cent considered “brand” to be the indicator of quality, while for 96 per cent “doctor” was their most trusted advisor as far as medical devices were concerned. The survey was meant to generate sufficient data to engage with the government. The medical device MNCs wanted a supportive regulatory environment, increase in overall health spending, greater insurance coverage and incentives for investment and research. Going by the recent government initiatives, all of these suggestions seem to have been taken on board. “The industry is encouraged that the government has taken cognizance of the fact that issues related to the pharmaceuticals sector are different from that of medical devices. The proposals for medical device parks, autonomous regulatory authority, 100 per cent FDI, incentives for R&D, etc., will all foster the development of the industry. In fact, India represents a compelling opportunity for make in India and make for India”, says Sanjay Banerjee, chairperson, India Working Group, Advamed. At the same time, the multinational firms are worried about the government move to bring medical devices under the purview of price control.  “Medical devices are a diverse group of products that have short life cycles. More so, India’s distinctive disease profile makes innovation in medical technology significantly more crucial. Given the significant differences between pharmaceuticals and medical devices, regulatory and pricing systems for medical devices need to be conceived differently from that of drugs,” Banerjee says. According to him, the government should ensure that the price control regime prevalent in pharmaceuticals is not transferred to the fledgling medical devices sector. The overemphasis on Make in India has the MNCs worried as they say that domestic manufacturing of high-value, technology intensive medical devices may not always make commercial sense unless the market size and pricing structures justify it.  “However, the entire policy objective needs to focus on raising awareness about and enhancing access to safe, effective and affordable medical technology products for patients instead of just focusing on manufacturing in India,” Banerjee says, adding that the primary focus of the government should be to make medical devices accessible and affordable to Indian citizens. Historically, the medical device sector has not been a lucrative area for foreign direct investments (FDI). It is only in the last five years that things have started to look up. The cumulative size of foreign investments into the country in the last 15 years (April 2000–April 2015) has been $954.53 million. The size of FDI in FY 2014-15 alone was $120.96 million.  <table align="center" border="1" cellpadding="1" cellspacing="1" style="width: 500px;"><tbody><tr><td><img alt="" src="http://bw-image.s3.amazonaws.com/SMALL-AND-STEADY-lrg.jpg" style="width: 616px; height: 266px;"></td></tr></tbody></table> Looking Beyond FDI “Not a single investment has come after the announcement of the FDI policy,” says G.S.K. Velu, managing director, Trivitron Healthcare, a leading domestic medical device manufacturing company. “We should not rely too much on foreign investments to push the domestic medical device sector,” he says. Velu has managed to attract foreign investments in Trivitron through six joint ventures and partnerships that his company has with global players in medical technology. According to him, Indian entrepreneurs should drive the growth of the domestic medical device sector. “That has always been the case, be it in biotechnology or in information technology. Industry growth was led by domestic entrepreneurs,” he says, adding that price regulation should not be seen a regressive step. “There are reasons to believe that price regulation, at least in some segments, is a good step. But that’s not all. The government has taken only baby steps. There is no move to motivate Indian entrepreneurs in this segment,” says Velu. Incidentally, two third of Trivitron’s profits come from exports. Velu says that he is surviving because of export revenues as manufacturing is not incentivised in the country. He finds the inverse-duty structure to be a  major culprit. Trivitron’s growth is an exception than a norm in the domestic medical device industry as there are only two companies (including Trivitron) with annual sales in excess of Rs 500 crore. Majority of the approximately 800 domestic medical device manufacturers are small and medium-scale companies.    <table align="center" border="1" cellpadding="1" cellspacing="1" style="width: 500px;"><tbody><tr><td><img alt="" src="http://bw-image.s3.amazonaws.com/MEDICAL-DEVICES-MARKET2-lrg.jpg" style="width: 634px; height: 189px;"></td></tr></tbody></table> Rajiv Nath, forum coordinator of the Association of Indian Medical Device Industry (AIMED), the body that represents the domestic players, says the government can create a conducive ecosystem for the growth of the indigenous medical device sector if it takes care of its immediate concerns. Withdrawal of all concessional basic duties is top of their list. Preference to local manufacturers in government purchases, institution of a regulatory framework around self-certification, and creation of a separate department for medical devices are some of the other suggestions put forth by AIMED. “The government should create an autonomous Medical Devices Authority to regulate and facilitate manufacturers to self-certify and also audit units post self-certification. A new ministry should house the department of pharmaceuticals and the department of medical devices,” says Nath, who is also the joint MD of Hindustan Syringes. In the past one year, the government has given a lot of hope to the industry through task force reports and draft regulations. But nothing has changed on the ground. In February, the National Pharmaceutical Pricing Authority (NPPA) sent notices to manufacturers, importers and marketers of syringes, needles, stents, catheters, intra-ocular lenses, bone cements, orthopaedic implants, internal prosthetic implants, etc. for failing to furnish their price list to NPPA. This move continues to be questioned by the medical device makers on the premise that devices are not drugs and the market dynamics are different. For now, the health ministry has chosen to ignore them as it believes its task is limited to protecting consumer health. NPPA continues to monitor and fix the prices of 14 medical devices as they are, as per its definition, categorised as drugs. The finance ministry, too, has refused to be drawn into the debate citing technical incompetence in scientific matters. Clarity on all these issues are essential for promoting local manufacturing of medical devices. Until then, Make in India graph will remain just a straight line on the country’s economic health monitor.   joe@businessworld.in,   @joecmathew (This story was published in BW | Businessworld Issue Dated 10-08-2015)