Healthcare, pharma in IT focus

Indian IT service providers are increasing their exposure in the healthcare and pharma segments. Multi-million dollar deals in this space by IT firms over the past three-four months only buttress this trend.

Healthcare outsourcing has moved away from just undertaking medical transcription and business process outsourcing (BPO) work to core functions such as drug discovery, testing, research and development and more process-centric work.

Analysts believe this segment to be quite different compared with verticals such as banking, financial services and insurance (BFSI) or others. Hence, only those with a clear focus and dedicated process can be successful.

While players such as Tata Consultancy Services (TCS), HCL Technologies, and Wipro have been working on this for a long time, other vendors are taking the acquisition route for faster growth in this space.

Cognizant, for instance, acquired US-based marketRx; Firstsource bought US-based MedAssist, which gave the company the required exposure and client base to cater to the healthcare business; and Apollo Hospitals took over Zavata, a US-based healthcare BPO.

The total healthcare outsourcing spending from the US market is expected to grow to $38 billion (about Rs 1,52,000 crore) during 2007-08, says a report by Zinnov Research and Consulting. Indian service providers accounted for only $115 million (Rs 460 crore) worth of outsourcing during 2005-06.

However, total outsourcing is expected to grow at a compounded annual growth rate (CAGR) of 150 per cent by 2007-08.

While individual break-up of healthcare and life sciences is not available, for TCS it is around 4 per cent, Wipro considers this under the enterprise solutions vertical, which contributes 36-37 per cent to its revenues.

India has huge potential for clinical research. The clinical research outsourcing (CRO) market in India is growing at a fast pace since 2001 and is expected to cross $10 billion (Rs 40,000 crore) by 2010, growing at a compounded annual growth rate of 64 per cent.

"There is a huge untapped potential for India as currently it accounts for less than 5 per cent of global clinical trials," adds the report.

Pradeep Udhas, partner-in-charge, global sourcing, KPMG, says, "Unlike other sectors, the pharma sector has been a bit slow to open. Most of the pharma companies have grown through acquisitions. While integration was never a concern, there is potential to increase efficiencies. This is where IT companies can help them."

The hospital care business in the US amounts to approximately $700 billion, and administrative costs are estimated to be 14 per cent or around $100 billion, which offer a huge opportunity.

Vineet Nayar, CEO, HCL Technologies, says: "With consolidation happening in micro verticals, healthcare and pharma are the future for the industry. Life sciences and healthcare will be the next growth area after the financial services (BFSI) for the India IT industry." HCL Technologies' revenue from this segment increased to 5.2 per cent compared with 3.5 per cent recorded in the previous quarter.

Similarly, when Wipro acquired Infocrossing, it said the acquisition would help it offer better services to healthcare clients.

In this quarter, Wipro Infocrossing won a $275 million multi-year outsourcing deal to provide BPO and IT services to Missouri HealthNet Division, an agency run by the state government to provide healthcare services to Missouri residents.

The other reason why companies are looking at outsourcing to India is the reduction in time-to-market. According to research firm Zinnov, of the five thousand to one million drugs entering the discovery process, only one reaches phase IV trials and costs $1 billion on an average in the developed market.

Alok Shende, head IT and telecom, Ovum, notes, "As the competition is increasing, Indian IT service vendors are going up the value-chain. One of the biggest development in the IT industry is that the vendors are partnering with pharma companies for drug discovery, which is a high-risk game."