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1. 48 May-June 2010  Medical Equipment & Automation
Medical Innovation
Medical Devices
In India, an average of 5.5%
of GDP is spent on health. Of
this figure, 8% goes to medical
technology. Worldwide, it is
accepted that this expenditure
does deliver an exceptional
return on investment. Part of
the problem for the medical
technology industry is not the
capability of innovation itself,
but the difficulty in bringing
the fruits of that innovation
to the patient and the Indian
economy.
O
n a global scale, the medical device sector contains
more than 400,000 products, divided into more
than 8,000 different product families which can be
broadly classified in twelve key segments.
•• Active implantable devices
•• Anaesthetic and respiratory devices
•• Dental devices
•• Electro mechanical medical devices
•• Hospital hardware
•• In-vitro diagnostic devices
•• Non-active implantable devices
•• Opthalmic and optical devices
•• Reusable instruments
•• Single use devices
•• Technical aids for disabled persons
•• Diagnostic and therapeutic radiation devices
The uniqueness of the medical device sector in India is
that it is very fragmented and more than 60% of it resides
with the Small and Medium Enterprises (SME) category with
its enormous diversity and its innovativeness. Generally, the
sector’s products are based on mechanical, electrical and/
or materials engineering, where an average product lifecycle
Medical Devices
Innovation Funding, Partnering
and Consolidation Activity in India

2. Medical Innovation
49Medical Equipment & Automation  May-June 2010
(and investment recovery) is
around 18 to 24 months before
an improved product becomes
available. For the sake of clarity,
four issues can be singled out
having major impact on Indian
medical device sector’s SMEs
innovation development. These
are notably-
•• health care systems growth in
India
•• funding and partnering with the
players and
•• Technology convergence with
biotech and ICT solutions and
ongoing concentration among
the biggest firms dominating
the industry and its current
consolidation through Mergers
and Acquisitions – M&A activity.
•• Outsourcing of innovation and
manufacturing to India as a
cost haven.
From above points, it is certain
that Indian healthcare system will
grow over 15% per annum in the
near future. This article addresses
the issues relating to funding,
partnering, M&A and outsourcing
activity in Indian medical devices
sector. Some of the lessons learnt
from the other sectors for medical
devices sector include:
•• Increasing number of
companies were emerging in
India in medical devices sector,
without the full resources to
take the product through to full-
scale development and global
commercialisation
•• Investors and global devices
demand for evidence for
continued growth and
endorsement of technologies
•• Labour cost arbitrage for
scientific and clinical talent to
reduce the cost of innovation
and incubation to launch
•• Different segments offering
huge potential for out
partnering with large devices
manufacturers to including out-
licensing
•• Collaborative development
financing (CDF), where an
investor provides capital and
clinical expertise in exchange
for licensing of the innovation
and
•• Non-profit foundations have
adopted a more investor-
like approach—early-stage
funding for proof of concept
and concept validation, as
well as project management
support and access to their
network of scientific experts
and incubation centers critical
in translating innovation into
reality.
Funding and Partnering
Trends
The last calendar year
witnessed a contraction of
financing in the sector globally.
Overall, there was over 15%
contraction in the funding activity
in the sector globally. When we
look at the merger and acquisition
(M&A) and partnering deals, the
industry witnessed a decrease of
over 50% in the deal value in 2009
compared to 2008. The decrease
in investments can primarily be
attributed to the concentration of
medical equipment companies
on organic growth opportunities
because of the uncertain economic
outlook. Growing economic
concern also led to a decrease
in investments in 2009, after high
business consolidation activity in
2008. The situation for the Indian
medical equipment sector was no
better or worst.
