PE: Can a 'value for many,' low-cost model be productively applied in the healthcare and drug development business?
Healthcare has to be segregated from drug development, which has its own intricacies. For poor people with few resources,
affordable healthcare is not an option but a necessity. The four billion people with incomes of less than $2 per day can spend
only a few of those dollars on health care each year. But there is a brighter side to this picture, because ultra-low-cost
products and services are now being made available routinely in countries like India, where the combination of scarcity of
resources and the public desire for better health has become a driving force behind innovation—not only in new medical technologies,
but in the processes and services that enable delivery to rural communities and other hard-to-access populations.
Take vaccines as an example. When Shantha Biotech India entered the recombinant DNA vaccine business, the cost per dose of
vaccine was around $18. Through process improvements and locally appropriate technologies, the cost was brought down to 40
cents. This was noted by the international community, and for a time, Shantha Biotech was meeting 40 percent of UNICEF demand
for the vaccine.
When it comes to therapeutics, cheap generics produced in India have created 'value for many.' A year of anti-retroviral
drugs for the treatment of HIV/AIDS used to cost $10,000. India's own Cipla found a way to offer these ARVs in generic form,
for $350. Competition helped push the price down even further, to $100–$150, thus creating value for many more.
All these innovations are technology innovations. However, workflow innovations in India have led to dramatic cost efficiencies
in the delivery of health related services. For example, Aravind Eye Care does cataract surgery for $30–$300 per patient,
compared to $3,000 per patient for surgery in the U.S. The company treats 300,000 patients per year, and 40 percent of these
get their treatment for free. A very clever use of workflow innovation based on a McDonald's assembly line approach has helped
Aravind achieve this. Similarly, Narayana Hrudayalaya, another India-based health provider, is able to do heart surgery for
an average cost of $2,000, compared to $ 20,000 in the U.S.
The health sector also benefits from lower costs at the base. The Emergency Management and Research Institute (EMRI) in India
is a leader in emergency medical services. It spent only 50 cents per person treated to build the infrastructure to supply
this emergency care, compared to the $100 per person cost for the same service network in the U.S. The expense per ambulance
is less than $15 versus $600 to $800 in the U.S.
The payoff from 'value for many' innovation is not limited to resource-poor settings. A non-profit company, Diagnostics for
All, has a unique printing technology that lowers the cost of many diagnostic tests, from simple blood draws to complex assays
of liver function. The technology is a game-changer and can be used in every environment, including the extreme conditions
of dust and humidity often found in the rural tropics. The big multinationals are entering this game as well. Siemens India
unit is developing an ultra-low-cost x-ray machine and is looking at other breakthroughs with cost profiles that will bring
the technology within the reach of millions of lower income patients—and carry the potential for sales leadership in Europe
and the U.S., where cost is an increasing factor in health purchasing decisions.