A new report by consulting firm Bain & Company says that demand for healthcare services will exceed supply in the next decade as 140 million Indian households enter the middle-income group. The incremental consumption is expected to double healthcare spending by 2030.

The report titled ‘India Life Sciences Report 2019’, which was done in collaboration with the Confederation of Indian Industry (CII) was the result of a study conducted among 325 doctors.

The report concluded that doctors today are challenged with a rapid increase in the volume of patients and complexity as they are restrained by cost and quality considerations. To meet these challenges, life sciences companies must revamp their commercial and operating models to safeguard future profitability, according to the report.

For its analysis, Bain considered eight areas under three broad heads—macro and regulatory, life sciences industry and broader ecosystem—to conduct its study.

In the macro and regulatory issues, Prime Minister Narendra Modi’s flagship Ayushman Bharat Yojana is expected to be an important driver for healthcare demand from “developed rural” areas and also the 140 million households that are expected to become middle class in the next decade. Ayushman Bharat was launched in September 2018 to provide 500,000 poor people annual health cover of ₹5,00,000.

According to Bain, changes in patient demographics are expected to be the most important driver. As of 2018, there were 127 million low-income households, 97 million lower-middle-income households, 61 million upper-middle-income households, and 8 million high-income households in the country. By 2030, lower-income households will drop to 57 million; there will be 132 million lower-middle-income households, 168 million upper-middle-income households, and 29 million high-income households. While lower-income households were the dominant group in 2018, upper-middle-incomes households will be the biggest audience in 2030. Regulatory oversight to control and reduce prices of drugs and infrastructure bottlenecks are the macro constraints for growth.

On the life sciences industry front, just as prices of small molecule (chemical) generics are expected to ease, bio-similars of biologics going out of patent are expected to drive revenue growth for companies. The report expects biosimilars will grow at 30% CAGR. On the other hand, for domestic companies, a continued fall in prices of generics will lead to a fall in profits by 3%-4% compared to the previous five years. Therefore, the key for local drug companies to grow their businesses in the U.S. will be to focus on complex generics.

“Complex generics and biosimilars will be the key growth drivers, a shift away from the dominating commoditised generics. Generics prices have already seen 4%-6% deflation since 2017 and a growing buyer consolidation will continue to put further pressure on prices and margins,” concludes the report.

For the broader ecosystem, the report points out that new digital models are already emerging and there is a trend of increasing investment in healthcare startups. The sector has already attracted $500 million in venture capital funding in 2018 and the evolution of customer and patient’s attitude is evident from the growing 15-20 million digital transactors. The use of disease management tools could result in $8.5 billion in additional drug sales by 2024, the report said, showcasing the unique opportunity that the boom in digital health presents for the life sciences industry.

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