What’s next in India’s Life Science and Healthcare Horizon?
Kotak Alternate Asset Managers Limited
India's leading Alternate Asset Manager with capital commitment of ~USD 22 billion.
India's life science and healthcare sector has undergone significant transformation over the past two decades, evolving from its reputation as the "pharmacy of the world" due to its prowess in generic drug manufacturing to undertaking new strides towards building innovative solutions to address growing life science and healthcare needs. The life science and healthcare sector in India, encompassing pharmaceuticals, biotechnology, medical devices, hospitals, and diagnostics, was at a size of $372 billion in 2023 and is expected to grow more, driven by increased healthcare spending, a growing middle class, and the rising prevalence of lifestyle diseases.
The First Wave: Generic Drug Development
The initial wave of growth in India's healthcare sector was centered on generic drug manufacturing. India emerged as the largest global provider of generic drugs, today supplying 40% of the generic demand in the US and 25% of all medicines in the UK. This phase saw the rise of pharmaceutical companies excelling in producing high-quality, affordable medicines for global markets. This cost-effective advantage, coupled with stringent regulatory adherence, established India as a global contributor, significantly adding to global healthcare access. India's success in generic drugs established a strong foundation for further innovation and expansion into higher-value segments of the healthcare industry, including biosimilars, complex generics, and specialty pharmaceuticals.
However, the sector soon recognized the need to diversify beyond generics to ensure sustained growth.
The New Wave: Innovation-Driven Growth
Currently, the life science and healthcare sectors are experiencing a new wave driven by innovation and a large swell of unmet needs. Advances in genomics, artificial intelligence, and digital therapeutics are reshaping the industry landscape, creating new opportunities for innovation and growth. The convergence of these technologies is leading to the development of personalized medicine, improved diagnostics, and more efficient drug discovery and development.
While India has traditionally excelled in generic drug manufacturing, the industry is now actively pursuing a more innovation-centric trajectory. Recognizing the limitations of a purely generic-driven model, Indian pharmaceutical companies are increasingly interested in exploring opportunities that are differentiated with the development of biosimilars, complex generics, and even therapeutics. This shift is evident in the growing number of patent applications filed by domestic companies, which surged by 26.57% in 2020-21.
Similar to the early days of the western pharmaceutical industry, relatively smaller, agile Indian biotech and pharmaceutical companies are now at the forefront of this innovation wave, demonstrating a forward-looking approach and a willingness to take risks.
The scope of healthcare in India has dramatically expanded over the past two decades. While the 2000s primarily focused on pharmaceuticals and infrastructure, today's healthcare landscape encompasses a much broader range of sectors including pharmaceuticals, infrastructure, diagnostics and delivery, digital health, medical devices, and consumer wellness.
This expansion has significantly increased the investment opportunity set, moving from traditional areas to more new-age sectors. The digital health sector, in particular, has seen remarkable growth, with the market size projected to reach $10.6 billion by 2025, as per a study by Research and Markets.
The medical devices market, on the other hand, is experiencing significant growth. As reported by the India Brand Equity Foundation (IBEF), this sector is forecasted to reach $50 billion by 2025.
This diversification and growth across various healthcare sectors underscore India's evolving healthcare landscape. From digital health solutions to advanced medical devices, the country is witnessing a shift towards more innovative and technologically driven healthcare offerings.
Union Budget 2024 and Government Support
The Union Budget 2024 presents mixed implications for private equity in life science and healthcare. The budget’s emphasis on research and innovation (?1 lakh crore) and the removal of basic customs duty on specific cancer drugs are positive steps that could stimulate private sector involvement in drug discovery and development, leading to more affordable healthcare and greater investment opportunities.
The Indian government's initiatives, such as the Production Linked Incentive (PLI) scheme with an outlay of ?15,000 crores, aim to enhance India's manufacturing capabilities and exports in the pharmaceutical sector. Additionally, the focus on digital health initiatives, including the National Digital Health Mission, is poised to create new opportunities in health-tech and data-driven healthcare solutions.
Kotak Alts: Approach to Investing in Life Science and Healthcare.
We at Kotak Alts have been closely tracking this evolution. Over the past 19 years, our investments have been informed by a deep understanding of the sector's changing dynamics. We have supported companies at various stages of growth, from early-stage start-ups to established players.
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In the first wave, our investments in Natco Pharma and Bharat Serum & Vaccines (BSV) capitalized on the generic drug development phase. In the current wave, we are focusing on companies driven by innovation and specialized therapies. Our recent investments include Ahammune Bioscience, Bugworks, and Neuro Equilibrium, focusing on the treatment of vitiligo, novel therapy, and vertigo, to name a few.
Our focus on life science and healthcare is evident from the fact that we at Kotak Alts have invested over ?3,000 crores in life science and healthcare ventures across various strategies in the past 24 months alone. Our support for Matrix Pharma's acquisition of Viatris' API business positions Matrix Pharma as a key player in the global API market. Similarly, our investment in Biorad Medisys has enabled the company to expand its innovative medical device portfolio, contributing to the growth of India's medical technology sector. Our notable investments include Biocon Biologics, Biorad Medisys, and Sahajanand Medical Technologies (SMT), which collectively contribute to the growth of India's healthcare and life science sector.
The Way Forward
With a deep understanding of market dynamics and a strong network of industry stakeholders, we are positioned to capitalize on the growing opportunities in healthcare and life science.
As we continue to identify promising players, we are looking forward to the prospect of launching a dedicated life science and healthcare fund. This fund will enable us to accelerate our investment strategy and provide critical support to innovative enterprises driving the next phase of growth in India’s healthcare sector.
We are currently refining our investment thesis and building a sustainable pipeline of potential investments.
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