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Sector Report
January 2014
Executive Summary
The Indian medical devices industry forms about 8% of the Indian healthcare sector and is expected to be worth USD 6.3 bn in 2013. It has grown at a CAGR of 17.2% for the period 2008 13 and is expected to grow to USD 10.2 bn by 2016 with a CAGR of 17.4% The industry is highly fragmented with 65% of the manufacturers falling in the SME category. The higher-end of the market is dominated by foreign manufacturers, many of whom have established their subsidiaries in India
The industry is highly dependent on imports with 77% of the demand being delivered through imports. Low or no customs duty have also encouraged imports rather than manufacture
Ambitious expansion plans of corporate hospitals coupled with increased outsourcing of manufacturing by foreign companies, which are under pressure to reduce costs, are expected to fuel the growth of the industry. The increased focus of the Government on healthcare, increasing incidence of lifestyle diseases and rising proportion of senior citizens are also expected to boost the demand for medical equipments in the country Several Indian medical device companies have enhanced their competitiveness by tying up with international companies for research and development and technical innovations In terms of product segments, diagnostic imaging is the largest segment and is expected to contribute 30% of the overall market in 2013. Patient aids segment, consisting of portable aids and therapeutic appliances, is the fastest growing segment, having grown at a CAGR of 35.6% for the period 2008 13 Medical consumables, ophthalmic instruments and orthopaedic implants are the segments expected to witness high growth and attract private equity as well as strategic interest Sutures India and Lotus Surgicals have recently got funded. Adler Mediequip was acquired by Smith & Nephew; Optics India was acquired by Essilor, TTK Healthcare acquired the orthopaedic implants business of Invicta Meditek Indian medical devices industry remains unregulated with only a few products regulated through the provisions of Drugs & Cosmetics Act 1940 & Rules 1945. Such regulated products are classified as drugs Indian medical devices sector has witnessed increasing deal activity in the recent past as the Indian players try to gain access to foreign markets and consolidate their position at home. The activity is expected to increase in future with foreign players taking more interest in the industry and Indian companies making acquisitions abroad
Around 31 private equity investments have been made in the sector with a combined deal value of USD 265 mn (from 2005 till date). Investments have picked up in the last 2 years with CY12 and CY13 accounting for 18 such investments with total deal value of USD 226 mn
Table of Contents
Title Section 1: Industry Overview Industry Overview Market Evolution Growth Drivers and Key Trends Industry Landscape Key Indian Players Key Industry Segments Section 2: Growth Drivers and Trends Growth Drivers Key Trends in the Sector Section 3: Key Industry Segments Diagnostic Imaging Segment Medical Consumables Segment In-Vitro Diagnostics Segment Patient Aids Segment Orthopaedics and Prosthetics Segment Dental Products Segment Other Medical Devices Segment Section 4: Regulatory Environment Section 5: Transactions in the Segment Private Equity Investments M&A Transactions Contact Details Slide No. 6 11 7 8 9 10 11 12 18 13 15 16 18 19 25 20 21 22 23 24 25 26 27 29 30 32 31 32 33
Section 1
Industry Overview
Industry Overview
Key Highlights Chart 1: Indian Healthcare Sector, 2013E
Medical Devices 8% Pharma 14% Diagnostics 3% Total Market Size = USD 77.8 bn
The Indian healthcare sector is estimated to be valued at USD 77.8 bn in 2013, with hospitals forming the largest share of the market at c.75%
The medical equipment and supplies industry is expected to be 8% or USD 6.3 bn of the Indian healthcare sector in 2013. The market is growing at a CAGR of 17.2% The industry is very fragmented with more than 65% of Indian manufacturers falling in the SME category Majority of domestic manufacturers focus on low margin, low technology products like disposables and medical equipment High quality products are sought after, particularly in the private sector, and the high tech end of the medical device market is dominated by multinationals with extensive service networks The market is still highly import dependent with 77% of the market consisting of imports Like most of the developing low-cost countries, India is also predominantly a manufacturer of Class I & II devices (categorization as per US FDA), i.e. devices which are not considered to be high risk and do not need extensive clinical trials before receiving FDA approval Indian manufacturers of good quality mid tech products struggle with a stigma for unreliability
Hospitals 75%
Source: Indian Brand Equity Foundation (IBEF) Healthcare Report, News Articles, o3 Analysis Note: Pharma includes only domestic formulations market
