PowerPoint Presentation

STRATANALYSIS

A STRATEGIC ANALYSIS OF THE INDIAN MEDICAL DEVICES SECTORTeam: Inebriated Souls

Arun MaithaniNavneet SharmaNitesh SinghSahil TanejaShobit Mahajan2

During 2010-2018, Indian Medical Device Market is expected to grow at a ~16% CAGR compared with a 10-12% Growth of The Entire Healthcare SectorMedical Devices Market OverviewIndian Healthcare Market Segments(%, 2012)Market DefinitionThe Indian Medical Device, part of the Healthcare market, comprises equipment used for specific purposes such as diagnosis, prevention, monitoring, treatment, or alleviation of diseaseCAGR: 15.7%Source: Economic Intelligence Unit (EIU), March 2013Indian Medical Devices Market Segments(%, 2012)100% = $50.1 billion100% = $3.2 billionAlthough a small portion of the overall healthcare market, it is one of the key constituents that is witnessing higher growth, primarily due to increased awareness amongst people, higher per capita spending, and govt. initiativesIndia has 17% of the world's population, but has one of the poorest healthcare infrastructures and also the lowest annual spend (~$2 per capita) on healthcare among developing economies India only spends 4 % of GDP on healthcare, compared with an ~8.3 % globally; this is even lower than other emerging countries such as Brazil and China, and thus presents a huge opportunity for the industry, especially with the current govt. focusIndian medical devices market is currently the fourth largest market in Asia, after Japan, China, and South KoreaAbout 75% of the products are manufactured by MNCs, with limited presence of domestic playersSource:Medical Equipment & Devices- Galore of Scope & Opportunity, March 2913 (Black Soil); Medical Equipment and Supplies Report 2013, Clearwater 2013Source: Economic Intelligence Unit (EIU), March 2013GROWTH DRIVERSOPPORTUNITIES AND CHALLENGESEMERGING TRENDS AND WAY FORWARDSWOTPORTERS ANALYSISGLOBAL SCENARIOMARKET OVERVIEW1) F denotes Forecasted Value23

Demand is expected to grow rapidly owing to favourable changes in demographics; increasing awareness; rise in income levels; and greater awareness amongst consumersFavourable Macroeconomic and Demographic FactorsHousehold incomes are increasing and thus spending on healthcare is expected to grow upPopulation is expected to increase with demographics showing an increase in the older age population as wellIndia is an under penetrated healthcare market with spending primarily driven by private sector; however, increasing govt. focus on improving healthcare infrastructureHealthcare Expenditure Composition (%, 2011)

Break up of Indian population by age group (%)

Income wise Indian household break-up (2011)

Favourable Government PolicyIncreasing InvestmentGrowth DriversIncreasing DemandImprovement in healthcare infrastructure, with increased investments and new hospitalsReduction in custom duty on imports and full exemption on assistive devices and rehabilitation aidsIncreasing lifestyle related issues and increasing populationMedical tourism & improving health insurance penetration, increasing affordabilityLucrative M&A OpportunitiesRising Foreign Direct InvestmentReduction of Custom Duty on Medical Devices, especially joint replacement and surgical equipment2413Source: CRISIL Hospital ReviewSource: CRISIL Hospital ReviewSource: CRISIL Hospital ReviewGROWTH DRIVERSOPPORTUNITIES AND CHALLENGESEMERGING TRENDS AND WAY FORWARDSWOTPORTERS ANALYSISGLOBAL SCENARIOMARKET OVERVIEWSource:Medical Equipment & Devices- Galore of Scope & Opportunity, March 2913 (Black Soil); Medical Equipment and Supplies Report 2013, Clearwater 20131) E denotes Estimated Value34

While lower penetration, low indigenous manufacturing are expected to curtail growth detailed regulation, increasing awareness and government initiative to drive growth

Government welfare schemes such as NRHM1and RSBY2are expected to increase the market opportunityCurrent dormant markets of Tier II and Tier III that have relatively lower spending power in comparison to their Tier I counterparts will become growth drivers for futureFurther, increasing number of joint ventures and agreements between MNCs and domestic companies to setup base in India due to lower labour costs and supportive policy of the government to increase marketRecent deals include Trivitron-DiaSorin, Manipal Group Everist Genomics, Trivitron Hitachi, acquisitions by Philips, J&J, GE, etc.Increasing focus on preventive care will spur growth for the diagnostics marketHealth insurance coverage is increasing thereby providing impetus to the industryOverseas companies investing in India to set up R&D units will also increase exportsGovernment has provided tax reliefs, import tax relaxation and has implemented major initiatives to boost this sector in IndiaRise in the number of hospitals and the increased requirement for healthcare facilities are expected to create a need for sophisticated devices and equipment; according to EY, the hospital sector is growing at about 22% annually

