1. Emerging Markets – New
Frontiers for Medical DevicesFrontiers for Medical Devices
Dr. Sanjay Chaturvedi
Aug 2015
2. 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
3. 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 Kangui
holdingsholdings
– $ 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)
4. 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
5. 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)
6. 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
7. 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
8. 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)
9. 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
10. 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
11. EM – How (Cont’d)
Kissing Frogs – Growth Funnel
MarketingMarketing
Manufacturin
g
Manufacturin
g
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%
12. 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?
13. ‘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
14. 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
15. 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
17. 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
Manufacturing
Acquire 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
Venturing
Corporate
Venturing
