Cover Story

Medical Device Sector, VUCA & Comparison with Pharma

• VUCA denotes Volatility, Uncertainty, Complexity and Ambiguity, a perfect cocktail prevailing in the medical devices sector in India

• Entrepreneurs always thrive in such a testing time, and the same is happening in India

• The entrepreneurial model of developing an imported product indigenously with better quality and better price is working well and is the answer to the overdependence of India on imports for the medical device sector

The term VUCA was coined by the US defence in 1987. This popular management term VUCA also has its connection with military strategists. The term VUCA was used for Volatile, Uncertain, Complex and Ambiguous situations arising from the collapse of the USSR. The Cold War era meant a clearly identifiable enemy, the USSR. However, once the Soviet Union disintegrated, a situation was created where the enemies were not clearly identifiable and could be anybody, coming from anywhere. The US Army in this situation may become disoriented, and the term VUCA was used to highlight this multilateral world order. Bennett & James in the Harward Business Review magazine explain the VUCA situation as below-

• Volatility – characterized by a challenge which is unexpected, unstable and of unknown duration. However, knowledge about the situation is not difficult to obtain.

• Uncertainty – A large part of information is lacking but the cause and effect of the change are known.

• Complexity – As the word means, the situation is not simple. There are many variables and interconnected components in a situation.

• Ambiguity – There are many “unknown unknowns”. Cause–effect relationships are not clear, and are ambiguous.

The situation in the medical devices sector has many of these characteristics. Unexpected challenges, though known to an extent, represent Volatility; missing information pieces – typical of Uncertainty; a situation not-so-straightforward – means Complexity, and; many “unknowns”, driving Ambiguity.

A quick study of any definition given for medical devices by any authority or researchers will indicate that the function of a medical device is like that of a medicine. However, a careful eye will immediately catch the difference. That difference is that a device does not achieve its primary intended action by pharmacological or metabolic means, in or on the human body, but which “may be assisted in its intended function by such means”. These last words make the fundamental bases of a drug-device combination. A medical device may very well be supported by a pharmacological product (meaning medicines) in its intended function. Not only this but in today’s VUCA moment, medicines can even provide an answer to the puzzle of medical devices for growth. How? Please read further.

Though very detailed information about the differences between medical devices and pharmaceuticals is provided in this issue of Medical Plastic Data Service by other experts in many articles, a summary given in the table here will not be out of place. More relevant points are covered in detail below, even at the cost of repetition.

Budget constraint: The R&D budget of the top five device companies in the world is more than double the medical device sector size (11 b USD) in India! Competing on R&D spend with such players is too big a call, especially when 95% of the Indian medical device companies have less than 12 mn USD (100 cr INR) turnover per year.

Constraint on Reward of research: Patent protection in pharma is solid. An inventor company can milk its research efforts for 15 years out of 20 years of patent protection (since the remaining time may be lost in regulatory approvals, etc). New research is thus rewarded in Pharma. In the medical device sector, such protections are loose & vulnerable and so, big research investment is not that rewarding.

Brand value creation: Pharma is a branded business while (almost) all the devices are generic, despite efforts of branding (except Umbrella brands like BD). Individual pharma brands have intrinsic value which generic devices do not have. Today in India, there are 388 pharma brands with more than 100 cr sales. 25 out of these have sales above ₹500 crore and 79 fetch above ₹250 crore sale. Remember, we are talking of individual brands, not molecules. This is also a constraint for devices.

User training cost as a constraint: A user is important for a new device. Training for a user is, therefore, required. This training is a patient job and is costly too. To calculate a budget and factor this training cost for new product development is not always possible, which ideally should be done.

The conservatism of users: There is a big inherent difference between the switch-over to a new medicine and a new medical device despite training investment. For example, after Cimetidine, the next congener Ranitidine is readily and quickly accepted, if slightly better. But for the use of a device, conservatism always (maybe rightly) prevails. The doctors stick to the old patterns of usage. Assuming that a new device is developed by an Indian player, its acceptance is not guaranteed, which again is a constraint.

The answer to all these constraints is in the pharma R&D model. Many smart entrepreneurs in the medical devices sector have already “discovered” this model and have already started implementing this model.

As the readers know, India is a net exporter of the Pharma sector but is a net importer of medical devices. In pharma, the success mantra was (and is) reverse engineering for APIs. A research molecule invented by a foreign company and which was under patent (having a high profit margin), was synthesised in India through reverse engineering. Often, the Indian companies were the first to launch a generic version of these off-patent products in the USA and EU. The US pharma market is the largest in the world, as the readers know, making up close to 50 % of the world's pharma market. Generic versions are often launched with 70 to 80% lower prices in comparison to a leader brand and even after this, an Indian player makes a good profit. Dr. Reddy’s was the first to successfully use this strategy. Now many companies have followed suit.

The safest, quickest and sure-shot R&D model in this VUCA situation is to follow the footsteps of the pharma model, and the mantra is reverse engineering -

- Select a large volume imported product
- Do reverse-engineering and develop the same in India at a lower cost
- If required, import components and assemble them here
- Ensure the same/better quality
…and go ahead.

A survey was done recently with entrepreneurial medical device manufacturers. This survey revealed that this strategy is being implemented successfully by some players and they have found it to be very effective for the Indian market.

The proof of a pudding is in eating, isn’t it?

 

	Medical Devices	Pharmaceuticals
	Definition
1	Effect without undergoing change themselves	A medicine gets metabolized while acting
2	Do not "act" inside a cell	Effect inside a living cell
New Product development
1	Problem identification by users is the starting point for development.	New product development starts from understanding biochemical pathways.
2	New product development is much complex, involving multiple technologies (a "horizontal" process).	Biochemistry and chemistry are the bases for product development (a "vertical" process)
3	Basic principle of a device is patentable	A molecule is patentable
4	Patent protection very loose and vague	Patent protection for a long time
5	Copies can come to the market in 5 years	Effective life "under patent" for 10- 15 years
6	Life cycle is 2 to 3 years	Life cycle is 12 to 18 years
7	Product design/ Ergonomics is important.	Product design is not an important factor.
8	Professional training is needed for new products	Specialized training for use is not needed.
9	New product acceptance by doctors is slow.	Switch-over is very fast for a new molecule.
Regulatory and QA aspects
1	Regulatory authorities may have less knowledge	Regulatory frameworks are very clear
2	Regulatory classification is risk-based.	Regulatory classification is form-based.
3	Stability study is much less critical/not needed.	Stability is important due to internal usage, and is part of the regulatory guidelines.
4	Post-launch surveillance is not critical.	Post-launch pharmacovigilence is necessary.
5	The evaluation here is on performance and engineering parameters.	Evaluation of drugs is on the parameters of efficacy and quality.
6	Device QA tests are often complex, needs special needs.	Quality assurance tests are practicle
7	Trials through bench studies, not human studies.	Large scale clinical trials are possible
8	Use depends on the user, and comparisons are not always easy.	Action and side effects are easy to compare
Market, Commercials and distribution
1	Market size is smaller comparatively.	Market size is 3/4 times of that of devices for a region.
2	Most of the usage in a clinical set-up.	Maximum usage is by a patient himself.
3	Distribution channels are shorter.	Long distribution channels are involved, going upto a retailer.
4	Most of them are generic products.	Branding practice is common and brands have intrinsic value.
5	Prices change (drop) very fast.	Prices are steady for a long time.
6	A user is important, and influences the use.	Method of "use" is generally very simple.
7	Cost-effectiveness evaluations are not easy.	Cost-effectiveness comparisons are easy.
8	Cost of training is difficult to factor.	Training cost is not an issue here.