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IMS HEALTH INDIA
WHITE PAPER
DECEMBER 2014
Pharma’s Shifting Paradigm in India
Becoming a multi-channel market
PHARMA’S SHIFTING PARADIGM IN INDIA
2
To date, the Indian pharma market has been dominated by the trade/retail segment,
which has contributed up to 85% of the market’s value. This is unlike most mature
markets globally which usually operate in a multi-channeled business model involving
not only trade outlets, but also hospitals, over-the-counter (OTC) and retail chains.
However, in light of the increasing demand for quality care in hospitals, as well as
increased government spending and recent regulatory changes, India is slowly evolving
into a multi-channel market. The most striking aspect of this shifting paradigm is the
increasing dominance of the hospital segment.
Figure 1: Projected evolution of India into a multi-channel market
Current landscape
10%
Developed markets model
Pharma consolidation
Retail sector consolidation
Emerging corporate hospitals
Regulatory changes
Insurance coverage
Lifestyle changes
9%
Hospitals
19%
48%
28%
81%
Trade Pharma
8%
OTC
Retail Chains
IMS MIDAS, Market Prognosis
And so there is a strong need for pharma companies in particular to rethink their business strategy in order
to tap into the maximum value of this growing opportunity. But to do that, key questions must be addressed
and the potential of this growing market segment must be clarified:
• Why is the hospital segment becoming increasingly attractive to Indian pharma companies?
• Do pharma companies need to rethink their business strategy in light of the evolving hospital segment?
• Is the pharma market ready and equipped to crack the hospital code?
1
IMS Hospital Census 2011, IMS Prescription Audit and IMS Health quantitative Primary Market Research and, IMSCG Analysis
PHARMA’S SHIFTING PARADIGM IN INDIA
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Why is the hospital segment becoming increasingly attractive to Indian
pharmaceutical companies?
The Indian hospital segment today represents a high potential market to pharma companies primarily due to
five key factors: market size, growth rate, investment climate, ease of targeting and certain ‘behavioral’ factors.
Market size: India has over 25,000 hospitals, both private and government-owned. These hospitals span all
town classes and represent a total opportunity size of approximately INR 22,000 Crores (~USD3.66 billion)
for all therapy classes.1
The majority of the potential lies in urban hospitals and outpatient treatments (although it is important to
note that the contribution of outpatients varies by hospital type, from 60% in nursing homes to ~80% in
private hospitals).2
Figure 2: IMS Health estimates on trends in the private hospital segment
3% 3% 2%
Private Hospitals (Metro)
Number of Hospitals
81%
14%
8%
Nursing Homes (Metro)
Private Hospitals (Tier I)
Potential Offered
6% 4%
81%
6%
Nursing Homes (Tier I)
Charitable Hospitals
1% 2%
81%
78%
75%
19%
22%
25%
Private
Hospitals
(Metro)
Nursing
Homes
(Metro)
Corporate
Hospitals
56%
56%
60%
44%
44%
40%
Charitable
Hospitals
Private
Hospitals
(Tier I)
Nursing
Homes
(Tier I)
Corporate Hospitals
Outpatients
Inpatients
IMS MIDAS, Market Prognosis
Growth rate: The hospital segment has grown steadily at a rate of 25-30% in the last 5 years across metro and
tier 1 cities, fuelled by the emerging private, specialty & corporate sectors.
“PULL“ FORCES
• Increasing patient sophistication and awareness, resulting in higher demands for quality care
• Increasing preference to be treated at hospitals for chronic disorders, a result of new awareness
campaigns and free health checkups run by hospitals
“PUSH” FORCES:
• Regulatory changes, allowing the distribution of free generics in hospitals and increased government
health care expenditures for hospitals
• Expanded private insurance coverage and government programs such as RSBY, Aryogyashree etc.
