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Last Modified 12.03.2013 00:13 W. Europe Standard Time
Printed 03/07/2012 13:51:46 GMT Standard Time
Euro-Africa Health Investment
Conference – A view on Medical
Devices in Africa
Strengthening northern and southern networks in pharmaceutical innovation
March 26th-27th, 2013
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company |
Objectives for this session
1
▪ Medical products in Africa
Present a perspective on the opportunities in the
Continent and the implications for local/global players
▪ Innovation and tech transfer
Discuss what is needed in terms of innovation and
the positioning of local players
▪ Open questions
Openly discuss how access and innovation can be
enhanced
McKinsey & Company |
Global Medical Device Market1
Emerging markets become an ever more important focus
~3
SOURCE: Health Research International 2010; Business Monitor International; McKinsey analysis
%, $ billions
CAGR
2010-16
%
1 Excludes surgical & injectable aesthetic devices & traditional wound care products; includes imaging service revenues
2 Includes Latin America, Africa, Carribean, Middle East, Asia (excluding Japan, New Zealand & Australia) & CEE
~13 19 20 23 27 31
81 80 77 73 69
397 100% =
14 2016
445
12
355
10
322
2008
313
Emerging markets2
Developed markets
Growth drivers in emerging markets
Households spending proportionally more
on healthcare as income rises
▪ Increasing wealth, average age, changing
lifestyle and prevalence of chronic diseases
▪ Increasing middle class, substantially
increasing discretionary income
1
Government HC spend increasing fast,
steadily rising as percent of spend
▪ Expanding insurance coverage
▪ Investment in delivery and medical
infrastructure
2
Physician education and training on the rise
Key to market penetration and development,
especially for medical products
3
2
What is happening in Africa?
McKinsey & Company |
From the turn of the century Africa has started to generate
superior growth
SOURCE: World Bank. McKinsey
World
Africa
4.9
2.62.6
4.54.8
2.52.83.13.8
5.3
1960 - 70 1980 - 90 1990 - 2000 1970 - 80 2000 - 10
+96%
Communism, oil shocks, and self-enrichment
The lost decade AIDS, drought, genocide, terrorism, and Mandela
Broad independence and first military coups
▪ Most African countries (32) gain independence (e.g., Algeria, Nigeria)
▪ Several military coups (DRC, Ghana)
▪ 1964 – Mandela sentenced
▪ 1967 – Egypt six-day war
▪ Oil price crashes ▪ Reagan supporting
anti-communist ▪ 1983 – Islamic
revolution in Sudan ▪ 1984 – Ethiopia
famine ▪ 1985 – Military coup
in Nigeria ▪ Carter push sanctions
on SA
▪ AIDS epidemic ▪ 1993 – Battle of
Mogadishu in Somalia ▪ 1994 – Rwanda
genocide ▪ 1994 – Mandela wins
SA elections ▪ 1997 – U.S. firms
barred from doing business with Sudan (terrorism)
▪ 5 more countries gain independence (e.g., Angola)
▪ Oil price increases from USD 3 to 38
▪ 1971 - 79 – military coup by Amin in Uganda
▪ 1974 – Rumble in the Jungle
Real GDP, CAGR, percent based on 2000 constant USD
Last decade
3
McKinsey & Company | 4
In turn, Africa’s medical products market to exceed $10bn by 2020
SOURCE: WHO; World Bank; IMF; African Development Bank; BMI; McKinsey Africa Pharma, Medical Product 2020
Model
1. South Africa, Egypt, Algeria, Nigeria, Morocco, Angola, Tunisia, Libya, Ethiopia, Sudan, Ghana, Kenya, Cameroon, Tanzania, Uganda
Africa medical product market forecast
USD billions
3.3
8.710.4
13.5
1.3
1.4
1.6
Top 151
Others
2020
Optimistic
2020
Realistic
15.1
11.8
2020
Base
10.0
2010
3.9
0.6
10%
12%
14%
Sales per
capita
USD
Africa
Top 15
4.0 8.0 9.4 12.1
5.0 10.4 12.5 16.2
▪ Increasing
expenditure
▪ Expanded
provision
▪ Maturing
business
environment
Overall pharma market to reach about
USD 54-62bn (roughly 35% Gx)
McKinsey & Company | 5
Example – South Africa’s medical product market growth
expected to accelerate to 11% p.a.
1 Nominal
SOURCE: BMI Pharmaceuticals & Healthcare Report, Q2 2012; McKinsey analysis
2.11.9
1.81.6
1.41.41.3
1.21.2
+3% p.a.
16 15 14 13 12 11 10 09 08
+11% p.a.
South African medical product sales
R1 bn, 2008-11
Upgrade of hospitals nationally
($2-3bn over 3 years)
Phased introduction of national
health insurance (additional $20-
30bn into the system over next
15 yrs)
Rapidly growing middle income
segment / consuming class (15-
20% growth of middle income
groups by some estimates)
McKinsey & Company |
Where to focus - Selected African countries are emerging
and will be worth $1.8bn in 2016
SOURCE: Business Monitor International; WHO; McKinsey analysis
0.80.9 1.0
1.21.4
1.61.8
1.51.7
1.92.2
2.42.7
3.0
15
7.1
2.9
14
6.4
2.6
13
5.6
2.3
12
5.0
2.0
11
4.4
1.8
8.1
2016
+13% p.a.
