Emerging Markets – New

Frontiers for Medical Devices Frontiers for Medical Devices

Dr. Sanjay Chaturvedi

Aug 2015

Medical Devices Market

• Market Size – Approx. $ 400 BB (Global) in 2015 @ CAGR = 4-5 %

– Currently, 13% of the world population in Developed World uses 76% of all

medical devices

• Emerging Markets (EM) have 15 % market share growing @ CAGR =

2X to 5X developed markets

– EM Market Size

• China ($ 20-25 BB in 2014)• China ($ 20-25 BB in 2014)

• India ( $ 5 BB in 2014)

• Latin America ($ 10 BB in 2014)

• Global Population

– Approx. 6 BB people

– Aging population (> 60 yrs) projected to double in 40 years

– 80% will live in emerging markets

Medical Devices – Market Trends

• M&A has been driving the industry for the past few years

– Massive consolidation in the market

– Medtronic-Covidien, Zimmer-Biomet, J&J-Synthes, and Thermo Fisher-Life Technologies, have created players of unprecedented scale

• Medtronic has acquired assets in EMs

– $ 816 MM acquisition of Chinese orthopedics manufacturer Kanguiholdingsholdings

– $ 46 MM investment in Chinese surgical instrument manufacturer –LifeTech Scientific

– Yet to make any significant acquisition in India

• Philips Medical devices has made acquisitions in India

– Meditronics

– Alpha X-Ray Technologies

• Expect M&A activity in India to pick up (Government allowed 100% FDI in this sector in Dec 2014)

Medical Devices – Market Trends –

Cont’d• What’s Next

– Emerging Markets are the new frontiers for Growth

– Non- healthcare companies are entering the space

• IT and consumer goods companies are trying to enter market Google

and Apple dominate the headline

• Samsung aims to be one of the world’s leading Medical Device • Samsung aims to be one of the world’s leading Medical Device

company by 2020. In 2010, Samsung bought ultrasound device

maker Medison for $262 million. Since then, Samsung acquired

healthcare equipment maker Nexus in 2011, and Boston-based

medical imaging company NeuroLogica in 2013.

• Camera maker Nikon has announced that it will make a move into

Medtech as well. The company said that it will spend around $2

billion to strengthen its medical business, mainly through M&A

• Toshiba and Hitachi are also looking for M&A opportunities

Other Industries Evolution – Parallels

to Medical Devices• Automotive– In 1950, 80% of all the cars in the world were made in the USA

– Japan overtook the # 1 spot in the 1980s

– Today, BRIC nations produce 7X more cars than USA

• Generic Pharma• Generic Pharma– Manufacturing shift

• In 1980s, 99% of all formulations in USA were manufactured in USA

• Today, 40% of all formulations sold in USA are manufactured in India

– Market shift• From 2008 thru 2018, Pharmerging countries will increase their market

share from 25% to > 50%.

• While market growth in developed markets is in segments of oncology and diabetes, in the parmerging markets, growth is driven by anti infectives and pain management (needs in EMs are unique)

Medical Devices - Emerging Markets

Why

Most companies get the why

Why

Most companies get the why

What

Few get the what right

What

Few get the what right

How

Even fewer have managed to get the

How right

How

Even fewer have managed to get the

How right

Medical Device MNC - Emerging Markets Strategy

Emerging Markets - Why ?

• Opportunity is too big to ignore

– Market Size and future growth

– Human impact

• Markets in developed world are saturated• Markets in developed world are saturated

• Opportunity to leverage cost arbitrage in EMs

• Availability of low cost high quality technical and

scientific talent in EMs

• Opportunity for ‘reverse innovation’ – take products

developed in EMs to Developed Markets

Emerging Markets – What?

• What should a Medical Device MNC do in Emerging

Markets?

– Access local markets

– Build competencies to be competitive

– Leverage cost advantage

• Manufacturing

• Technology Development

• Marketing Excellence

– Take Products developed in EMs into Developed Markets

(Reverse Innovation aka GE)

Emerging Markets – How?

• How should Medical Device MNC focus on EMs?

– Local Market Access – Build thru partnerships.

• For example – in India partner with Mankind (fastest growing domestic

pharma company with almost $ 1BB revenue and market access to tier

2 and 3 towns as well). Use them as a channel to market

• Currently, 75% of all medical devices consumed in India are imported• Currently, 75% of all medical devices consumed in India are imported

– Manufacturing Cost Advantage – Build versus buy versus

partner

• Start by partnerships leveraging manufacturing assets of existing

players like Meril Devices, Opto circuits, Trans therapeutics and several

others

MNC – Strengths

Technology

Presence in Developed Markets

Systems and Processes

Financial Management

Global Scale

MNC – Strengths

Technology

Presence in Developed Markets

Systems and Processes

Financial Management

Global Scale

MNC – Weakness

Business in EMs

Cost Position

Marrket access in EM

Technology for Ems

Limited understanding of EMs

MNC – Weakness

Business in EMs

Cost Position

Marrket access in EM

Technology for Ems

Limited understanding of EMs

Emerging Markets – How? Cont’d

Partnerships

Partner – Strengths

Presence in EMs

Low cost manufacturing

Market access in Ems

Understanding of local needs

Partner – Strengths

Presence in EMs

Low cost manufacturing

Market access in Ems

Understanding of local needs

Partner – Weakness

R&D

Inability to manage scale

Little presence in developed markets

Poor financial management

Partner – Weakness

R&D

Inability to manage scale

Little presence in developed markets

Poor financial management

Focus on partners with complementary capabilities.