CAGR: 17.2%
6.3 5.4 2.8 3.1 3.6 4.2
7.4
2008
2009
2010
2011
2012
2013E
2014E
2015E
2016E
Source: Espicom Q42013 Indian Medical Devices Report, Medical Buyer, o3 Analysis. Figures in USD bn. Assumed USD/INR - 60
Market Evolution
Figure 1: Evolution of Medical Devices Sector in India
Growth
Emergence of Indian Players Both in Hi-Tech and Low-Tech Medical Devices Segments
Many Indian companies such as Opto Circuits, RFCL, Sahajanand, Sutures India, Poly Medicure, Kanam Latex, etc. emerge Foreign players establish subsidiaries as well as enter into JV arrangements for R&D, manufacturing and marketing their products Increased M&A (both inbound and outbound) and private equity deal activity Sector remains weak on regulatory front with medical devices falling under the definition of drugs and only sterile devices regulated High growth expected through various factors contributing to the growth of overall Indian healthcare sector underpenetrated market, increase in government healthcare spending, etc. Commissioning of new hospital beds in tier-2 and tier-3 locations a key trigger for growth Government puts proper regulatory system in place Drugs and Cosmetics Bill 2013 has been sent to the Parliament which proposes a separate chapter on medical devices and setting up of a Medical Devices Technical Advisory Board India becomes a preferred R&D and manufacturing hub for worlds leading medical device companies
Before 1980s
Source: o3 Analysis
1980s - Current
Timeline
Growth Drivers
Outsourcing of laboratory trials, R&D as well as manufacturing to India spurs demand for medical equipment
Government initiatives: Various initiatives taken by government such as increasing public investment in healthcare, promotion of health insurance and setting up health care centers are expected to boost the demand for medical equipment Rising proportion of senior citizens: Increasing proportion of senior citizens adds to the use of medical devices and is also boosting the home healthcare market Rising Prevalence of lifestyle diseases: Lifestyle diseases spurs demand for cardiovascular, orthopedic and other such devices Medical tourism: Evolution of India as a medical tourism hub leading to demand for world class equipments
International collaborations: Indian players are placing more and more importance on technology by entering into technical collaborations with their foreign counterparts. Also, a lot of instances of R&D, marketing and manufacturing JVs are observed in the sector
Refurbished equipments:
Usage of refurbished medical devices, which are sold at a discount of 40-50% when compared to new ones, are gaining prominence. Around 5% of the overall market is accounted for by refurbished medical devices
Key Trends
Healthcare facilities in tier 2/3 locations: Hospitals in tier 2/3 locations are driving the demand for medical devices market. In addition to new hospitals being set up, existing hospitals, which earlier did not have adequate equipments, are sourcing new/refurbished equipments
Increasing M&A and PE deal activity: Industry experiencing consolidation with a rising number M&A transactions both inbound as well as outbound and private equity investments
Medical equipment financing services: Various medical equipment manufacturers are providing financing services to the healthcare delivery providers. Some such companies operating in India include GE, Siemens, Phillips, amongst others
150
In a market dominated by exports, medical consumables is the only trade surplus sub segment
50
20
10
10
Diagnostic imaging
Consumables IV diagnostics Patient aids Orthopaedics & prosthetics Dental products
24% 30% 3% 7%
Diagnostic imaging sector, consisting of electro-diagnostic apparatus, radiation apparatus and imaging parts & accessories forms the largest sub segment with 33% market share Consumables sector, forming 18% of the overall sector, is growing at a healthy rate of 17% (2008-13E). This is the only segment with a positive balance of trade IV diagnostics segments, including instruments and reagents, forms c.10% of the overall market, having grown at a CAGR of 21% for the period 2008-13E Patient aids is the fastest growing segment, having grown at a CAGR of 36% for the period 200813E. The market consists of portable aids and therapeutic appliances Orthopaedics and prosthetics market, forming 8% of the overall market, is the second fastest growing segment Dental products primarily include capital equipments dental drill, dental chairs, etc. and instruments & supplies dental cement, teeth & other fittings etc. Other medical devices segment includes wheel chairs, ophthalmic instruments, hospital furniture, medical & surgical sterilizers ultra violet apparatus
9% 10%
16%
Diagnostic Imaging Patient Aids Others Consumables Ortho & Prosthetics IV Diagnostics Dental Products
Source: Espicom Q42013 Indian Medical Devices Report, Medical Buyer, o3 Analysis Assumed USD/INR - 60
All the sub segments are delivering a double digit growth rate (for the period 2008 13)
Private and Confidential 11
Section 2
