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Main Story
Pharma's New Prescription: Hospitals?
Is the slow down in the global pharma industry forcing Indian
companies to look more closely at hospitals? Arshiya Khan finds out
 From
providing pills to now giving prescriptions! As part of their growth strategy,
Indian pharmaceutical companies are now expanding their scope of operations
and looking forward to share a pie of this booming healthcare sector. Thus,
they are looking at progressing from pharma companies to integrated healthcare
companies by leveraging their brand name and building it further. The brand
name of a reputed pharma company brings strong credibility to the extended healthcare
ventures as well. The best example of this strategy is Ranbaxy Laboratories.
Ranbaxy, has already established itself as one of India's leading pharma companies
and is among the top 10 generic companies in the world. The promoter family
has, however, always had interests beyond pharma. Its stakes in the wider healthcare
space fall under Fortis Healthcare brand, headed by the younger Singh sibling,
Shivinder. Fortis Healthcare today encompasses a chain of hospitals, clinical
laboratories, and healthcare stores. The company is now counted amongst the
forerunners in the organised healthcare segment in India. Fortis Healthcare
runs 13 hospitals and 22 satellite centres.
Another success story is the Wockhardt Group and its presence in pharma, biotechnology
and the hospitals segment. And the latest to expand its portfolio by entering
the fast growing healthcare delivery sector is the Delhi-based Panacea Biotec,
which will set-up a super-specialty hospital in Gurgaon. The company has entered
into collaboration with Dr Umesh Gupta of Umkal Group to set-up a multi super-specialty
hospital. Umkal group is presently running multi-specialty healthcare institutions
at Gurgaon and New Delhi with over 150 beds. The total project cost would be
funded by a mix of debt and equity. The hospital is proposed to be a 220 bed
super-specialty Hospital. Rajesh Jain, Joint Managing Director-Panacea Biotec
emphasises, "Entering into private healthcare is an integral part of our
long-term strategy that would take us closer to our vision of becoming a leading
health management company. The potential market for a corporate hospital will
comprise of the very rich, consuming class and a part of climbers which would
be close to 25-30 per cent of the market. We would also target medical tourism."
The others already on the bandwagon are the Zydus Group which has a stake in
Apollo Hospitals, Reliance Life Sciences which is planning to invest at least
Rs 1,000 crore to set up hospitals in the country's metros and dispensaries
in small towns. Reliance Group currently owns and runs HN Hospital, Mumbai.
Apollo Hospital's white knight offer to Orchid Chemicals and Pharmaceuticals,
when the latter was the target of a hostile takeover by a Ranbaxy Group company,
Solrex, is also another example of pharma aligning closely with the hospital
segment.
Besides, "as over 70 per cent of Fortis is held by the promoters with money
in hand, if viable opportunities arise, investments should be easier for them,"
informs Dr Narottam Puri, President-Medical Strategy and Quality, Fortis Healthcare-Escorts
Heart Institute & Research Centre. Fortis will be adding six hospitals in
their chain in Delhi and National Capital Region (NCR). And they are targeting
to have 40 hospitals (6000 beds) by 2012.
An obvious effect of strong economic growth and improving socio-demographic
factors is the growing demand for better quality healthcare and the increased
investments in developing world-class healthcare infrastructure. The India growth
story has certainly led to a strong demand for high quality healthcare facilities
and centers. Thus, the Indian healthcare sector as a whole, rather than just
the pharma industry offers promising investment opportunities.
Point of Convergence
 "This
alignment could lead to creating a successful integrated and powerful brand
name. Ranbaxy and Wockhardt stand out as good examples for others"
- Hitesh Gajaria
Sector Leader—Pharmaceuticals,
KPMG (India)
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 "As
I belong to a Ranbaxy related company there were obvious synergies and an
understanding of
consumer behaviour for us setting up a hospital"
- Dr Narottam Puri
President-Medical Strategy & Quality,
Fortis Healthcare
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Is pharma and healthcare converging? Or is it just a diversification
strategy, on the part of pharma companies. Points out Sandeep Sinha, Deputy
Director Healthcare Practice, Frost & Sullivan, "It is a forward integration
from the pharma company's side and a backward integration from the hospital's
side. I don't think it makes sense for new entrants from the business point
of view. But for companies like Wockhardt and Ranbaxy it does." He cites
an example of Wockhardt Hospitals where most of the drug requirement is met
by the pharma arm, which is given the first prescription. Similar, is the case
of Ranbaxy and Fortis Hospitals. Also, the two coming close will provide the
pharma companies with a ready database of patients to conduct clinical trials,
a research site, and access to a vast population, hence an expansion strategy
for them. Highlights Puri, "As I belong to a Ranbaxy related company which
has gone into healthcare there were obvious synergies, drug discovery to drug
trials, available patients and database, a compatible business model and an
understanding of consumer behaviour for us setting up a hospital."
Striking a similar chord Sinha points out, "There are three things: one
is the research side. They will have access to huge clinical data and the other
is clinical research and third is forward integration. You will obviously be
able to sell all your medication. So, I feel these are the three clear cut opportunities
for any of these pharma companies diversifying into hospitals."
And therefore this is nothing but a part of a larger branding
for pharma companies. In this case, it is no doubt that consumer seems to be
the king whom all pharma companies are out to woo. This is why companies like
GlaxoSmithKline, Wockhardt, Dr Reddy's Laboratories and Ranbaxy have help lines
to disburse information about diseases and medical products, to follow a direct-to-customer
approach. But this burst of altruism on part of drug companies is more than
just an `attempt to generate a loyal customer base,' it is also about competition.