Opportunities

Low Penetration Despite the strong growth of the Indian medical technology market in the last few years, the industry is plagued by low penetration primarily due to:AffordabilityAccessibility AvailabilityAmbiguous regulatory environment The regulatory environment for medical technology and manufacturing, although improving, is ambiguous, complex and lacks transparency; key issues pertaining to regulation of the medical technology industry in India includeNo distinct status for the industryComplex rules and guidelinesAbsence of quality standardsLow indigenous manufacturing While there has been increasing trend towards setup of base by MNCs and domestic players, India has still not been able to develop itself as a strong manufacturing base; it still relies on imports for meeting its domestic requirements primarily due Lack of incentives due to small, albeit growing domestic marketHigh capital requirement

ChallengesGROWTH DRIVERSOPPORTUNITIES AND CHALLENGESEMERGING TRENDS AND WAY FORWARDSWOTPORTERS ANALYSISGLOBAL SCENARIOMARKET OVERVIEWSource:Medical Equipment & Devices- Galore of Scope & Opportunity, March 2913 (Black Soil); Current status and potential for medical electronics in India, 2013National Rural Health Mission Rashtriya Swasthya Bima Yojana4There are certain expectations from both the government as well as the industry in order for the medical devices industry to achieve sustainable growth

Medical Technology Industry Landscape

RECOMMENDATIONSEMERGING TRENDSGovernmentCreate a separate regulatory frameworkProvide incentives for domestic manufacturing, like tax holidays and low customs duties on imported goodsEstablish medical technology clusters that will include industry members, R&D centres, educational institutes etcEncourage relevant R&D through financial support to companies for product development and commercialisationIndustryPartner with government and healthcare providers to reach out to the masses Engage with the government and academia to develop relevant courses that will develop required skill base for the industry, develop training institutes etc.Engage with insurance providers to expand health insurance coverage

Collaborate with ICT companies to bring to fruition frugal approaches to innovation

Telemedicine on mobileMaestros Mediline, a medical equipment manufacturer has launched an application in collaboration with Blackberry, where doctors can check their patients ECG on their mobile handsets. This application of mobile ECG would enable the doctors to monitor the heart performance of their patients accurately even from a distance.Remote monitoring Cardiac DevicesSorin Group, a global medical device company and a leader in the treatment of cardiovascular diseases, and Orange Business Services, the leading global communications solutions integrator, entered into an agreement in 2009 to develop and service a remote monitoring solution for patients implanted with cardiac rhythm management (CRM) devicesGrowing Medical TourismWith the increasing healthcare costs in developed countries like the US and the UK, India remains attractive for low-cost medical and surgical procedures. The emergence of India as a destination for medical tourism leverages the countrys well educated, English-speaking medical staff, state-of-the art private hospitals and diagnostic facilities

INNOVATIVE BUSINESS MODELS Financing options like pay in instalments and leaseMedical technologycompany takes onthe role of a service provider as well.Continue to offerlow end versionof products whichmay not have latestTechnology.

5GROWTH DRIVERSOPPORTUNITIES AND CHALLENGESEMERGING TRENDS AND WAY FORWARDSWOTPORTERS ANALYSISGLOBAL SCENARIOMARKET OVERVIEWSource:Medical Equipment & Devices- Galore of Scope & Opportunity, March 2913 (Black Soil); Medical Equipment and Supplies Report 2013, Clearwater 20136SWOTOpportunitiesMedical Tourism is witnessing a CAGR of 20.8% over the next decadeGrowing urban population along to increase spending on healthcareThe hospital industry in India is growing at CAGR of 12%Companies both local and MNCs are increasingly setting up R&D base in IndiaThreatsQuality standards compared to Global products still a matter of concernRegulatory environment is nascent and any exhaustive policy document is yet to be releasedHigher import duties on Raw Material than finished goods create unfavorable trade environmentStrengthsMedical device industry is growing at a compounded annual growth rate of ~15%International companies such as 3M have started manufacturing in India, thereby reducing reliance on importsIncreased penetration of health insurance with annual growth of ~27%WeaknessesOne of the lowest per capita health expenditure of $61 in IndiaWith a per capita income of $1,570, Indian consumer faces affordability barrierComplex and outdated rules and guidelines governing the industry WOTSMedical Device companies are undertaking a lot of innovations out of India, both, for the domestic as well as the overseas markets