Growth Drivers and Trends
Growth Drivers
The average real household disposable income of Indians is expected to grow at a CAGR of 5.3% in the period from 2005 to 2025. This is causing increased demand and ability to pay for quality healthcare, leading to expansion of corporate hospitals Leading chains like Apollo, Fortis, Narayana Healthcare, Manipal and HCG are setting up new hospitals, thus investing in high-end medical equipment
Due to the Government thrust on healthcare reform, the public health delivery system is also expected to grow. The Planning Commission has allocated USD 50 bn under the 12th Five-Year Plan (FY13 - FY17) to the Ministry of Health and Family Welfare The emergence of India as a preferred destination for medical tourism is also encouraging the expansion of hospitals. Medical tourism is expected to grow at a CAGR of over 25% for the period from 2012 to 2015E Medical equipment accounts for 29% of the total cost incurred in setting up a hospital (250 bedded). Hence, the growth of the hospital sector will simultaneously ensure the growth of the medical equipment sector
CAGR: 17.5%
55 46 38 32 22 26 58
2007
2008
2009
2010
2011
2012
2013E
Source: Industry Reports. Figures in USD bn Please note in the 2007 2013 period, INR has depreciated at a CAGR of 6% against USD, and hence growth rates measured in INR terms will be 20%+
13
Increase in Outsourcing
Highly qualified medical specialists
Engineering expertise Location advantage to penetrate Asian markets Outsourcing to India Experience in long distance project execution
Multinational device makers are outsourcing or relocating their manufacturing operations to India Philips Healthcare plans to make India production hub to serve the emerging markets in Asia Pacific. GE, Siemens, Toshiba etc are also ramping up their operations in India
Outsourcing of laboratory trials and R&D will lead to growing demand for diagnostic equipments About 70 multinational companies including Eli Lilly, GE and Delphi, have R&D facilities in India
Lower wages
Indian companies have started to comply with ISO and GMP standards to increase confidence levels of foreign companies and promote outsourcing interest in manufacturing in India
Government Initiatives
Driver National Rural Health Mission (NRHM) Rashtriya Swasthya Bima Yojana (RSBY) National Health Policy (NHP) Government contracts & grants
Action taken Mobile healthcare delivery outlay in 2012-13 budget further increased Launch of health insurance coverage for Below Poverty Line (BPL) families Aims to increase public health expenditure to 2.5% of GDP by 2017 Setting up of hospitals and Community Health Centers both in urban and rural areas
Welfare programmes and policy measures of the Government are indirectly supporting the medical equipment industry The government is currently working towards establishing a medical regulatory agency, in addition to new legislation around medical devices, in order to create a fair and legitimate marketplace The government is taking steps to collaborate with the private sector to offer quality services at a subsidized cost
14
2.6%
1.3%
0.2%
Medical devices companies have launched various products to address fast growing lifestyle diseases segment Roches Accu-Check Go blood glucose monitors; J&J has recently launched One Touch diabetes reading monitor in India
Indias average life expectancy over the past two decades has significantly improved from 57 years to 64 years (as per WHO statistics) and is likely to increase further The %age of population above 60 years of age is increasing
25%
7%
11%
A rise in the aged population will increase the demand for medical devices like blood pressure monitors, glucometers, wheelchairs etc
2001 0-14
Source: Industry Reports
15
International Collaborations
Trivitron DiaSorin
Trivitron Hitachi
Hospitals in tier 2/3 locations are driving the demand for medical devices market. In addition to new hospitals being set up, existing hospitals, which earlier did not have adequate equipments, are sourcing new/refurbished equipments Domestic players, which supply products at lower cost as compared to MNCs, will benefit here Companies such as Mysore-based Skanray Technologies, have taken advantage of such gaps in medical treatment and brought out products that cheap but effective. For instance, Skanray's USB-based ECG unit called Cardiskan converts laptops, or personal computers, into a 12 -channel electrocardiogram system. As a result, rural diagnostic centres can now offer ECGs for as low as 20% of the cost they earlier used to charge Skanray is also planning to launch a highly cost effective ultrasound machine, which would offer similar cost benefits to diagnostic chains and customers
Tier 2/3 locations become all the more important with a number of diagnostic centres coming up, thereby creating a market for medical devices
16
