Introduction

Mankind’s drive to defeat illness and disease and improve quality of life has made the pharmaceutical industry one of the largest and most significant global businesses. Driven by its own ability to innovate, the industry has grown strongly over the decades, as successful new medicines have extended average life expectancy and as governments across the globe have sought to improve the health and quality of life of their citizens. Following many years of consistent and steady growth, today’s global pharmaceutical market is estimated to be worth close to $400.0 billion.

Today, people are living longer, healthier and more productive lives as a result, in considerable part, of the efforts of the research-based pharmaceutical and biotechnology industries in discovering new medicines to prevent, cure and treat disease.

Let’s have a bird eye view on the health care industry to get a clear picture on its sector.

Health Care Industry is classified into following broad categories:

(1) Pharmaceuticals & Biotechnology(2) Service Providers : Hospitals, HMOs/ MCOs & HI(3) Health Care Equipment Manufacturers

The above broad categories can be sub-classified into following sectors:PharmaceuticalsLife Science & Bio-technologyHealth Care Providers/ Health maintenance organizations (HMOs)Medical Equipment Manufacturers & Suppliers

Explanation on aforementioned Sectors

Pharmaceutical Company’s goal is to discover products that will improve human health worldwide by diagnosing, preventing and treating diseases.

Life sciences and biotechnology is viewed as one of the key technology areas of the 21 century, with the potential to dramatically change important aspects of health care, agriculture and food production, environmental protection, energy production and industrial processes.

Health care Providers include Doctors & Specialists, Directory of Hospitals, Community Services, Emergency Medical Services, Programs for Children & Family, Children with Special Health Care Needs, Massachusetts Immunization Program and Women's Health Network.

Medical Equipments Companies are those companies which are engaged in manufacture and supply of Accupressure equipment, Anaesthesia Equipment, Aspirators, Autoclaves, Dermatology Equipment, Diagnostic Instruments, ENT Equipment, Electromedical Equipment, Electrosurgical Apparatus, Forceps, General Surgical Instruments, Gynaecological Equipment, Hospital Equipment, etc to consumers, hospitals, medical professionals, schools, businesses and governmental agencies.

Medical Supply Company provides quality medical supplies to consumers, hospitals, medical professionals, schools, businesses and governmental agencies.

SWOT Analysis

The strengths, weaknesses, opportunities and threats in the context of Indian pharmaceutical industry are cited below:

Strengths OpportunitiesMatured Industry / Large home marketFast changing lifestylesLow cost manufacturingHigh chemistry and process reengineering skillsQuick adoption of new technology

Potential to absorb high priced productsChanging demographic and socio economic profileEmerging biologics opportunities – India gearing up.Product patent protection from 2005Opening of OTC segmentLarge number of drugs going off patentEstablish as a global sourcing hub

Weaknesses ThreatsLack of pricing power impacts growthLack of product patentsCharacterized by low marginsInvestments in R&DHighly fragmented industry

2005 IPR regime implies drying up of product pipeline for Indian companiesNon tariff barriersInternal fragmentationChina

Healthcare organizations confront risks that threaten their reputation and their financial security. They need to navigate complex accounting rules and changing regulations, with growing pressure on revenues, costs and access to capital. These challenging times require superior skills and broad perspective from advisers who understand the business of healthcare.

Factors affecting demand for health care segment:

1) Population Growth2) Changing Demographic Profile3) Changing Disease Pattern4) Empowered Consumers and rising expectation (Quality and Quantity of care)5) Unhealthy Life Styles6) Environment Pollution, Unhealthy work/ living Environment 7) Epidemics, Natural disasters8) Consumers Unaccountability9) Ethical Considerations

Growth Drivers for Indian Healthcare Industry

1) Increase in Populationa) More Number of Hospitalizationsb) Increased utilization of Assets

2) Changing Disease Demographicsa) Life style Diseasesb) Increased Demand for Tertiary Care Services

3) Health Insurancea) Potential 300-400 Mn insurable Livesb) Increased Utilization of Healthcare Servicesc) Standardization of Assets

4) Consumerisma) Increased Health Awareness and spends on healthb) Empowered Patientc) Demand for high Quality Servicesd) Emergence of Offshore Medical Services

Regulatory bodies in India

National Pharmaceutical Pricing Authority (NPPA): Revises the prices of controlled bulk drugs and formulations.

Central Drugs Standard and Control Organization (CDSCO): Laying down standards of drugs, cosmetics, diagnostics and devices

Department of Chemicals & Petrochemicals (DCP): Responsible for the policy, planning, development, and regulation of the chemical, petrochemical, and pharmaceutical industries

Foreign Regulatory bodies

Center for Drug Evaluation and Research (branch of the FDA): Responsible for ensuring the safety and efficacy of new prescription and over-the-counter drugs, overseeing the labeling and marketing of drugs, and regulating the manufacturing and packaging of drugs.

