The Indian in-vitro diagnostic lab sector known to be healthcare’s high margin, asset-intensive business segment is on a constant growth path. The sector’s current market share is around $400 million and is expected to touch $1,254 million by 2018. In the last three to five years itself, the sector is said to have maintained an average CAGR of 20 per cent year-on-year. Moreover, with the advent of new varieties of diagnostic tests incorporating latest technology, FY2013 marked a revenue growth of 25.8 per cent compared to FY’2012. Although, the surge in dollar against the rupee last year did act as a roadblock, nonetheless profitability earned by organised diagnostic players individually pumped in the revenues for growth.
Market players
Majority of the market still remains fragmented. As per National Accreditation Board for Laboratories (NABL) figures of 2013, out of one lakh labs in India, 800 have applied for accreditation and 400 have received it. Nevertheless, large organised players like Super Religare Laboratories, Dr Lal Pathlabs, Metropolis, Thyrocare, Max Healthcare, Anand Diagnostic Laboratory and Apollo Clinics have been leading the industry.
Seeing the immense opportunities within the Indian diagnostic lab market, international players such as Quest Diagnostics has also been making a mark in the north Indian region. As far as the market shares are concerned, industry experts reveal that the top four brands contribute to volumes of more than 20,000 specimen per day, therefore their turnovers occupy 50-60 per cent of the total market share of the industry.
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“In the last 10 years there have been enough of population growth in these cities and laboratories have enough to consume.Our wish is to have a quality collection centre with trained personnel, to connect using broadband – next to each State Bank of India branch in India.”SRL diagnostics itself claims for 50 per cent of the market share, whereas Dr A Velumani, Chairman MD, Thyrocare informs, “We have a mean daily work load of 210,000 investigations and our monthly turnover is Rs 25 crores.” He further goes on to say, “New players are many but to cross a 5000-specimen per day becomes a challenge in this most competitive business to business (BtoB)market. BtoB market gives volume while business to customers (BtoC) market gives value. The one who leans more towards BtoB have higher market share and we have almost 90 per cent BtoB business.”
Key drivers and trends
Diagnostics is an extremely important component of the healthcare system. This segment enables accurate detection of health risks and diseases at earlier stages; it improves treatment and disease management as well. Indeed, it is the diagnostic segment that adds value to the healthcare sector at large. And with increased consciousness among people, the demand for in-vitro diagnostics has grown. According to a report titled, “India In-Vitro Diagnostics Industry Analysis till 2018 – Accreditation and Automation to Drive Future Growth’, the in-vitro diagnostics market in India is hugely driven by the increasing number of lifestyle diseases, inclining preventive healthcare practices, mounting disposable incomes, government’s initiatives and improving healthcare infrastructure.
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“Starting of stand-alone super-specialised testing laboratories and emphasis on development of new testing particularly in oncology and many other reason are the key driver of growth for the Indian diagnostic lab market.” The report also reveals that this sector has showcased several emerging trends over the past few years. Some of the most definitive of these trends has been the advent of decentralised testing, mounting automation in laboratories, increasing consolidation and preference for early detection of diseases. Several pathological labs have resorted to invest heftily, and have been adopting fully automated systems for diseases diagnosis. In light of this, the accuracy of test results has increased, while the turnaround times have declined significantly. Additionally, the growth of portable diagnostics devices has propelled the market for point of care testing in India.
Analysing the sector industry expert Dr BR Das, President-Research & Innovation, Mentor- Molecular Pathology and Clinical Research Services, SRL, observes some keys trends within the sector:
- Increasing awareness about need and importance of diagnostic tests through mass media and the Internet
- Adoption of developed country (Western) clinical testing protocols across healthcare services
- Desire to undergo preventive health checkups and favourable government policies (preventive healthcare tests now allowed tax exemption under section 80D)
- Starting of stand-alone super-specialised testing (molecular diagnostics, molecular cytogenetics and mass spectrometry) laboratories
- Emphasis on development of new testing targets/algorithms, particularly in oncology
- Technological improvements (e.g. simpler automated workflows) that are driving the use of higher value tests (e.g., automated immunoassays, molecular diagnostics)
- Pricing pressure for tests due to competition from lower cost-per-test technologies
- Corporate acknowledging and promoting importance of health at workplace and at home.