India is an established market for refurbished medical devices. Key product segments in India include - diagnostic imaging devices such as CT and MRI scanners, C-arms, patient monitoring devices, anesthesia equipment, laboratory equipment Small hospitals operating in tier 2/3 cities of the country are struggling to meet the cost of new imaging equipments, resulting in increased opportunities for low-cost medical devices. Refurbished medical devices are sold at 4050% discounts compared with the cost of new equipments in the country The market in India is growing at over 15% per year. About 5% of the overall revenues generated from the sales of medical devices in the country are accounted for by refurbished medical devices. Japan serves as the key supplier of refurbished medical devices to India GE has invested in setting up a facility in Bangalore to overhaul about 150 refurbished medical imaging units for sale in India
The Indian medical devices industry is witnessing consolidation as Indian players try to gain access to foreign markets and consolidate their positions at home and at the same time, foreign companies enter India through acquisitions Some recent instances of domestic and inbound M&A include: India based Skanray acquired Pricol Engineering and L&T Medical & Systems Purple Medical Solutions acquired MIV Therapeutics Smith & Nephew acquired Adler Mediequip Essilor International acquired Optics India
Instances of recent outbound acquisitions include: Transasia Bio Medical acquired Maxmat, Drew Scientific and JAS Diagnostics Trivitron acquired Labsystems Diagnostics
17
Healthcare equipment financing is picking up in India and is making setting up of a healthcare facility affordable and effective. It is an option available to the growing healthcare facilities as they plan to grow their patient care capabilities. Such facilities can lead to greater levels of penetration, making medical technology accessible to smaller hospitals, medical practitioners and pathological laboratories Financing services provided by medical equipment manufacturing companies turns out to be cheaper as compared to bank debt financing. Some of the such manufacturing companies providing financing services in India include GE Capital, Siemens, Phillips, amongst others
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Section 3
Key Industry Segments
The segment can be broken down into: Electro-diagnostic apparatus: Includes ECG, ultrasound, MRI, amongst others Imaging parts and accessories: Includes contrast media, medical Xray film, X-ray tubes Radiation apparatus: Includes CT scanners and other medical X-ray apparatus
1,885
Due to the large capital expenditure and high level of competition, equipments are generally leased out. In this way, hospitals and laboratories save on capital expenditure
Strong growth is expected in the low-end and mid-range systems purchased by small hospitals and facilities in rural areas
Table 2: Key Players in the Segment GE Healthcare Philips Healthcare Siemens Medical Solutions Hitachi Medical Schiller Healthcare Toshiba Medical Systems Trivitron Cura Medical Equipment
2008 2009 2010 2011 2012 2013E
Source: Espicom Q42013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60
20
Consumables Overview
Suturing Material 6%
Table 3: Key Players in the Segment Hindustan Syringes Ethicon B Braun Sutures India Kanam Latex
2008 2009 2010 2011 2012 2013E
Source: Espicom Q42013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60
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IV Diagnostics Overview
Immunochemistry 44%
660
421
366 312 252
Others: Includes Blood gas and electrolyte, coagulation instruments, molecular diagnostics and urinalysis instruments and is estimated to be worth USD 75 mn in 2013
Table 4: Key Players in the Segment Transasia Bio-Medicals CPC Diagnostics Roche Diagnostics Accurex Biomedical Beckman Coulter Span Diagnostics
2008 2009 2010 2011 2012 2013E
Siemens
Tulip Diagnostics
22
Segment can be broken down into: Portable aids: Includes hearing aids and pacemakers. Forms c.72%, USD 419 mn of the overall segment Over 90% of the market is supplied by imports, which are primarily sourced from Ireland and the USA, with Australia, Denmark and Singapore additional sources of supply Chart 15: Indian Patient Aids Segment Growth
CAGR: 35.6% Therapeutic Appliances 28% Portable Aids 72%
Therapeutic appliances: Includes mechano-therapy and artificial respiration apparatus. Forms c.28%, USD 163 mn of the overall segment
Imports supply the majority of the market with China, the USA and South Korea the leading suppliers
582 473
322
192
127
2008
2009
2010
2011
2012
2013E
Source: Espicom Q42013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60
23
Orthopaedics Overview
Segment can be broken down into: Fixation devices: Forms c.17%, USD 75 mn of the overall segment Switzerland was the leading supplier of imported fixation devices in 2012 with a 40% share, followed by the USA and Germany
Artificial joints: Forms c.26%, USD 115 mn of the overall segment Over 90% of the market is supplied by imports, the majority of which are sourced from the USA
Other artificial body parts: Largest subcategory within the orthopaedics & prosthetics market forms c.57%, USD 252 mn of the overall segment