Structure/Sector Overview

Pharmaceutical Sector

Accounting for two percent of the world’s pharmaceutical market, the Indian pharmaceutical sector has an estimated market value of about US $8 billion. It’s at 4th rank in terms of total pharmaceutical production and 13th in terms of value. It is growing at an average rate of 7.2 % and is expected to grow to US $ 12 billion by 2010.

Over the last two years the pharmaceutical market value has increased to about US $ 355 million because of the launch of new products. According to an estimate, 3900 new generic products have been launched in the past two years. These have been by and large launched by big brands in the pharma sector. And in the year 2005 Indian pharmaceutical companies captured around 70% of the domestic market. As in the present scenario, only a few people can afford costly drugs, which have increased price sensitivity in the pharmaceutical market. Now the companies are trying to capture the market by introducing high quality and low price medicines and drugs.

With the Product Patent Act, which came into action in January 2005, this industry is able to attract big MNCs to India. Earlier these big firms had apprehensions in launching new drugs in the Indian market.

At present, a large number of Indian pharmaceuticals companies are looking for tie-ups with foreign firms for in-license drugs. GlaxoSmithKline is among the top choices for the firms that wish to launch their product in India, but do not have any branch over here.

Health Care Group

Pharma/Biotech Services Equipment Manufacturing

Biotechnology HospitalsPharma HMOs/MCOs/HI

Contract research and pharmaceutical outsourcing are the new avenues in the pharmaceutical market. Contract manufacturing is growing at a very fast pace and is estimated to grow to US $30billion, whereas contract research is estimated to reach US$6-10 billion.

Indian multinational companies like Dr.Reddy’s Lab, Cipla, Ranbaxy, etc have created awareness about the Indian market prospects in the international pharmaceutical market. Approvals given by Foods and Drugs Administration (FDA) and ANDA (Abbreviated New Drug Application)/DMF (Drug Master File) have played an important role in making India a cost-effective and high quality product manufacturer. Furthermore, the changes that took place in the patent law, change of process patent to product patent, have helped in reducing the risk of loss for intellectual property.

Industry Strengths:

Capital Investment in Technology: Owing to the availability of advanced technology at low costs, the companies can produce drugs at lower costs. Cost Effective: The filing cost of ANDAS and DMFs is comparatively low for the Indian companies. Manpower: There is a large pool of technical experts available at modest salaries. Contract Research & Contract Manufacturing: There is a good scope for contract research and contract manufacturing. Infrastructure: There is a well-developed infrastructure for the pharmaceutical industry. Generic Drugs: In the last few years, the generic drug-manufacturing segment has received huge investments, in the process making it more competitive and efficient.

Scope and Importance

Over the years pharmacy has grown in the form of pharmaceuticals sciences through research and development processes. It is related to product as well as to services. The various drugs discovered and developed are its products and the healthcare it provides comes under the category of services.

Pharmacy involves all the stages that are associated with the drugs i.e. discovery, development, action, safety, formulation, use, quality control, packaging, storage, marketing, etc.

This profession has a large socio-economic relevance to the Indian economy. In India this sector is among the future economy drivers. It is committed to deliver high quality drugs and formulations at an affordable price, so that majority of people can afford them.This profession has a large socio-economic relevance to the Indian economy. In India this sector is among the future economy drivers. It is committed to deliver high quality drugs and formulations at an affordable price, so that majority of people can afford them. The transformation of the sector from conventional pharmacy to drug experts, which is both desired and necessary to reach the global standards, has already made commendable progress.

Liberalization, privatization and globalization (LPG) have helped the Indian pharmaceutical companies to achieve international recognition. It’s remarkable to note that today several Indian pharma companies are approved by US FDA and are listed at NASDAQ.

The multibillion-dollar pharma industry grows mainly through knowledge wealth creation. This sector has transformed a lot over the years. The big pharma companies that were there about 15-20 years back are not in picture these days.

The analysis of Indian pharmaceutical sector shows that the innovative products, product life cycle management and marketing management steps taken by the pharma companies have led them to flourish. And the companies that refused to change their strategy lost the race. Cipla and Sun Pharma are two companies that are focused on new product development and have grown tremendously.

Current Scenario

According to the Economic Survey (2006-07), the pharmaceuticals industry had achieved a turnover of about US$ 12 billion in 2005-06, and is expected to grow by 13% in 2007. Its pharma export value reached about US$ 4.7 billion during 2005-06. Pharmaceutical industry accounts for about 2.91% of total FDI into the country. The FDI in pharmaceutical sector is estimated to have touched US$ 172 million, thereby showing a compounded annual growth rate of about 62.6%. Drugs and pharmaceuticals sector is at 8th rank in India’s top 10 FDI attracting sectors. According to the Economic Survey for the year 2006-07, the value of pharma output has increased ten times over the last 15 years. From Rs. 50 billion in 1990 it has grown to Rs.550 billion (US$ 12 billion) in 2005-06. Driven by growing number of pharmaceutical units, increased knowledge skills, improved quality and increasing national as well as international demand, India is now recognized as a leading global pharma player

Future Scenario

The dream of Indian pharmaceutical companies for marking their presence globally and competing with the pharmaceutical companies from the developed countries like Europe, Japan, and United States is now coming true.

