India paves the way for a healthier future
The Government has formulated a new policy on medical devices that is expected to give the sector a leg-up and attract FDI. With an understanding that a robust medical devices policy is required to help realise the full benefit of the relaxation of the FDI’s this new policy has been finalized and approved by the government for implementation in 2018. – Vigyan Arya
The newly proposed National Medical Device Policy assumes significance given that India imports about 80 per cent of its medical device requirements. There is a need for FDI in the sector as the domestic medical devices industry is fragmented into small and medium enterprises and primarily manufactures products such as disposables.
The draft National Medical Device Policy, 2015, had proposed incentives for both new and existing medical devices firms. It had asked for interest subsidy to MSMEs, concessional power tariff, seed capital, viability gap funding, tax benefits to the sector, minimum or zero duty on raw materials.
In fact, the draft policy had also suggested setting up of an autonomous body National Medical Device Authority and a single window clearance for the industry.
The global market size for medical devices is about $220 billion and India has the potential to tap the opportunity. The sector in India is relatively small compared to the rest of the manufacturing industry though India is one of the top 20 markets for medical devices in the world and 4th in Asia.
A task force under the chairmanship of the DoP secretary addressed issues concerning domestic production of high-end medical devices and pharma equipment manufacturing that have been elaborately incorporated in the new policy.
Medical devices include any instrument, apparatus, appliance, implant, material or other article, whether used alone or in combination, including the software intended by its manufacturer to be used specially for human beings or animals for one or more of the specific purposes.
It also includes a device which is a reagent, calibrator, control material, kit, equipment or system whether used alone or in combination thereof intended to be used for examination and providing information for medical or diagnostic purposes.
Executive Summary
The Indian medical device market is dominated by imported products, which comprise of around 75% of total sales. The domestic companies are largely involved in manufacturing low-end products for local and as well as international consumption. Lately, many multinational companies have established local presence by acquiring established domestic companies or starting a new business.
There are few key factors about operating in India that every serious player should be aware of. Foreign Direct Investment in medical device manufacturing sector is now possible without any prior approval.
The Indian Government has introduced various fiscal measures to promote research, development, manufacturing and import of medical devices. There is no import duty on certain medical equipment. Similarly, a number of lifesaving medical equipment are exempt from payment of excise duty.
The regulatory framework in India applicable to medical devices borrows heavily from the regulatory framework applicable to drugs. At present, only 15 types of medical devices are regulated (unfortunately, as “drugs”). The rest are unregulated. After a lot of efforts of various stake holders, the government has notified the Medical Device Rules, 2017, which are to come into effect from the 1st of January, 2018. These rules will regulate a much larger set of medical devices under a framework customized for medical devices. This should boost the confidence of all stakeholders, especially those who have been hesitant to enter into Indian market because of lack of regulation.
The Indian medical device sector is Asia’s fourth largest market, and presents an exciting business landscape and opportunities for both multi-national and domestic players. Till the early 1990s, the medical device sector was significantly dominated by domestic players. But after India opened up its markets in 1991, tables have turned. The technological advancement and expertise that the global market leaders offered has proved to be an advantage.
Today, India’s medical device sector is dominated by multi-national companies, which is evident from the fact that about 75% of the sales are generated by imported medical devices.
The domestic players, on the other hand, were quick to adapt the winds of change and started to focus on low cost devices. It will come as a surprise to many that the domestic players in India export more than 60 percent of their output as Indian markets are dominated by such imported medical devices. Over the years, many multi-nationals have set up operations in India.
However, the nature of majority of the operations is to only distribute imported devices and provide support function. Few multi-nationals have started domestic production too. Some multi-nationals have also entered India by acquiring domestic manufacturers.
A significant percentage of purchasers of medical devices are private medical institutions and hospitals. Due to increased competition in Tier I cities, private enterprises have started to focus on Tier II and Tier III cities, a market which is until now untapped in India. As private enterprises expand in lesser explored markets, the demand for medical devices will expand proportionally. Other reasons for strong growth prospects of the industry are:
• Economic growth leading to higher disposable incomes
• Increased Public Spending in Healthcare
• Increased Penetration of Health Insurance
• Improving Medical infrastructure
• Increasing affordability due to growing income
• Increasing number of ailments
• Increasing demand due to “Medical tourism”
The sector is also witnessing strong Foreign Direct Investments (“FDI”) inflows, which reflects the confidence of global players in the Indian market. As per official data, the medical and surgical equipment sector received a total of INR 8344 Crore (approx. USD 1452 Million) between 2000 and 20162. In 2013 alone, the FDI inflow was almost INR 920 Crore (approx. USD 138 Million). In 2015, this number jumped to a new high of INR 1019 Crore (approx. USD 153 Million).