SMEs in the medical devices
sector with limited earnings in
the early stages of development,
and the medical device sector is
particularly reliant on incubation
capital funding. Private equity
and venture capitalists need a
predictable system in order to
assessrisk,andwhenuncertainties
prevent access to funds, there
tends to be a fall-off in innovative
activity. The downturn in the India
economy, which accelerated in
2008, took a toll on the valuation of
medical device start-ups seeking
injections of capital. A number of
venture capital firms, including
some long time investors, began
withdrawing from early-stage
investing as the economic slump
deepened, choosing instead to
hold on to capital until higher levels
of certainty asset valuations return.
While the medical device sector
fared somewhat better than others
during the economic downturn of
2009 reports have been mixed.
Some of the key transactions that
the sector witnessed over the last
cycle of boom and downturn are
as under.
Convergence with Biotech
and ICT, Consolidation
and Outsourcing trends
In the medical device sectors
SMEs faced with devoting
significant resources to innovations
often merge with larger firms with
the financial resources necessary
to bring products to market. The
results was mutually beneficial -
Company Funding/Investor/Acquirer
Neurosynaptic
Communications
Ventureast TeNet Fund,
APIDC Biotech Fund
RFCL ICICI Venture
Trivitron Medical
Systems
HSBC Private Equity,
ePlanet Ventures
Perfint Engineering IDG Ventures, Accel
Partners
Opto Circuits QIP
Sutures India Evolvence Life Sciences
Morepen
Laboratories
Avenue Capital Group/
Avenue Asia
Capital Management, LLC,
Standard Chartered Private
Equity
Source: EquNev Capital Industry Analysis

3. 50 May-June 2010  Medical Equipment & Automation
Medical Innovation
larger firms receive the benefit of
the new technology and, therefore,
maintain market share; small firms
can afford to continue to produce
and get the benefit of the large firms
devoting resources to continued
incremental improvements that
are crucial in the industry. This
trend has continued in part due
to economic realities in 2009, and
led to further consolidation in the
medicaldevicesector,bothinterms
of company mergers, companies
combining profit centers and
companies outsourcing for greater
efficiencies. International joint
venture designed to develop health
care technologies and establishing
local research and development
capabilities have also grown in size
and significance. Asia – notably
China and Korea – have been the
site of a number of collaborations
with U.S. firms. Some firms are
also gravitating toward a launch in
Europe followed by a move to the
U.S. or perhaps a move to China
or India. It definitely adds a level
of complexity to the development
process. Some of the activity in the
sector includes:
Deal Negotiation Strategy
Building sustainable
businesses in the absence of
eager investors has meant that
many of Indian medical devices
SMEs become integrated into
Company Target Acquired
Opto Circuits EuroCor (invasive
cardiology), Ormed Medical
Technologies, Devon
Innovations, Criticare
Systems,
Poly Medicure US Safety Syringes
Essel Propack Tacpro & Avalon Medical and
other acquisitions in the US
to enter different segments
RFCL Godrej Medical Diagnostic
Business, Wipro Biomed
Siemens Medical
Solutions
Dade Behring Diagnostics
Trivitron Medical
Systems
Vision Engineering
TTK Healthcare Invicta Medicals (ortho
implants business)
Philips
Healthcare
Meditronics, Alpha X-Ray
Technologies
Source: EquNev Capital Industry Analysis
Makven Capital : Deal Making in a Box
Clause Description
Parties to agreement The companies, organisation and individuals entering into the agreement
Definitions Ensure clarity and avoid risk of the same word being used for more than one purpose of
meaning
Grant
Subject matter
Field of use
Territory
Exclusivity
Defines in broad terms the scope and nature of the license and formally states that a funding/
license is granted
The scope of the grant in terms of the IPR
The scope of grant in terms of technology and device applications
The scope of the grant in terms of the regions or countries in the world to which the
agreement applies
The extent to which the IP is given to one or more entities for exploitation in the field and
territory
Development Obligation on the parties, as the developing party, to use appropriate endeavours to take the
prelaunch products to approval and launch and thereafter to market the product
Regulatory Specifies which party has overall control of regulatory strategy
Commercialisation Specifies which parties is going to be responsible for sales and marketing of the products and
the standards expected
Manufacturing and supply Obligations to manufacture, package and supply the product, whether for clinical trial supplies