The new patent regime has led many multinational pharmaceutical companies to look at India as an attractive destination not only for R&D but also for contract manufacturing, conduct of clinical trials and generic drug research.

Clinical Research Outsourcing (CRO), a budding industry valued over US$ 118 million per year in India, is estimated to grow to US$ 380 million by 2010, as MNCs are entering the market with ambitious plans.

By revising its R&D policies the government is trying to boost R&D in domestic pharma industry. It is giving tax exemption for a period of ten years and relieving customs and excise duties of all the drugs and material imported or exported for clinical trials to promote innovative R&D.

The future of Indian pharmaceutical sector is very bright because of the following factors:

Clinical trials in India cost US$ 25 million each, whereas in US they cost between US$ 300-350 million each.

Indian pharmaceutical companies are spending 30-50% less on custom synthesis services as compared to its global costs.

In India investigational new drug stage costs around US$ 10-15 million, which is almost 1/10th of its cost in US (US$ 100-150million).

SWOT Analysis

The strengths, weaknesses, opportunities and threats in the context of Pharma Sector are described below:

Strengths Opportunities Cost effective technology Strong and well-developed

manufacturing base Clinical research and trials Knowledge based, low- cost manpower

in science & technology Proficiency in path-breaking research High-quality formulations and drugs High standards of purity Non-infringing processes of Active

Pharmaceutical Ingredients (APIs) Future growth driver World-class process development labs Excellent clinical trial centers Chemical and process development

competencies

Incredible export potential Increasing health consciousness New innovative therapeutic products Globalization Drug delivery system management Increased incomes Production of generic drugs Contract manufacturing Clinical trials & research Drug molecules

Weaknesses Threats Low Indian share in world

pharmaceutical market (about 2%) Lack of strategic planning Fragmented capacities Low R&D investments Absence of association between institutes

and industry Low healthcare expenditure

Production of duplicate drugs

Small number of discoveries Competition from MNCs Transformation of process patent to

product patent (TRIPS) Outdated Sales and marketing methods Non-tariff barriers imposed by

developed countries

Top Players in Pharma Industry

Aventis Pharma LimitedBioconCadila Healthcare LimitedCipla LimitedDr Reddy's LaboratoriesGlaxo SmithKline Pharmaceuticals LimitedWockhardt LimitedJB ChemicalsSerum Institute of India

Ranbaxy LaboratoriesNicholas Piramal

India continues to hold a significant pharmaceutical market potential, not least due to its large and rapidly expanding population. Prescription drugs account for around two-thirds of the total market, with over-thecounter (OTC) products likely to benefit from the liberalisation of retail channels anticipated during the forecast period. Generics represent less than 40% of the market by value, although intellectual property (IP) regime shortcomings allow for the production and use of counterfeit drugs. India’s imports of medicines are expected to overtake its exports, resulting in a trade deficit of US$300mn by 2010, although foreign acquisitions by large domestic generic manufacturers will boost exports of cheaper drugs. The Indian drug sector remains highly competitive, with the state pricing policy continuing to stifle growth and the new drug patent law set to increase foreign company activity.It expects the pharmaceutical sector to grow by some 8% in 2006, behind the country’s major Asian rival, China. Sales are likely to exceed US$15.2bn by 2010, with annual growth at around 9%. The growth of ‘civilisation’ diseases, boosted by changing demographics and rising healthcare expectations, will simulate the need for cardiovascular, neurological, metabolic and cancer drugs in particular. The treatment of infective diseases, especially hepatitis and HIV/AIDS, will necessitate supplies from abroad, while simultaneously encouraging local research and development (R&D) activities in this direction. Expected liberalisation of over-the-counter (OTC) medicine sales channels will in the short term result in shrinking profits, but in the longer term boost the sector’s performance. However, the expected price cuts will have a significant negative effect on all sectors of the industry and its commitment to local R&D and future launches, while potentially boosting trade in counterfeits.In regional terms, India will outperform a number of its neighbours, boosted by its ongoing industrial development, foreign direct investment and overseas activities. However, IP and pricing problems will continue to hinder pharmaceutical sector growth over the coming years. Indeed, the government is planning to reduce the prices of approximately 8% of all drugs sold in the country, with the most expensive treatments receiving the largest cuts. Nevertheless, Its adjusted Business Environment Rankings for Asia place India in sixth place, behind China.Indian firms continue to expand in advanced markets, both through outright acquisitions of overseas facilities and generic product approvals in advanced markets. Most recently, Venus Remedies has secured a deal to export its oncology products to Ukraine. International companies remain interested in the Indian market, which is developing due to population growth, as well as improvements in economic conditions and patent law. Consequently, new launches will become a more frequent occurrence. USbased Bristol-Myers Squibb has recently introduced Baraclude to meet the rising, but as yet unmet, medical need for chronic hepatitis B treatment in India.