2
IMS Hospital Census 2011 3 IMS Sales Audit
PHARMA’S SHIFTING PARADIGM IN INDIA
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However, the nature of this growth is uneven, varying by hospital type and limited to metro areas and Tier I
cities. Such disparities are due in large part to the differences in how funds are released and managed in order
to drive outcomes. For example, private, corporate and specialty hospital chains are witnessing a significant influx
of funds from the private sector, which tend to be managed efficiently and effectively. Government hospitals, on
the other hand, are solely dependent on government allocation and capabilities at the state level.
As a result private, corporate and specialty hospitals in Metro and Tier I cities are growing much faster
than government hospitals.
Investment climate: The growing hospital segment has been well noticed by private equity (PE) investors
and venture capitalists; Over the last 4 years, more than 70% of PE investments have been channeled
towards the growing hospital segment. In the last year alone, of the top 5 deals in each segment of India’s
life sciences and healthcare sectors over the past year, 50% of the $500Mn in PE investments were made
in the hospital segment. This segment has also seen a great deal of merge and acquisition activities, with
almost $30Mn in M&A deals in May 2013 alone.4
1800
35
1600
30
1400
25
1200
1000
20
800
15
600
10
400
5
200
0
Deal Volumes
Deal Value (Mn $)
Figure 3: PE investments in life sciences and healthcare segment
2008
Pharmaceuticals
2009
Providers
2010
Medical Devices
2011
LSHC Deals
2012
0
Providers Deals
Source: VC Circle
Ease of targeting: The geographic concentration of hospitals in Tier 1 and Tier 2 cities also increases the feasibility
of entering such a market. IMS Health estimates that approximately 80% of the hospitals with over 100 beds are
concentrated in the top 20 cities, and that hospitals in the top 40 cities contribute to around 90% of the total
urban hospital business potential.5 In addition, easier accessibility to doctors across specialties in larger hospitals
makes targeting for a wider portfolio of products even easier.
Behavioral factors: Above all this, it is the behavior demonstrated by private, corporate and specialty hospitals in
their product selection or decision-making that makes them attractive for pharma companies. Hospitals display
a high level of risk aversion that naturally opens the door for effective, high quality products from top pharma
manufacturers. They place a premium on science and buy scientifically advanced products, driving a high
acceptance rate for innovative products as compared to the trade segment. Furthermore, the price points in
these hospital segments have witnessed higher growth than their trade counterparts, promising higher value
return to pharma companies.
4
VCCircle 5 IMS Hospital Census 2011
PHARMA’S SHIFTING PARADIGM IN INDIA
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Is the Indian pharma market ready and equipped to crack the hospital code?
The hospital segment may signify great business potential for pharma companies, but it also comes with its
own challenges that vary by hospital type. Therefore it is important for pharma companies to truly understand
the segment’s unique dynamics, especially in terms of market entry, therapy area and sales strategies, and the
changing influence structures for both hospitals and physicians.
Gestation periods of seeking entry can be long:
Typically, pharma companies have a waiting period of nearly a year to enter private hospitals in metro
cities, and longer for government, railway, and military hospitals. Much of this time is spent convincing a
wide range of stakeholders, from doctors and medical superintendents to procurement officers, to agree
to list a product in the formulary (the list of brands/molecules to be stocked in the in-house pharmacy).
However the complexities can increase depending on the type of hospital targeted and entry is often
subjected to varying levels of bureaucracy, approvals, and department specifications (open ICU vs. closed
ICU) for which products are procured.
There are significant differences from the traditional trade segment in terms of therapy areas and specialty focus:
One of the most basic and critical differences between the trade and hospital segment is the difference in
therapy area (TA) focus. While the trade segment is dominated by oral anti-infectives, the hospital segment
is dominated by injectable anti-infectives. Pain, respiratory and CNS (neurology) are also of more importance
in hospitals than in the trade segment.
In terms of specialty focus, while the trade segment is highly dominated by consulting physicians and general
practitioners (MBBS and non-MBBS), hospitals see a different mix. In this market, General Medicine offers the
highest potential (accounting for ~60% of outpatient business) due to the large number of therapy areas
involved and larger patient base. It is followed by Obstetrics & Gynecology and Orthopedics, both of which
are experiencing increasing market share due to an overall increase in patient awareness campaigns.