However, as the pharma market today is facing serious issues,
like patents, pricing policy, dry pipelines, is their entry into hospitals an
exit from the pharma sector? "This is not true," avers Hitesh Gajaria,
Sector Leader, Pharmaceuticals, KPMG (India). He explains, "Although the
pharma market is fraught with some serious issues, there are a wide range of
opportunities for companies to explore across multiple segments such as the
domestic markets, global generics space, Contract Research and Manufacturing
Services (CRAMS), discovery research and biopharmaceuticals. In fact, most companies
have already made significant investments in these areas. He reasons, "This
alignment is in the interest of discovering a new and profitable investment
potential in India's fledgling healthcare industry which currently clearly lacks
the capacity to service any significant proportion of the population. In turn,
this could lead to creating a successful integrated and powerful brand name
across the various parts of India's total healthcare industry. The success stories
of companies such as Ranbaxy and Wockhardt stand out as good examples for others,"
he remarks. Experts unanimously opine that pharma companies diversifying into
healthcare is not an exit strategy, but indeed a means to strengthen the portfolio.
Agreeing Huzaifa Khorakiwala, Executive Director, Wockhardt says, "Until
now that is not the reason because not all pharma companies have gone into hospitals.
There are just three or four who have done it. So it is not because of the dry
pipelines. It is just that they are looking to diversify and play a bigger role
and they want to expand the business in areas where currently a gap exists within
the country. S"Going ahead, these companies may adopt a combination of
strategies for market expansion and to establish a pan-India presence. These
typically include acquisition of new facilities, setting up of their own greenfield
projects, and entering into long-term management contracts. In addition to this,
companies could also expand their telemedicine networks, include more specialty
services and expand their primary and secondary care infrastructure. Yet another
strategy consists of strong corporates tying up with NGOs and charitable organisations
which are currently running healthcare institutions and injecting both capital
and strong management skills to revamp ageing facilities and bring in latest
healthcare tools, equipment and techniques to take healthcare delivery to the
next level.
With the Government failing to agree upon the drug price control pattern suggested
in the draft policy, the matter is just being passed from one level to the next
level of hierarchy, but nothing seems to be working. But the healthcare segment
has its share of problems as well.
| The PE players sem to shy away from pharma. The reasons
are manifold. The long gestation period for R&D, delayed returns and
low success in drug discovery, the nascent nature of India's new drug discovery
efforts, lack of sophisticated infrastructure, lack of adequate scientists
with requisite synthetic chemistry skill sets and exposure to new drug development
efforts are a few main reasons. The recent example is that of the pull out
of ICICI and Citigroup Venture from a three-year-old drug discovery partnership
with Dr Reddy's Laboratories. Also, there is lack of interest shown by Private
Equity (PE) investors in the efforts of India's leading drug companies such
as Piramal Life Sciences, Wockhardt and Sun Pharma to hive off their R&D
assets into separate entities, which is an example of the growing risk averse
nature of PE in pharma. The high risk, long term reward ratio of drug discovery
process is an unattractive proposition for them. Even the global PE companies
are no longer interested in investing in pure pharma R&D companies with
less attractive pipelines and in early stage drug development. On the contrary,
PE seems to be favouring the healthcare sector, hence another reason for
the pharma's slant towards hospitals. They are becoming increasingly interested
in regional hospitals. For instance, Jaipur based Soni Group of Hospitals
which is Rajasthan's largest hospital chain, has attracted PE funding and
is planning to expand in to different regions. From 300 beds in two hospitals,
the Soni group plans to expand to 600 beds in three years and 1,000 beds
in five years. The Group plans to spread into Rajasthan, western Uttar Pradesh,
Haryana and Madhya Pradesh through tie-ups or joint ventures with local
nursing homes in those regions. Another major reason of PEs shying away
from pharma, can also be the impending stricter drug price control policy
that seems to have taken away the shine from PE players' interest in the
sector. |
It's the Demand
Another obvious reason is huge demand-supply gap with Government spending very
little on healthcare. Elaborates Khorakiwala, blaming the low spend on healthcare
as the main reason for this convergence. "There is a huge gap in the country.
The healthcare infrastructure is inadequate, because the government spends very
little on healthcare, as compared to the GDP. And this cannot support the healthcare
infrastructure which is required. So pharma companies are trying to fill this
gap," he avers.
He points out that pharma companies have good capital resources, they are professional
managers and understand the healthcare business and are setting benchmarks in
quality standards. For example Wockhardt Hospitals has tied up with Harvard
Medical and also has accreditation from JCI, which in turn is attracting medical
tourists to India.
Supporting this view adds an industry source on condition of anonymity, "There
are not enough hospitals in India to cater to the demand and this is the reason
why there is increasing corporatisation and invasion in the hospital segment
given the intense competition among pharma companies."
In the Long Run
Will this be the next 'in' thing? Not very affirmative Sinha remarks, "There
are not many pharma companies that are going this way. If we look at the historical
data there is Ranbaxy since the last 15 years and Wockhardt for the last 10
years. I don't see a trend." He elaborates, that if one or two major group
are setting up healthcare facility, he would not consider it as a very positive
move and great step by the pharma companies. Reliance has been talking about
getting in to healthcare but there is no strong indication by them till now.
"My concern is that though it is a very positive move I don't see many
players getting into the healthcare space from pharma," he highlights.
Though pharma companies have all the reasons for the close alignment it is still
a very distant trend that may or may not work out. Because ultimately running
a hospital is not something that everybody and anybody can do. The veterans
like Apollo took almost 60 years and Wockhardt 15 years to reach where they
are today.
If this happens, the medical shop you prefer to buy your pills from, the diagnostic
centre you choose to get tested at, and the hospital you feel confident about
staying for a couple of days will share a common bond - the brand name. And
pharma companies will no longer be just pharma companies but 'healthcare hubs.'
arshiya.khan@expressindia.com
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