Value chain in Pharmaceutical Industry

The value chain of the pharmaceutical industry begins with the discovery of a newmolecule and development of the same. Research and Development of a new moleculeor new chemical entity (NCE) is a highly capital intensive and time consuming exercise,which takes around 12-15 years and an estimated investment of US$0.80bn to US$0.88 billion . The process of research comprises of pre-clinical research and clinical trials.Pre-clinical research comprises of activities such as identification of the molecule,screening and testing the molecule for therapeutic benefits, dosage formulation and testing for safety and toxicity of the drug. In the process of clinical trials the newmolecule is tried on human beings. This is a highly regulated stage with frequentinteractions with the regulatory authorities. Pharmaceutical industry is research driven

and it is innovative products that drive the sales growth of international companies.

Biotechnology Sector

IntroductionIn 2006, India was ranked 3rd in the South-Eastern Asia region after Korea and Japan on the basis of number of biotech companies (Ernst and Young). India has about 280 companies in biotech sector. Biocon was ranked India’s largest biotech company and Rasi was the top Bt cotton producer in the group.With a record growth rate of about 37.42%, Indian biotech industry has achieved market value of US$ 1.45 billion (Rs. 6521 crore). It has been growing at the pace of 35-40% for the last three years and is estimated to grow to US$ 5 billion by 2010.

The immense potential of the sector is clearly visible from its growth rate. Growing numbers of research laboratories, pool of qualified scientific talent, widening institutional network, vibrant clinical potential and fast growing pharma sector are the important growth stimulants.

India’s ecological and population diversity has played a key role in the developments in the areas of research and drug discovery in biotech sector. Government is also supporting the biotech sector by providing financial and non-financial incentives at central and state level.

Although Indian biotech industry is just 1.1% of the world biotech industry, India is soon going to become a prominent player. Today India is the favorite destination not only for biotech products, pharmaceuticals and diagnostics but also for outsourcing of contract research and clinical trials.

According to the Biospectrum-ABLE survey report in 2006:

BioPharma sector crossed the $1 billion (Rs 4,475 crore) mark, driven by exports worth Rs 2495.24 crore. BioAgri sector recorded the highest growth. The industry has shown 81 percent growth rate. The popularity of Bt cotton helped the BioAgri sector to grow to Rs 598 crore from Rs 330 crore Serum has shown Rs 703 crore in sales and is ahead of Biocon Ltd by Rs 15 crore.

SWOT Analysis

The strengths, weaknesses, opportunities and threats in the context of Biotech Sector are described below:

Strengths Opportunities Highly skilled and qualified scientific manpower Government taking initiatives to support biotech sector Capability in handling fermentation based compounds, extraction of high quality products using plant and animal parts. Recombinant DNA technology, plant breeding techniques, plant cell/tissue culture, bioprocess engineering, use of cell/microbial culture techniques, etc. Setting up of effective and efficient biotech enterprises. Infrastructure in manufacturing processing equipments and bio-reactors

Accelerated growth of biotech industry Increased opportunity of entrepreneurial activity Population and ecological diversity

Weaknesses Threats Administration of resources supporting biotech research and development Lack of awareness regarding biotech practices

Lack of advanced biotechnologies and products Lack of public awareness about biotechnology issues Difference between theory and practice in R&D

Current Scenario

In 1978, Circa was the only Indian biotech company that used to manufacture fermentations and enzyme products. Today, Indian biotech sector comprises of more than 280 companies, generating revenues of about US$ 1.5 billion. Indian biotech industry comprises of clinical research, new drug discovery, bioinformatics, contract R&D, biopharmaceuticals, etc.

In India, Bangalore has emerged as the largest biotech hub with a total annual sales revenue of about Rs. 1400 crore. There are about 175 companies working in the diverse areas of bioagri, bioindustrial, bioservices, nutraceutical, biopharma, bioinformatics, herbal products and biosuppliers.

With the supporting policy framework, biogenerics or biosimilars, bio manufacturing, stem cells and regenerative medicine have been identified as areas of strategic importance. Biotech sector achievements are as follows:

Biotech Industry has 37.42% growth rate per annum Biotech industry has reached US$ 1.5 billion Bioservices has reached US$ 160 million Bioagri sector has crossed US$ 130 million Biopharma has reached US$ 1billion

Future Scenario

Globally, Indian biotech industry has emerged as the manufacturer of novel and proprietary biotech products. The factors behind this success are specialized human resource, internationally benchmarked infrastructure and national biotechnology strategy.

With 208 biotech companies and 180 bio-suppliers, Indian biotech industry is worth US$ 1.45 billion. Bio-partnering and co-developing technologies with American and Chinese companies will increase the scope of R&D in India.

Emerging investment opportunities and increasing global visibility has forced Indian biotech companies to develop business models, improve product commercialization and make strong market position.

Infrastructure for R&D in protein engineering, molecular studies, immunological studies and drug designing is also developing. There is lot of scope in biogenerics sector as many biological drugs are going off-patent in coming years.

Regulatory framework in association with strong biomanufacturing skills will help in getting approval for generic versions of biologicals e.g. GCSF, insulin, Hep B vaccine, etc.

