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The healthcare innovation sector is expected to see massive growth in the coming years, with 80% of it driven by pharmaceutical services and healthtech segments, according to a new report by Bain & Co and venture capital firm HealthQuad.

The healthcare innovation space is poised to double to $60 billion by the financial year 2028, according to the report titled ‘Healthcare Innovation in India’.

Other factors likely to fuel growth include rising consumerisation of health, reconfigurations to the global healthcare value chain, India’s deepening scientific and technological expertise, and regulatory tailwinds, the report released on Wednesday said.

India’s overall healthcare market—valued at about $180 billion in FY 2023—is projected to grow at approximately 10-12% CAGR to reach $320 billion by FY 2028, according to the report. 

Healthcare innovation is a rapidly growing segment currently valued at $30 billion and accounts for 15% of the overall market. It has almost doubled over the last three years, with 55% of the market size led by exports, as per the estimates.

This segment is dominated by pharma services including contract development and manufacturing organisation (CDMO), contract research organisation (CRO), pharma IT and healthtech with vaccines and biotech, and medtech emerging as green shoots.

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The healthcare system is also likely to benefit from the usage of artificial intelligence and machine learning, according to Charles-Antoine Janssen, Managing Partner at HealthQuad.

“AI is likely to generate 5-10% savings by impacting all segments across the entire healthcare value chain (discovery, clinical development, regulatory approval, manufacturing and supply chain sales and marketing). Generative AI is also at the source of innovative business models that improve accessibility, affordability and quality of care in low-income settings,” Janssen told YourStory.

The Indian pharma services account for approximately 50% of the healthcare innovation market, valued at $16 billion in FY23, with 85-90% of revenue driven by exports. 

The CDMO segment saw the highest growth, driven by global supply chains shifting away from China and improvement in capacity, capability, and quality by Indian players. Pharma IT also showed robust growth, led by growing global price pressures and demand for omnichannel transformation. International pharma companies are setting up technology ‘innovation hubs’ and global capability centres (GCCs) driven by India’s growing technological expertise, as per the report.

India’s healthtech market is poised to be the next prominent segment within healthcare innovations, as it more than doubled from $3 billion in 2020 to $7 billion in FY2023. This growth, fueled by both the COVID-19 pandemic and efficiency needs in healthcare, has seen healthtech claim roughly 25% of the overall healthcare innovation space. 

Moreover, consumers are increasingly seeking “phygital” experiences with seamless integration across channels, Bain & Co and HealthQuad added.

Speaking of India’s healthcare potential, Aarthi Rao, Partner at Bain & Company, said, “Pharma services, which include CDMO, CRO and IT account for almost 50% of the healthcare innovation market. We expect that the reconfiguration of global supply chains, combined with growing scientific and technical expertise in India, will continue to provide significant tailwinds to this sector. The next decade will witness India’s rise as a global supplier of advanced scientific and technological capabilities including AI—we are already seeing this trend with pharma developing into innovation hubs.”