India Entry Strategy
Doing business in India is as big a challenge as it is an opportunity. The sensitive healthcare sector in India has long been conservative about foreign investment over concerns of foreign influence over health priorities of domestic manufacturers. However, in recent times, there is growing governmental and popular support for foreign investment in all sectors, including health. It is, therefore, significant to observe the political and economic environment of India. It is equally important to understand the business culture and consumer mindset prevalent in India. Companies that are quick to adapt to it turn out to be more profitable. To be aware of the legal framework is another must. Specifically, investors must keep an eye on the exchange control laws as they govern how profits made by the company can be realized out of India.
Investment climate in India
By and large FDI is now permitted in almost all the sectors in India without obtaining prior regulatory approvals (i.e. under the “automatic route”) barring some exceptional cases like defense, housing and real estate, print media, etc. (referred to as the “negative list”). If the FDI is not in accordance with the prescribed guidelines or if the activity falls under the negative list, prior approval has to be obtained from the Foreign Investment Promotion Board (“FIPB”) (“approval route”).
FDI in manufacturing of medical devices is permitted to the extent of 100% under the automatic route.
For the limited purpose of FDI Policy,
Medical device is defined as follows;
Medical device means;
i) any instrument, apparatus, appliance, implant, material or other article, whether used alone or in combination, including the software, intended by its manufacturer to be used specially for human beings or animals for one or more of the specific purposes of;
• Diagnosis, prevention, monitoring, treatment or alleviation of any disease or disorder;
• Diagnosis, monitoring, treatment, alleviation of, or assistance for, any injury or handicap;
• Investigation, replacement or modification or support of the anatomy or of a physiological process;
• Supporting or sustaining life;
• Disinfection of medical devices;
• Control of conception, and which does not achieve its primary intended action in or on the human body or animals by any pharmacological or immunological or metabolic means, but which may be assisted in its intended function by such means;
ii) A n accessory to such an instrument, apparatus, appliance, material or other article;
iii) A device which is reagent, reagent product, calibrator, control material, kit, instrument, apparatus, equipment or system whether used alone or in combination thereof intended to be used for examination and providing information for medical or diagnostic purposes by means of in vitro examination of specimens derived from the human body or animals.
iv) However the definition above would be subject to the amendment in Drugs and Cosmetics Act. for manufacturing of medical devices.
Aspects of Legality
As referred to in the introduction, the medical devices industry in India is currently largely unregulated because of the absence of a medical device specific legislation specifying standards of safety and quality for most of the medical devices. However, this is set to change with the introduction of the Medical Device Rules, 2017.
Presently, there are certain medical devices which have been regulated by creating a statutory fiction and deeming these medical devices as “drugs”. By virtue of this fiction, these few medical devices get regulated by the Drugs and Cosmetics Act, 1940 (“Act”) and the rules framed there under viz. Drugs and Cosmetics Rules, 1945 (“Rules”).
The Act and Rules seek to:
• Regulate the import, manufacture, distribution and sale of Notified Medical Devices.
• Ensure the availability of standard quality Notified Medical Devices to the consumer.
Licensing Process
The regulation of Notified Medical Devices is overseen by both, the central government and the state governments. Under the applicable regulatory framework, the functions of manufacture, import, distribution and sale of medical devices require licenses or permissions, as the case may be. In specific instances such as manufacture or import of new Notified Medical Devices (discussed later), both, a permission from the central drug licensing authority and a license from the state drug licensing authority is required. The required licenses and permissions are described more specifically in the table below.
The Rules have prescribed the standard format of the application forms for relevant licenses for the benefit of the applicants. It has also prescribed the standard form (template) of the licenses that may be issued for the benefit of the regulatory authorities and the applicants.
Manufacturing process
A separate license is required for each manufacturing location and for each Notified Medical Device at such manufacturing location. Under the Act, “manufacturing” includes any process (or part) for making, altering, ornamenting, finishing, packing, labeling, breaking up or otherwise treating or adopting any drug with a view to its sale or distribution. However, “manufacturing” does not include dispensing or packing at the retail sale level.
Importing Process
The IEC Number would be required to be mentioned in the documents filed with Customs for clearance of imported goods. For obtaining the IEC Number, an application in the prescribed form has to be submitted to the office of the jurisdictional Joint Director of Foreign Trade, wherein details of Bank Account Number and Permanent Account Number have to be furnished Under the Act, the activity of import of Notified Medical Devices into India requires an import license from the office of the Drugs Controller General of India.