Top Players in Biotechnology

NovozymesPanacea BiotecRasi Seeds Pvt. Ltd.Rossari BiotechMonsanto India LimitedShantha Biotechnics LimitedNuziveedu Seeds LimitedAdvanced Enzymes Technologies LimitedBharat Serums and Vaccines LimitedMaharashtra Hybrid Seed Company (Mahyco)

Biotech is undergoing a global transformation before our very eyes and a biotech company of today becomes global from the first day of its formation regardless of where it is located. The global economy is in the midst of radical transformation with far reaching and fundamental changes in technology, production and trading patterns. Rapid technological change continues to impact on how individuals, business and communities interact with each other and with governments.Global security is being reshaped as the international community responds to the ongoing threat of international terrorism, conflict and the challenges of ending world poverty. The pressures that

economic and population growth are placing on the earth's natural resources and climate are increasingly apparent, presenting an urgent need for international cooperation. This transformation will present both challenges and opportunities for the biotech industry. Individuals, businesses and communities all need to be ready to respond to the changing global environment

Services: Hospitals, HMOs/ MCOs & HI

Health care services

This major group includes establishments primarily engaged in furnishing medical, surgical, and other health services to persons. Industry groups includes individual practitioners, group clinics in which a group of practitioners is associated for the purpose of carrying on their profession, and clinics which provide the same services through practitioners that are employees.

Hospitals

Hospitals are usually funded by the state, health organizations (for profit or non-profit), health insurances or charities, including direct charitable donations. In history, however, they were often founded and funded by religious orders or charitable individuals and leaders. Hospitals are nowadays staffed by professional physicians, surgeons and nurses, whereas in history, this work was usually done by the founding religious orders or by volunteers.

General Medical and Surgical Hospitals - This major group includes establishments primarily engaged in furnishing medical, surgical, and other health services to persons. Industry groups 801 through 804 includes individual practitioners, group clinics in which a group of practitioners is associated for the purpose of carrying on their profession, and clinics which provide the same services through practitioners that are employees

HMO & HCO ( Healthcare Managed Organizations and Managed Care Organizations )

Surgical and Medical Instruments and Apparatus - This major group includes establishments engaged in manufacturing instruments (including professional and scientific) for measuring, testing, analyzing, and controlling, and their associated sensors and accessories; optical instruments and lenses; surveying and drafting instruments; hydrological, hydrographic, meteorological, and geophysical equipment; search, detection, navigation, and guidance systems and equipment; surgical, medical, and dental instruments, equipment, and supplies; ophthalmic goods; photographic equipment and supplies; and watches and clocks.

Health Insurance

Industry Overview of the Accident and health insurance and medical service plansAccident and health insurance and medical service plans - This major group includes carriers of insurance of all types, including reinsuranceGeneral Medical and Surgical Hospitals - This major group includes establishments primarily engaged in furnishing medical, surgical, and other health services to persons. Industry groups 801 through 804 includes individual practitioners, group clinics in which a group of practitioners is associated for the purpose of carrying on their profession, and clinics which provide the same services through practitioners that are employees.

Equipment Manufacturers

These are the Companies, which sells medical equipment and medical supplies for hospitals, clinics, doctors, laboratories and other healthcare professionals.

History / Recent developments

Most of today's major pharmaceutical companies were founded in the late 19th and early 20th centuries. Key discoveries of the 1920s and 1930s, such as insulin and penicillin, became mass-manufactured and distributed. Switzerland, Germany and Italy had particularly strong industries, with the UK and US following suit.

Numerous new drugs were developed during the 1950s and mass-produced and marketed through the 1960s. This included the first oral contraceptive, “The Pill”, Cortisone, blood-pressure drugs and other heart medications.

The Center for Drug Evaluation and Research is the branch of the FDA responsible for ensuring the safety and efficacy of new prescription and over-the-counter drugs, overseeing the labeling and marketing of drugs, and regulating the manufacturing and packaging of drugs. The FDA defines a drug as safe and effective for a specific indication if the clinical benefits to the patient are felt to outweigh any health risks the drug might pose.

Cancer drugs were a feature of the 1970s. From 1978, India took over as the primary center of pharmaceutical production without patent protection.

The industry remained relatively small scale until the 1970s when it began to expand at a greater rate. Legislation allowing for strong patents, to cover both the process of manufacture and the specific products came in to force in most countries. By the mid-1980s, small biotechnology firms were struggling for survival, which led to the formation of mutually beneficial partnerships with large pharmaceutical companies and a host of corporate buyouts of the smaller firms. Pharmaceutical manufacturing became concentrated, with a few large companies holding a dominant position throughout the world and with a few companies producing medicines within each country.

The pharmaceutical industry entered the 1980s pressured by economics and a host of new regulations, both safety and environmental, but also transformed by new DNA chemistries and new technologies for analysis and computation. Drugs for heart disease and for AIDS were a feature of the 1980s, involving challenges to regulatory bodies and a faster approval process.