These TA and specialty mix dynamics should naturally compel pharma companies to design their hospital
and retail portfolios differently.
Strategies need to move beyond just selling:
The traditional model for pharmaceutical companies has been restricted to selling drugs, rather than
solutions, to doctors, nurses and other hospital staff. However, as hospitals are now playing a larger role
in communities, and also wishing to differentiate themselves from competition, the expectations have
changed, and stakeholders are demanding a more holistic, solutions-based approach to their partnerships.
This means that to stand out, pharma companies are increasingly being asked to offer services along with
products. Examples might include targeting patients through education programs, targeting paramedics
and physicians with newer perspectives on disease management, providing general healthcare statistics,
or simply providing other value-added services using technology.
There is a shift in power from physicians to hospital administration:
The above factors are only a small portion of a much bigger puzzle. The pressures of changing physician
behaviors and the increasing influence of hospitals in defining prescription behavior is perhaps the most
significant dynamic in determining the strategies, and ultimately the performance, of pharma companies in
this segment.
To understand the changing relationship between physicians and hospitals, IMS Health has developed
a “control framework” that looks at the physician’s freedom to prescribe brands or molecules and the
hospital’s role in influencing such prescriptions. Interestingly, the level of control differs by the type of
hospital and between different specialties in the same hospital (see Figure 4).
PHARMA’S SHIFTING PARADIGM IN INDIA
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A high level of control implies that the hospital dictates the prescription behavior. High levels of control are
often seen in:
• Hospitals with higher paying capacities (e.g.
corporate and private hospitals with > 100 beds)
• Centralized institutions (e.g. army and railways)
• General specialties (e.g. Consulting physicians,
General Practitioners, Ear Nose & Throat physicians,
Gynecologists, Orthopedic physicians, etc.)
A low level of control implies that the physicians can exercise their own choices. Institutions on this end of the
spectrum include:
• Government hospitals
• Charitable hospitals
• Private hospitals (< 50 beds)
• Nursing homes
So where do these levels of control come from? Below are some of the nuances driving the varying level of
controls across hospital types and specialties.
HOSPITAL DYNAMICS:
Prescription controls: Private and corporate hospital chains tend to focus on defining their formulary to
attain SKU rationalization and to operate at competitive operating margins. To implement more
restrictions on their formulary, and to force physicians to adhere to the system, hospitals tend to track
doctor prescriptions, for example by using e-prescriptions to monitor doctors and penalize them in the
event of non-compliance. For outpatients, hospitals can force doctors to prescribe only only certain
molecules, and can restrict which brands are dispensed from the pharmacy. While private/ corporate
hospitals dominate in this behavior, charitable hospitals and nursing homes have initiated similar controls
for select specialties and TAs.
Staff controls: Hospitals often do not allow doctors to practice in other hospitals and can sometimes
increase the proportion of salaried doctors to visiting doctors in order to safeguard their patient pool
and dictate terms.
Purchasing controls: The formation of a central purchasing committee to keep a strong check on the
procurement process often leads to the increasing influence of medical superintendents/or purchasing
department heads in driving purchase decisions and thus further limiting physician influence.
Additionally, hospitals often indirectly force patients to purchase drugs from in-house pharmacies by
using “non responsibility” language to imply penalties for not purchasing drugs (even prescribed brands)
from in-house pharmacies.
PHYSICIAN DYNAMICS:
General practitioners are increasingly entering hospitals’ networks for referrals in order to increase their
margins, but in turn often find themselves forced to follow the hospital’s mandates. Consulting physicians,
gynecologists, and orthopedists with 5 years of experience are among those who prefer to practice in
private or corporate hospitals due to higher salary packages, and subsequently give in to the hospitals
terms such as prescribing drugs only listed in their formulary.
However, specialists such as cardiologists, neurologists, etc. are usually able to dictate their own prescription
behavior, beyond the hospital’s control. This is primarily due to the complex nature of the treatment
they provide and their limited number. Specialists are also highly sought after in a hospital, and hospital
management tends to not exert high control so as to retain them on staff.