Transasia Biomedicals has developed in-vitro diagnostic equipment through its R&D base in MumbaiThe Sushrut Adler Group has developed an external fixator for the Indian marketJohnson and Johnson has developed a knee implant suitable for the Indian market as well as a reusable stapler for use in surgeries at price points, which are amenable to the Indian marketRoche Diagnostics has developed a screening device for cardio-vascular diseases, which is suitable for use in rural settingsGE Healthcare has developed a low cost ECG machine and a low cost Ultrasound machine for the Indian marketPhilips Healthcare is using its recent acquisitions in India to develop and launch a low cost Cath Lab for the Indian market

Recent Company Specific Updates Impacting IndustryIndian medical device industry is characterized by foreign companies commanding a majority share; further, companies are focusing on innovation to differentiate themselvesGROWTH DRIVERSOPPORTUNITIES AND CHALLENGESEMERGING TRENDS AND WAY FORWARDSWOTPORTERS ANALYSISGLOBAL SCENARIOMARKET OVERVIEWSource:ExpressPharma7Barriers to EntryHigh Research and Development Costs (+)Regulatory restrictions on reliability, quality, safety, and legal issues (+)Patents of major implants act as deterrent (+)High Capital Expenditure (+)Device manufacturers have tie-ups with health insurance companies (+)Low switching cost (-)HighRivalry in the IndustryConsolidated market due to each large players with some technological patents, differentiated offering (-)Growing Industry (-)Consumers are not price conscious due to govt. focus, awareness, and penetration of health insurance (-)High exit costs due to R&D (+)Existence of some niche smaller domestic players (+)Bargaining Power of BuyerGovt. procure in higher volumes (+)Differentiated product offerings (-)High switching costs (-)Focus on safety, quality, and reliability (-)Largely consolidated market with limited suppliers due to patentsBargaining Power of SupplierLow chance of forward integration due to scale of operations of device manufacturers and patents (-)High switching costs due to differentiated product offering (-)Large device manufacturers provide volumes to suppliers (-)Requirement of niche products (+)Threat of SubstitutesLargely driven by innovation with companies having patents technologies (-)IndustryCompetitors

Intensityof RivalryLowIndian medical device industry is characterized by high barriers to entry and low rivalry due to product differentiation and increasing focus on safety, quality, and reliability issues LowLowLowGROWTH DRIVERSOPPORTUNITIES AND CHALLENGESEMERGING TRENDS AND WAY FORWARDSWOTPORTERS ANALYSISGLOBAL SCENARIOMARKET OVERVIEW

The global medical device industry was valued at $273.3 billion in 2011; further, it had witnessed a 5.3% CAGR during 2006-2010In 2012, the sector saw only marginal revenue growth due to market volatility caused by a range of factors including a decline in private insurance, the public funding squeeze, and reduced demand as individuals and authorities tried to support non-surgical strategies prior to any surgical procedure interventionThe five largest global markets for medical devices (the US, Japan, Germany, France, and Italy) accounted for 13.1% of global population and 76% of global medical device usageOn the other hand, the five most populous countries (China, India, Indonesia, Brazil and Pakistan) accounted for nearly half of the global population but only 4.4% of global medical device usageEconomies typically follow a similar trajectory during transition from being underdeveloped to developing to developed, with healthcare spending rising significantly with every transition., thereby presenting huge opportunity for growth of medical deviceIn recent times, there have been increased global M&A activities; The 10 largest transactions contributed to around $34 billion (77.6%) of total deal values in 2012 Examples include Johnson & Johnsons acquisition of Synthes; Hologic acquired Gen-probe; Asclepius Zoll Medical CorporationGlobal Market OverviewGlobal Market Share (%)Worlds Medical Devices Sector Size (in $ billion)

CAGR: 5.3%With an ageing baby boomer population, high unmet medical needs, focus of govt. through Obamacare, and an increase in lifestyle diseases, the US medical devices industry is expected to continue to retain largest share8The US with highest share is expected to witness higher growth driven by ageing baby boomer population, high unmet medical needs, and Obamacare legislationGROWTH DRIVERSOPPORTUNITIES AND CHALLENGESEMERGING TRENDS AND WAY FORWARDSWOTPORTERS ANALYSISGLOBAL SCENARIOMARKET OVERVIEWSource:Medical Equipment & Devices- Galore of Scope & Opportunity, March 2913 (Black Soil)THANK YOU