Managed care and Health maintenance organizations (HMOs) spread during the 1980s as part of an effort to contain rising medical costs, and the development of preventative and maintenance medications became more important. A new business atmosphere became institutionalized in the 1990s, characterized by mergers and takeovers, and by a dramatic increase in the use of contract research organizations for clinical development and even for basic.

The Indian healthcare sector constitutes:

• Medical care providers: physicians, specialist clinics, nursing homes and hospitals • Diagnostic service centers and pathology laboratories, • Medical equipment manufacturers, • Contract research organizations (CRO's), pharmaceutical manufacturers, • Third party support service providers (catering, laundry)

Before independence the health care sector was in dismal condition with high morbidity and mortality rates and prevalence of infectious diseases. Since independence emphasis has been put on Primary Health Care and India has worked continuously to improve its health care system in the last several decades. Considerable progress has been made in expanding the public system and reducing the burden of disease. But the government funded facilities were not enough to meet to the growing demand of population, whether it was primary, secondary or tertiary care, which necessitated the need for alternate source of funding in the healthcare sector.

Post Liberalization, in the 1980's the entry norms for Private players in the Health services industry was relaxed by the Government. The private healthcare facilities are owned and run by for-profit companies, non-profit or charitable organizations. The entry of private sector has opened a gamut of opportunities for India in terms of Medical Equipment, Information technology in health services, BPO, Telemedicine and Medical and Health Tourism. An estimated 100,000 "Medical Tourists" visited India last year, representing a 20 per cent jump over the previous year.

Though the private sector has been responsible in bringing about the desired changes in the health industry, the health sector performance requires much improvement in comparison with other emerging economies, including most comparable nations in the region. Deficiencies persist with respect to access, affordability, efficiency, quality and effectiveness, despite the high level of overall private and public expenditure on health.

To bring in the desired changes for a healthy growth of healthcare sector, a well-defined partnership between the government and the private sector is essential. To catalyze the desired changes in the Healthcare industry, FICCI has a Health Services Committee with representative from the industry. The purpose of the Committee is to develop an agenda for Health Services Reforms and recommend a framework for Public - Private Partnership to enhance quality healthcare in our country.

Price Performance

Price graph - Pending

Financial Data

($ in millions, except per share data)

Company Name Ticker StockPrice

Market Cap TEV LTMRevenue

LTMEBITDA

LTMEBIT

LTMDilt. EPS

Pharmaceutical CompaniesGlaxosmithkline plc GSK $ 25.69 143,339.4 149,994.4 47,426.0 18,431.1 16,369.4 $ 1.96

Johnson & Johnson JNJ $ 61.47 178,051.4 179,554.4 57,137.0 16,990.0 14,636.0 $ 3.61

Novartis AG NOVN $ 54.85 128,057.9 127,959.3 39,280.0 11,121.0 8,987.0 $ 3.22

Pfizer Inc. PFE $ 24.89 174,684.6 159,747.6 48,441.0 19,512.0 14,371.0 $ 1.32

Managed Care CompaniesAetna Inc. AET $ 50.74 25,994.1 27,016.6 25,611.0 3,161.5 2,884.0 $ 3.13

CIGNA Corp. CI $ 53.07 15,273.3 15,818.3 16,910.0 2,077.0 1,869.0 $ 3.40

WellPoint Inc. WLP $ 82.17 50,424.0 54,128.5 58,193.7 6,001.1 5,400.5 $ 4.99

Unitedhealth Group, Inc. UNH $ 51.00 68,342.5 63,739.5 74,071.0 8,183.0 7,451.0 $ 3.17

Health CareKindred Healthcare Inc. KND $ 29.21 1,182.7 1,062.4 4,380.1 231.5 107.7 $ 1.60

Manor Care Inc. HCR $ 63.68 4,666.4 5,584.7 3,703.0 480.0 333.6 $ 2.23

Sun Healthcare Group Inc. SUNH $ 15.20 652.6 697.5 1,062.5 59.0 41.9 $ 0.52

HospitalsCommunity Health Systems, Inc. CYH $ 40.63 3,889.5 5,750.6 4,543.0 606.5 409.0 $ 1.77

Health Management Associates Inc. HMA $ 11.22 2,718.7 6,479.8 4,190.6 550.6 352.7 $ 0.67

Lifepoint Hospitals Inc. LPNT $ 32.12 1,854.4 3,490.7 2,522.4 495.3 380.7 $ 2.59

Tenet Healthcare Corp. THC $ 5.94 2,809.7 6,971.7 8,770.0 705.0 356.0 $ (1.65)

Universal Health Services Inc. UHS $ 56.36 3,035.2 4,124.6 4,354.6 513.4 345.3 $ 4.64

Operating Statistics

Company Name Ticker TEV/LTM Total Rev

TEV/LTM

EBITDA

TEV/LTM EBIT

1 Yr Total Rev Growth

1 Yr EBITDA Growth

1 Yr EBIT

Growth

Est. LTGR

Pharmaceutical CompaniesGlaxosmithkline plc GSK 3.2x 8.1x 9.2x 2.53 11.26 12.69 6.02