PHARMA’S SHIFTING PARADIGM IN INDIA
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Of course there is a difference in the end objectives for hospitals and physicians. While physicians focus
primarily on the quality of treatment and their patient base, hospitals have stiff cost/revenue targets to
consider, often leading to a clash of interests. IMS Health has plotted the different segments based on
their level of control on prescription behavior and the strength of the relationship between pharma companies
and practicing doctors. This matrix approach can help pharma companies identify the segments in which they
wish to operate and navigate the associated cost and benefits.
Figure 4: Prioritization matrix to identify hospitals to target
High
Medium
Government Hospitals not distributing
free generics
Leverage existing relationships to seek
easy entry and drive Rx volumes
Nursing Home
Charitable Hospital (>100 beds)
Charitable Hospital
(<100 beds)
Private Hospital
(< 50 beds)
Build on existing relations and adopt
tactical measures (e.g. offering discounts)
to seek entry
Private Hospital (50-100 beds)
Invest time and resources to develop
relationship with different stakeholders
in these high potential hospitals to
ensure high recall and seek entry
Low
Strength of relationship with doctors
Size of the bubble represents the number of hospitals
Low
Govt. Hospitals
distributing free generics
Army and Railway
Hospitals
Private Hospital
(>100 beds)
Medium
Hospital’s Level of Control on Prescription Behaviour
High entry barrier
Low entry barrier
Easily Accessible
Corporate Hospitals
High
PHARMA’S SHIFTING PARADIGM IN INDIA
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Do pharma companies need to rethink their business strategy in light of the
evolving hospital segment?
Clearly, the hospital segment is being shaped by changing dynamics between the patient, physician and
hospital management. Among these three levers, it is likely that the shifting structure and influence of
hospital management will be the most influencial in transforming the way business is done in the future;
the traditional strategy adopted by pharma companies to target physicians and drive prescription volumes
may not hold ground amidst such evolving administrative dynamics.
Figure 5: Summary of forces affecting the Indian hospital segment
Changing Patient Dynamics
• Increasing preference towards
hospitals for Chronic disorders
• Increasing insurance coverage leading to
higher offtakes from hospital pharmacy
Changing Hospital Dynamics
• Exerting controls on brands prescribed
by doctors
• Increasing awareness and ease in
identifying hospitals for treatment
Changing Physician Dynamics
• Decreasing influence of physicians
in purchasing decision
• Forcing doctors to prescribe molecules
only in OPD
• Preference of generalists to practice in
private/corporate hospitals
• Stonewalling doctors to practice in the
select hospitals only
• Visiting specialists lobbying against
hospitals to decrease control on
prescription behavior
• Increasing the proportion of salaried
doctors
• Indirectly forcing patients to purchase
drugs from in-house pharmacy
• Focus on increasing operational
efficiency by SKU rationalization and
better margin
Hospital
Segment
• Physicians prescriptions driven by the
margins offered by pharma companies
• GPs getting involved in the hospitals
network for referrals
Increasing need for Pharma Cos to target the hospital segment differently
Today pharma companies target hospitals in a very similar way to their trade business. And while some MNCs
have formed a dedicated team or strategy to target hospitals, the question remains, is it good enough to tap
the true potential offered by hospitals?
At IMS Health, we believe it is critical for pharma companies to tailor their strategy to target the unique, complex
hospital environment, and focus on answering certain key strategic questions within their organization:
1. Which segment of hospitals should be targeted and where are they located?
2. What is the right product portfolio to enter the hospital segment?
3. What key specialties should be targeted?
4. Who are the key stakeholders to be targeted to ensure optimal product acceptance?
5. What are necessary KPIs, and how can they be tracked on an ongoing basis to drive effective and
productive business performance?
By addressing these questions internally, and by reviewing the market insights presented in this paper pharma
companies will be able to create robust, sustainable strategies that extract the true potential of this market.
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