or full-scale manufacturing after the product has obtained a marketing authorisation
IP: Ownership of existing
Ownership of improvements
Ownership of IPRs
Patent maintenance and
enforcement
The ownership of each of the parties to the agreement of the intellectual property that they
possessed at the date of the agreement
Ownership of the results of the collaboration
The parties obligation to maintain the IPRs
Dealing with and funding claims by third parties alleging that the licensed IPRs have infringed
their rights and how the damages are to be retained
Funding structures and
milestones
How the parties pay for the rights will obviously vary according to the nature of the deal
Monitoring and audit Obligations of the parties to provide regular reports covering matters such as the
development, manufacture and sale of licensed product
Sub licensing The terms under which the parties may extent the rights to third parties
Project management Definition of roles and responsibilities of each party in relation to the collaboration
Control of project/
milestones
Definition of which party has overall control of the project and the project objectives and
whether they have been achieved
Confidentiality and
publication
Know-how is protected under the law of confidentiality, which generally gives its owners the
right to prevent its unauthorised use or disclosure
Change of control Change of ownership clauses are gaining importance with the increasing numbers of M&A.
On the one hand, the contract may be a tangible part of the business that makes it attractive
to a potential purchaser. On the other hand, the licensor may not want its technology to be in
the hands of a competitor
Warranties Warranties by the parties in relation to the funds/grants
Product liability In addition to the obligations of the supplier where defective products have been supplied
(and no damage occurred), one or both parties may also seek warranties in relation to
circumstances where the product has caused injury or death to a third party. This is known as
product liability
Dispute and choice of law As most deals have an international aspect, the parties should agree a choice of law to be
applied to interpretation of the contract and settlement of dispute, as well as specifying the
country where the dispute hearing will take place
Term Commonly stated to last until expiry of all licensed patients and relevant supplementary
protection certificates
Termination rights to IPRs The contract should attempt as far as is possible to assign potential rights in the event of
termination
Valuation Pre-money and post money valuation of IP or company
Payment Options Different options are suitable for different needs. The payment strategy determines the
payment options, timing and tied to milestones
Other provisions and
precedent conditions
There are other incidental clauses that may be included based on the scientific and business
due diligence that would need to be complied for the validity of the agreement

4. Medical Innovation
53Medical Equipment & Automation  May-June 2010
other companies through trade
sales. Limited access to seasoned
life sciences entrepreneurs is yet
another constraint to growth in
the Indian medical device sector.
Contrary to the US—where there is
a high availability of biopharma and
device CEOs who have managed
two or three companies—most
medical device and medical
technology executives at start-
ups in India are first-timers. A
shortage of experienced leaders
made it difficult in the past to find
managers who know how to build
device companies with real value
chains and integrated processes
from product development to
customer invoicing. Feedback
from most investors and alliance
managers has been that most
of the leadership in Indian SMEs
medical devices failed in defining
the right negotiation strategy for
their company and focus on term
sheet points for negotiation. Some
of the clauses would be pointers
for building the overall deal
negotiation strategy on several
key points to be noted.
To Be or not to Be
With the increasing competition
and a highly demanding market, it
is essential for Indian SME medical
device companies to innovate to
stay competitive. Developments
in medical device sector hinges
upon inter-disciplinary efforts that
include-
•• Innovation research &
development tie-ups with
Indian and international
research institutes,
•• Licensing, joint ventures and
collaborations with international
major for innovation and
outsourcing contracts,
•• Acquisitions (M&A) in Indian
and international markets,
•• Or perish! 
Kapil Khandelwal is
a leading
heathcare, life
sciences
and information
c o m m u n i c a t i o n
technology (ICT)
business leader in
Asia Pacific and
Emerging Markets.
He is Director of
EquNev Capital, a
niche investment
banking and advisory
services company,
operating in multiple
sectors
Kapil Khandelwal