Johnson & Johnson JNJ 3.1x 10.6x 12.3x 11.43 10.65 10.39 9.07

Novartis AG NOVN 3.3x 11.5x 14.2x 21.00 19.29 15.44 11.16

Pfizer Inc. PFE 3.3x 8.2x 11.1x 2.42 (7.27) (7.56) 7.23

Managed Care CompaniesAetna Inc. AET 1.1x 8.5x 9.4x 9.92 11.14 10.07 14.80

CIGNA Corp. CI 0.9x 7.6x 8.5x 0.85 (9.97) (10.75) 11.50

WellPoint Inc. WLP 0.9x 9.0x 10.0x 22.68 19.72 21.74 14.79

Unitedhealth Group, Inc. UNH 3.3x 11.8x 19.6x 30.40 123.98 174.74 23.67

Health Care

Kindred Healthcare Inc. KND 0.2x 4.6x 9.9x 10.80 (23.29) (45.33) 11.67

Manor Care Inc. HCR 1.5x 11.6x 16.7x 8.67 5.43 6.38 14.50

Sun Healthcare Group Inc. SUNH 0.7x 11.8x 16.6x 30.16 123.98 174.74 23.67

HospitalsCommunity Health Systems, Inc. CYH 1.3x 9.5x 14.1x 17.80 2.00 (4.60) 12.98

Health Management Associates Inc. HMA 1.5x 11.8x 18.4x 11.16 (20.33) (33.44) 11.03

Lifepoint Hospitals Inc. LPNT 1.4x 7.0x 9.2x 16.99 14.60 21.44 12.16

Tenet Healthcare Corp. THC 0.8x 9.9x 19.6x 1.68 13.16 16.72 10.38

Universal Health Services Inc. UHS 0.9x 8.0x 11.9x 9.88 13.73 17.36 13.26

Present scenario

The Indian healthcare sector has been growing at a frenetic pace in the past few years. The windfall began ever since the developed world discovered that it could get quality service for less than half the price.

India will spend US$ 45.76 billion on healthcare in the next five years as the country, on an economic upsurge, is witnessing changes in its demographic profile accompanied with lifestyle diseases and increasing medical expenses, says a CII-Mckinsey study on 'Health in India'.

Revenues from the healthcare sector account for 5.2 per cent of the GDP and it employs over 4 million people. By 2012, revenues can reach 6.5 to 7.2 per cent of GDP and direct and indirect employment can double, it said.

Private healthcare will continue to be the largest component in 2012 and is likely to double to US$ 35.7 billion. It could rise by an additional US$ 8.9 billion if health insurance cover is extended to the rich and middle class.

Coupled with the expected increase in the pharmaceutical sector, the total healthcare market in the country could increase to US$ 53-73 billion (6.2-8.5 per cent of GDP) in the next five years.

The sector is expected to post the highest year-on-year growth in earnings in the fiscal year to March 31, 2007, says Reuters. It is set to post a 42 per cent rise in earnings in the year to March 2007. These figures are driven by availability of quality healthcare and the huge rise in numbers visiting India for treatment.

At the current pace of growth, medical tourism, currently pegged at US$ 350 million, has the potential to grow into a US$ 2 billion industry by 2012.

Healthcare spending in the country will double over the next 10 years. Private healthcare will form a large chunk of this spending, rising from Rs 690 billion (US$ 14.8 billion) to Rs 1,560 billion (US$ 33.6 billion) in 2012. This figure could rise by an additional Rs 390 billion (US$ 8.4 billion) if health insurance cover is available to the rich and the middle class.

The voluntary health insurance market, which is estimated at Rs 4 billion (US$ 86.3 million) currently, is growing fast. Industry estimates put the figure at Rs 130 billion (US$ 2.8 billion) by 2005.

With the expected increase in the pharmaceutical market, the total healthcare market could rise from Rs 1,030 billion (US$ 22.2 billion) currently (5.2 per cent of GDP) to Rs 2,320 billion (US$ 50 billion)-Rs 3,200 billion (US$ 69 billion) (6.2-8.5 per cent of GDP) by 2012.

However, it is not only the cost advantage that keeps the sector ticking. It has a high success rate and a growing credibility.

Indian specialists have performed over 500,000 major surgeries and over a million other surgical procedures including cardio-thoracic, neurological and cancer surgeries, with success rates at par with international standards.

The success rate in the 43,000 cardiac surgeries till 2002 was 98.5 per cent. India's success in 110 bone marrow transplants is 80 per cent. The success rate in 6,000 renal transplants is 95 per cent.

Till now, only a few big private healthcare providers such as Apollo, Fortis, Wockhardt and Max were creating their individual brand awareness in overseas markets through tie-ups with insurance companies and patient facilitation centres.

Now a number of smaller healthcare providers are working in collaboration with the Government to launch a comprehensive programme to promote medical tourism. These include putting in place an accreditation system for domestic hospitals and healthcare providers, drawing up a price band for superspeciality services offered by Indian hospitals, adoption of country-specific marketing strategies, opening of overseas facilitation centres and tie-ups with overseas insurance companies.