- Emergence of the concept of customer relationship management in corporate IVD service set ups
- Increasing number of smaller labs applying for accreditation
Additionally, Dr Velumani, points outs some trends observed on the clinical side. He says, “Laboratories understand that in biochemistry there are volumes, value and scalability and hence their focus has been shifting more towards biochemistry applications. Also, the preventive care segment has huge potentials and those laboratories which have the capacity are giving more importance to preventive care. On the other hand, automations are improving turnaround time and reducing analytical errors and hence more players are opting for costly automations as well.”
Moreover, in an effort to match increasing demand, large players have endeavoured to increase pan-India presence, by building national networks, over the last few years. Simultaneously, the market has witnessed continuous mushrooming of diagnostics labs within the tier-II and III cities of India.
Tapping tier-II and III markets
Presently, tier-II and III cities of India are witnessing a surge of activity where diagnostic labs are concerned. Major players, such as SRL, Metropolis, and Dr Lal’s Pathlabs are all setting up shops in the B-towns. Onquest Laboratories, Quest Diagnostics, Pathcare, Diagno Labs are mid-sized players also have a strong hold within these regions. Reasons being that tier-II and III cities, present an attractive opportunity for large corporate players. These cities represent an area of under-served need, with a growing need for improved health infrastructure.
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“Opportunities are immense. There is an unmet requirement of quality healthcare services availability in these cities. The major players offer state-of-the-art services to meet this. Metropolis healthcare intends to establish around 15-20 locations yearly.” “Opportunities are immense. There is an unmet requirement of quality healthcare services availability in these cities. The major players offer state-of-the-art services to meet this”, feels Dr Puneet Nigam (Chief of Lab services – Delhi), Metropolis Healthcare. Furthermore, several demographic factors, rapid urbanisation and saturation of progress in metro cities are some of the aspects that draw these players to venture into these semi-urban areas and smaller towns.
Market at a glance
Speaking about the diagnostic operations happening in tier-II and III cities, Dr Velumani informs, “Major players operate in the field of biochemistry, immunoassay, haematology and general pathology segment. Each segment has a couple of industry leaders who focus only on the top of the pyramid. The rest of the players occupy the rest of the pyramid. Big players play it for volumes while small players chase for value in these areas.”
Apart from this, larger players are now raising funds to tap the market in these regions eg. Dr Lal’s Pathlabs raised around Rs 44 million last year through private equity funding. This was one of the big ticket investment in healthcare services as well. As per Dr Lal’s Pathlab, these funds will be used to expand further in the tier-II and III cities.
Metropolis healthcare too has aggressive plans to expand into the tier-II-III cities. They intend to establish around 15-20 locations every year. Dr Velumani also reveals his plans for Thyrocare and says, “Villages become towns, towns become cities – in just 10 years. In the last 10 years there have been enough of population growth in these cities and towns and laboratories have enough to consume. Our wish is to have a quality collection centre with trained personnel, to connect using broadband – next to each State Bank of India branch in the country.”In addition, the Indian government is also taking initiatives by entering into public private partnerships to create accessibility of healthcare services to the rural population of the country. While certain initiatives have been taken in healthcare services, PPP in diagnostics as an exclusive service are at a nascent stage. This is another opportunity that will open avenues for the industry players to target the lower income groups.
Where opportunities are galore there will be challenges too. According to a report published by KPMG, some of the challenges faced by diagnostic lab players in the tier-II and III regions include:
- Difficulty in recruiting and retaining medical and paramedical talent
- Difficulty in patient recruitment and retention as business is based on credibility in local communities
- Profitability of centres in tier-III cities restrains large players from entering them i.e, challenges exist around scale and price points.
Further, getting competent manpower, establishing supply chain and logistics, communicating the value of high-end services are some of the other challenges faced by large corporate players, discloses Dr Nigam.
Moving ahead
Demand for diagnostic services is here to stay. Therefore, in-vitro diagnostic lab market is certainly going to flourish further. With more and more funds flowing into the sector, larger players as well as mid-sized players will be expanding their services pan India. More mergers and acquisitions will be on the cards. Moreover, increasing importance of accreditation of labs will also transform the sector into a more organised one.
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