Assume a partner such as ‘ABC’ based in India

EM – How (Cont’d)

Kissing Frogs – Growth Funnel

Marketing Marketing

Manufacturing

Manufacturing

Prince/Princess

In-licensing/M&A

In-licensing/M&A • Evaluate partners for manufacturing,

marketing , in-licensing and or M&A

• Expect hit rate of 10% for

manufacturing and or marketing

partners. 1 out of 10 companies you

evaluate may be relevant

• Hit rate for inlicensing and or M&A may

be 1-2%

Emerging Markets – How? – Cont’d – Cost Advantage – Build

• Build a green field ‘Technology Development’ center to support a

comprehensive EM tech development strategy (This is not to support low end

off shoring work for developed markets)

– Extend open offer to Stanford-India Biodesign (SIB) fellows (4/yr)

– Leverage new technologies in 3-D printing, miniaturization, wireless technology etc.

• Set up a dedicated ‘Innovation fund’ to explore early stage technologies in-

licensed globally

• Set up a dedicated ‘Venture fund’ to invest in external companies developing • Set up a dedicated ‘Venture fund’ to invest in external companies developing

game changing technologies for medical devices. Manage the fund from EM and

invest in companies no matter where in the world they may be

• Set up Centers for other functional areas like Marketing, Regulatory, Data

Management etc.

– Initially focus on EMs and then expand support to developed markets too

– Increasingly, medical devices will no longer be passive. They will communicate and

generate data

» Is Covidien geared up to manage massive data?

» Sophisticated data analytics?

» Generating insights from this data?

‘Out of the Box’ Ideas – Pick 2 Holy Grail

Type Initiatives and Drive thru EM

• Replace 50% of all plastic used in medical devices by bio polymers by 2020

• Reduce energy consumption of devices and manufacturing processes by 50% by 2025

Reduce Carbon

Footprint

Reduce Carbon

Footprint

• Active monitoring of devices (GPS, internet etc.) to improve patient safety

• Use sophisticated data analytics to predict device failure before it happens

• Transporting O2 tanks can be dangerous. Can you produce O2 in situ using O2 filled polymer bubbles that dissolve in water? Applications in organ transport

Improve Safety

Improve Safety

Key Requirement – Need talent from other industries, Diversity of thought is imperative

Emerging Markets – Insights?• EMs need ‘bottom-up innovation’

– Create products for EMs

– Focus on innovation beyond technology to marketing, business model etc.

• Taking products from developed markets and repurposing for EMs will not work

• Don’t strip away product attributes. Instead focus on unique needs. For example :needs. For example :– Power fluctuation and outages are common. Medical devices must

have batteries built into the system to last the procedure (70% of all medical equipment in sub sharan Africa stands idle)

– Device needs to withstand a high heat, dirt and humid environment

– Device needs to withstand intensive use

– Typical laparoscopic surgical staples are designed for men’s hands which are much larger. Most gynecologists in India are women. Customer’s needs are unique

Success Stories – Reverse Innovation

• GE Healthcare (India) is a $ 600 MM business and contributes 5-6% of global business revenue

• GE has invested $ 500 MM in R&D in India ($ 50 MM/yr 10 yrs)

• Examples from GE– Lullaby Baby Warmer from GE

• At $ 3000/unit compared to $ 12000/unit in USA. Performs basic infant warming function in addition to monitoring baby’s pulse and weight. Following it’s launch in 2009, GE sold 1500 units in the first year (50% in warming function in addition to monitoring baby’s pulse and weight. Following it’s launch in 2009, GE sold 1500 units in the first year (50% in India). Now, this is exported to several countries including Belgium, Brazil, Italy, Russia, Egypt and Switzerland

– MACi – portable ECG Machine from GE• MACi – is a battery operated, portable machine that is capable of printing

in 3 channels at the same time - which means ECG can be printed line by line per page or 3 lines on one page. It is designed to complete 500 3-channel ECGs or 250 single channel ECGs for every 3 hour battery charge. The portable ECG machine costs Rs 1.5-2 lakh but the low-cost variant made at Bangalore facility is available for about Rs 25,000. It is also made available at an EMI of Rs 27/day ($ 0.4/day) for 3 years

Companies to Consider - Sample

Indian Companies

• Mfg. Partners

• Meril Devices

• Opto Circuits

• Trans Therapeutics

Global Companies – Cutting Edge Technologies

• ReWalk (Israel)

• Palantir (USA)

• Veladx (Singapore)

• Real Imaging (Israel)

• Neocis (USA)• Trans Therapeutics

• Marketing Partners

• Mankind Pharma

• Apollo Hospitals

• Technology Partners

• Consure Medical

• Diabeto

• Reevax

• Neocis (USA)

• Parabase Genomics (USA)

• Avitus Orthopedics (USA)

• Kinsa (USA)

• AdhereTech (USA)

• Plantiga (Canada)

• Medivation (Switzerland)

• Vertamed AG (Switzerland)

Recommendations for EM

• Acquire a company like ABC - $ 100-200 MM revenue

• Good Manufacturing footprint in India and or other Emerging Markets

• Leverage low cost manufacturing and integrate with existing market channels of MNC in Developed Markets

Acquire Local ManufacturingAcquire Local

Manufacturing

• Leverage the scientific and technical talent in India

• Cutting edge tech development and not low end off shoring

• Develop unique business models to can be leverage across other emerging markets in SE Asia, Middle East and Latin America

• Nurture, Develop and export top talent from EMs to developed markets

Invest in TalentInvest in Talent

• Set up a corporate venturing group based in India (< 10 people with investment, due diligence, tech evaluation, and adjacent industry experience)

• Set up a dedicated fund - $ 100 MM to be invested over 5 years in cutting edge early stage companies. Target 5-7 investments/yr.

• Deal source must be global

Corporate VenturingCorporate Venturing

Thank you