The National Accreditation Board for Hospitals and Healthcare Providers (NABH) set up by the Ministry of Health under the aegis of the Quality Council of India is currently finalising the guidelines for accreditation of hospitals and other healthcare service providers

Though there are thousands of pharmaceutical companies, about 50 of them control two-thirds of the global pharmaceutical market. USA accounts for about 44.9 %, of the market, European Union 25% and Japan 10.9 %. Globally, Pharma companies can be divided into two categories:

(i) Diversified and (ii) Non-diversified.

Diversified outfits which include J&J (Johnson & Johnson), AHP (American Home Products), and Bristol-Meyers Squibb-have a wide array of other healthcare-related businesses, suchas medical devices and consumer health products. Non-diversified operations, which include Eli Lilly and Merck - focus solely on the development and sale of drugs, not all of which are for human use. Many diversified companies are currently divesting their non-pharmaceutical businesses and focusing on the drug business, which is leaner and more profitable.

Indian pharmaceutical industry is a $5.5bn and is largest in terms of number of companies, 4th largest in terms of volume and 13th in terms of value, is getting ready for the tougher challenges ahead. In line with the WTO norms, product patents will replace process patents from Jan 1, 2005. This will have major repercussions for the industry. Companies will need strong research and development capabilities toemerge as winners in the post 2005 era. Unfortunately, not many seem to be well equipped in this context. At the same time, the generics market will offer Indian drug majors new opportunities. Thirty prescription drugs valued at around $35 billion will go off patent between 2003 and 2005.

Pharmaceuticals Industry - 2006

• Amongst Global pharmaceutical producers, India ranks 4th in volume terms and 13th in value terms.• Indian pharmaceutical market - USD7.42 billion in 2006 (Growth rate12.9% over previous year).

• Domestic market contributed USD2.61 billion and exports touched USD 4.81 billion (65% of the market).• About 65% of bulk drugs and 6% of formulations are imported and balance requirements met from domestic manufacturing.• Out of the total formulation sales, about 90% is accounted by generics, balance being patented drugs.• Generics segment grew by 13% to USD5.89 billion in 2006. Patented drugs sale was USD389.36m in 2006 growing at a rate of 18.9% over the previous year.

Healthcare : Market Size & Growth

• Healthcare emerged as one of the largest service sectors in India• In 2004, national healthcare spending equaled 5.2% of GDP, or about US$ 34.9 billion• Healthcare spending in India is expected to rise by 12% per annum through 2005-09 (in value

terms) • Expected to scale up to about 5.5% of GDP, or US$ 60.9 billion, by 2009• Other estimates suggest that by 2012, healthcare spending could contribute 8% of GDP and

employ around 9 million people

Though the global economy has seen a significant slowdown in recent times, the pharmaceutical industry seems to have held its own. The Pharma industry is less prone to global economic slowdown and is buoyant by the demand generated because of increased life expectancy, medical coverage, literacy rates and growing global health problems .While technology and telecommunication companies have faced tough times, the global pharma industry, which sells over $430 bn worth of products each year has been doing well. The industry has maintained growth rates nearly double that of the economy at large. This growth is led by growth in drugconsumption because of growing global health problems, very high demand for certain diseases which is increasing with life expectancy, increase in medical coverage and literacy. Other positive factors include an aging global population and opening up of markets in Europe, Latin America and Asia.

The pharmaceutical industry is also extremely profitable. Margins in the industry are nearly four times the average of the Fortune 500 companies. Leading drug stocks produced total returns averaging more than 450 percent during the period- January 1995 to February 2002. The competitive and technological changes in the pharmaceutical industry - from powerful new drug discoveries to innovative R&D partnerships and marketing plans - are reshaping the business strategies of many pharmaceutical companies.

KEY OPPORTUNITY SEGMENTS

Health InsuranceHealth insurance coverage has grown from 4.5 Million to 12 Million in last 6 Years1) That’s still just 1.2% of Population2) Health Insurance premium has doubled to US$ 777.8 Million in two years3) Aetna, Brooke Shield, Blue Cross and others are waiting to enter

Medical Tourism1) World Class Quality Outcomes at 1/8th to 1/5th of western cost2) Growing at CAGR of 25%, US$ 2 billion Opportunity by 2012

Pathology Services1) US$ 500 Million pathology industry growing at CAGR of 20% for last 5 Years2) Pathology market is largely serviced by small unorganized players and hospitals

3) By 2010, two million patients are expected for clinical trials in India. Expected US$ 800 Million Revenues from Clinical Trials From UK alone.

Health Infrastructure1) Investment of US$ 78 89 Billion is expected in Health Infrastructure by 20122) 80% of this investment is likely to come from private sector.3) Rising income levels are pushing the demand for best in class Health Services

Hospital Services1) The market for hospital services in India is estimated at over US$ 4 billion.2) Reportedly at least 20 international players vying to have a pie of the Indian hospital market

Healthcare BPO1) Estimated opportunity for India is US$ 4.5 billion by 2008, employing about 200,000 people.2) Healthcare business processes outsourced to India can result in cost savings of 20-30%

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