In order to get an import license, there is a mandatory requirement of registration of the medical devices sought to be imported, the name of the manufacturer and its manufacturing premises with the office of the DCGI. The registration is certified by grant of a registration certificate. An application for grant of a registration certificate may be made by the foreign manufacturer itself if it has a valid wholesale license for sale or distribution of Notified Medical Devices under the Rules or its authorized agent in India, either having a valid license under the Rules to manufacture for sale of a Notified Medical Device or having a valid wholesale license for sale or distribution of Notified Medical Devices in India. Many a times, foreign manufacturers do not have an Indian subsidiary which has a wholesale license for sale or distribution of Notified Medical Devices. Hence, the manufacturers choose to appoint a third party as an authorized agent to make the application for grant of registration certificate. The authorization by a manufacturer to its agent in India must be documented by a power of attorney.
Clinical Trials
The applicable regulatory framework for clinical trials is drug-trial specific. There is no medical device specific regulatory framework for clinical trials in India. The DCGI, who regulates clinical trials, is aware of this fact and has therefore, allowed for some tweaking in the drug-specific clinical trial regulatory framework to suit medical devices. For example, the DCGI has exempted Phase I clinical trials of medical devices. A number of manufacturers of Notified Medial Devices are interested in carrying out post-marketing observational study of medical devices. The core difference between an observational study and a clinical trial is the degree of interference of the manufacturer in both the scientific studies. In observational studies, the manufacturer does not interfere in the use of the device by the subject but in a clinical trial, the manufacturer sets out the way (design) in which the device would be used. There is no requirement to obtain any permission for an observational study, but permission would be required to carry out a post marketing clinical trial.
Labeling
Before a Notified Medical Device is sold or distributed in India, it must be labeled according to specifications outlined in the Rules. All medical devices sold in retail or wholesale package should are required to comply with the labeling requirements of The Legal Metrology (Packaged Commodities) Rules, 2011.
Penalties
The penalties have been significantly enhanced through the amendment for manufacture, sale, distribution, stocking or exhibiting or offering for sale or distribution of spurious or counterfeit Notified Medical Devices to INR 1,000,000 or 3 times the value of the notified medical device confiscated, whichever is higher and imprisonment of not less than 10 years which may extend up to life, for spurious or counterfeit notified medical device leading to death or grievous hurt.
The entire amount of fine that is realized from the person convicted for the offence is now paid by way of compensation, to the person who is the victim of spurious or counterfeit Notified Medical Devices.
If the victim has died due the effect of the spurious or counterfeit Notified Medical Devices, the relative of the victim is entitled to receive the same amount by way of compensation. In case the spurious or counterfeit notified medical device does not lead to death or grievous hurt, then the penalty is a fine of up to INR 300,000 or 3 times the value of the notified medical device confiscated, whichever is higher and imprisonment of not less than 7 years which may extend up to life. The Ministry also has set up a “whistle blower” policy that aims to reward citizens, who provide information on the trade and source of spurious Notified Medical Devices.
Advertising and Sales
Advertising medical devices is strictly regulated. The Rules prohibits labeling of Notified Medical Devices in a manner that may convey to the intending user that the enclosed device may be used for prevention or cure of certain ailments and diseases specified in Schedule J of the Rules. Some examples of such diseases and ailments are: Blindness, Bronchial Asthma, Cataract, Growth of New Hair, Deafness, Genetic Disorders, Improvement in vision, Myocardial Infarction etc. Please note that while the restriction on labeling applies only to Notified Medical Devices, some of the restriction on advertisement is general in nature and are applicable to all medical devices. These are dealt in detail under the sub-heading of Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954.
Concluding the Benefits
The Indian medical device industry continues its upward march of growth and is strongly supported by India’s robust legal framework. The Indian Government has identified the medical device industry as a focus industry for its flagship “Make in India” program.
There is also a proposal to launch new medical device parks in which government will provide fiscal and monetary incentives. This should give lot of confidence to potential stakeholders to consider the Indian medical device industry seriously.
With respect to the singular event of price fixation of Coronary Stents, The government had several interactions with the importers and manufacturers of Coronary Stent and took their feedback into account before fixing the price. Thus, it appears that the government sought to be restrained and transparent in its approach.
Also, it is still possible for importers and manufacturers of Coronary Stents to increase their current margins by structuring their business model or by using the available relaxations as discussed in the body of this paper. Lastly, with the introduction of the Medical Device Rules, 2017, the medical device industry in India is certain to receive a fillip.
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