Majorily import driven with US being the key supplier to the market
Table 6: Key Players in the Segment Smith & Nephew Johnson & Johnson Zimmer Holdings Stryker Orthopaedics Narang Medical Atlas Surgical Company
2008
2009
2010
2011
2012
2013E
Source: Espicom Q42013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60
24
Dental products segment can be broken down into: Capital equipments: Forms c.16%, USD 32 mn of the overall dental products segment. Includes products such as dental drills, dental chairs and dental x-ray The majority of the market is supplied by imports. In terms of principal suppliers, dental drill engines are primarily sourced from South Korea, X-ray apparatus from Finland and dental chairs from China Chart 19: Indian Dental Products Segment Growth
CAGR: 21.0%
198 163 117
Instruments & supplies: Forms c.84%, USD 167 mn of the overall dental products segment. Includes products such as dental cement, teeth & other fittings, artificial teeth and other dental fittings Majority of the market is supplied by imports with Germany and USA being the main suppliers
101 82
Confident Dental
Mectron India
Source: Espicom Q42013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60
25
1,499 1,321
2008
2009
2010
2011
2012
2013E
Source: Espicom Q42013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60
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Section 4
Regulatory Environment
Indian medical devices industry remains unregulated with only a few products regulated through the provisions of Drugs & Cosmetics Act. Such regulated products are classified as drugs
The latest amendments bill, the Drugs and Cosmetics Bill, 2013, has been sent to the Parliament, after being cleared by the Union Cabinet in July 2013 and aims to replace the Drugs and Cosmetics Act, 1940, which was amended in 2008. It is expected to have separate chapter on medical devices. The new bill also aims to establish a Medical Devices Technical Advisory Board, in line with the existing Drugs Technical Advisory Board. Once the Bill is passed, the definition of medical device will no longer be read in the light of the definition of drugs as specified under the Drugs and Cosmetics Act.
Foreign Investment Promotion Board (FIPB) approvals India permits 100% FDI in pharmaceutical sector through automatic approval route in the new projects but the foreign investment in the existing pharmaceutical companies are allowed only through FIPB's approval Given medical devices falls under the category of pharmaceuticals in India, FIPB approval process applies to any foreign investment in the sector
Foreign investments in the Indian medical devices sector have to adhere to FIPB guidelines
Source: CDSCO, News articles, Espicom Q42013 Indian Medical Devices Report
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Class
Risk Level
Low risk
Low-moderate risk
High risk
With the increased emphasis on safety and quality standards, these regulations are expected to improve the opportunities for Indias medical devices sector. At the same time, due to the high level of conformity and approvals required, smaller players may find themselves at a disadvantage, thus encouraging consolidation in the market
Source: CDSCO, www.icac.in
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Section 5
Transactions in India Medical Devices Sector
Panacea Medical
Sutures India Skanray Technologies BPL Medical Technologies Perfint Healthcare Sutures India Trivitron
5.8
24.2 15.0 18.3 10.0 33.3 29.2
14 12 10 8 6 4 2 0
Consure Medical
CURA Healthcare Perfint Healthcare Forus Health Perfint Healthcare Sutures India
NA
16.2 6.0 5.0 8.4 7.0
Source: Capital IQ, vccedge.com, Industry research; Deal Value in USD mn. Assumed USD/INR 60
Around 31 private equity investments have been made in the Indian medical devices sector with a combined deal value of USD 265 mn. Investments have picked up in the last 2 years with CY12 and CY13 accounting for 18 such investments with total deal value of USD 226 mn.
Segments which have got funded primarily include diagnostic imaging and medical consumables.
31
Transactions M&A
NA
NA NA 31.2 NA NA 1.2
NS Remedies
Orthopaedic implants business of Invicta Meditek Meditronics Vision Engineering Alpha X-Ray Technologies Dade Behring Diagnostics
1.5
NA NA 1.7 NA 9.6
Indian medical devices sector has witnessed a mix of domestic, inbound and outbound acquisitions. Opto Circuits Indias largest medical devices company has made some big ticket acquisitions in the US and European markets.
Table 12: Outbound M&A Transactions in Indian Medical Devices Sector Date Buyer Target Maxmat Labsystems Diagnostics Drew Scientific and JAS Diagnostics Cardiac Science Unetixs Vascular Deal Value NA 20.3 NA 54.8 9.7
2012 Transasia Bio Medical 2012 Trivitron Healthcare 2012 Transasia Bio Medical 2010 Opto Circuits 2010 Opto Circuits
Criticare Systems
Eurocor
70.0
13.0
Source: Capital IQ, vccedge.com, Industry research; Deal Value in USD mn. Assumed USD/INR 60
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