3.2
2010
3.9
1.5
Africa medical device market size
US $bn
Remainder of Africa
Selected Countries
South Africa + Egypt
▪ The selected markets have 20 – 23% share of Africa’s medical device
market
▪ South Africa and Egypt possess 39 – 41% share of Africa’s medical
device market
Libya
Morocco
Sudan
Nigeria
Uganda
Kenya Ghana
Tanzania
Egypt
South Africa
6
McKinsey & Company |
What it takes to win in Africa with medical products
SOURCE: McKinsey analysis 7
Go big in a few select markets: biggest potential and most
accessible from an operating perspective (incl. JVs, M&A,
alliances, integration)
Create strong tactical partnerships: especially in the areas such
as secondary manufacturing, counterfeit, CSR (incl. participating in
setting the agenda with health authorities) to further entrench
End-to-end solutions: build turn-key disease solutions (i.e.,
integrated diagnosis, treatment and follow up) and fully integrated
supply chain solutions
Tailor product portfolio and pricing to local needs: create a
broad offering spanning as many categories as possible, tier
pricing and adapt products to local needs (incl. co-market)
Invest in creating the market and generating sales: employ a
competent local manager and don’t hesitate to invest in talent ROI
on sales forces is attractive (incl. outsourcing)
Focus for
innovation
McKinsey & Company |
A view on Medical Device innovation for access in Africa
8
Access – Focus
needs to be
what matters
▪ Improving access implies that a broader industry emerges,
focused on the immediate needs of the market and striking a
balance on quality and cost
▪ Top innovative products still have their space but the broader
categories (diagnostic, surgical tools, hand-held devices) need
to have “near-market” innovation
Innovation –
Partnerships for
technological
transfers
▪ Partnering with Global/Emerging market players is key to
ensure rapid technology and knowledge sharing (e.g., China)
▪ Some examples already emerging in Africa, but few and far
between
▪ Supporting local R&D centers can help establish vibrant sub-
industries
▪ African companies have opportunity to become “spiders in the
web”
McKinsey & Company | 9
There are important access barriers
Limited
infrastructure/
capacity
Poor quality
Restricted
funding and
reimbursement
Broad access
Countries with poor
health-care
infrastructure (e.g.,
number of
physicians and
hospital beds)
Markets with
physicians lacking
awareness or skills
(e.g., to perform
advanced
procedures)
Markets with
infrastructure and
quality, but restric-
tions on funding or
pricing (e.g.,
medical device
spending/ health-
care spending)
Most Africa today
Markets with good
infrastructure,
capacity/quality,
and favorable
funding or pricing
situation
Long-term
CEE today
Rest of Europe today Short-term
McKinsey & Company |
The African medical device market includes 6 main areas not yet
balanced versus global references
1 Based on 2012 projected sales
SOURCE: Health Research International
Short/mid-term focus
▪ Simpler, lower cost
machines, especially
handhelds requiring to
lower “capex” needs
▪ Lower cost and higher
flexibility of devices for
implant, chronic
disease etc
▪ Centralized education,
procedural standards
and data analysis
Estimated Africa sales
%
Global sales share
%1
48 15
12 30-35
13 10
11 10
10 15-20
6 10
Total projected sales, US $bn 389 5
Basic products
(aids,
surgical,beds…)
Imaging devices
In Vitro
diagnostics
Cardiovascular
disease
therapies
Orthopaedic
devices
Monitoring
devices
10
McKinsey & Company |
Some of the initial efforts we observe on local African innovation
11
Low-cost, mobile
imaging
▪ Low cost, mobile X-ray units for use
in small urban poly-clinics and in
rural hospitals and clinics
Remote handheld
ultrasound
▪ Low cost, portable ultrasound units
for use in small health facilities and
amongst community-based health
workers
Centralised
interpretation and
reporting
▪ Remote, digital imaging centres with
centralised interpretation and
reporting
SOURCE: McKinsey analysis
McKinsey & Company |
Collaboration for knowledge and technical transfer from large
global players is key– China example
SOURCE: Literature search; McKinsey analysis 12
Partnership
examples Deal rationale Deal structure
▪ Medtronic: Expand beyond the high-end ortho market
by leveraging Weigao’s mid- to low-end product
portfolio and sales network
▪ Weigao: Broaden business and improve R&D capability
to become a leading medical device company in Asia
▪ Medtronic acquired
15% stake of Weigao
with $221mn
▪ Established a JV for
orthopedic product line
(Medtronic 51% stake)
▪ Philips: Leverage Goldway’s complementary patient
monitor portfolio, not only for the Chinese market, but
for export to other value-conscious, high-growth
markets
▪ Goldway: Take both brand and technology advantages
of Philips to improve marketing competitiveness and
provide more reliable and affordable products
▪ Philips acquired
Goldway in a deal worth
$46mn
▪ GE: Leverage Shinva’s product portfolio and strengths
in local manufacturing and procurement to develop and
promote mid-/low-end X-ray systems for the lower-end
healthcare market, which is a focus of the healthcare
reform
▪ Shinva: Obtain technology and quality support from
GE, and improve its brand image
▪ Established joint
venture (GE 49% stake)
▪ Total JV investment
$25mn
McKinsey & Company |
Philips and local partner PPC Ltd are
collaborating with the Federal Ministry of Health
with new Brilliance CT 16-slice scanner.
Phillips Healthcare partnered with the non-profit
organization Imaging the World (ITW) to
introduce the Philips CX50 Compact Xtreme
portable ultrasound system in local hospitals
▪ Siemens in partnered with Meditec Systems Ltd to
provide a complete solution to the Cancer Care
Centre in Nairobi, Kenya, which serves the
community of East and Central Africa
▪ Siemens and TOGA (ZA) have partnered on the
innovative TOGAtainer – a turnkey lab that can be
placed anywhere for decentralized lab services
We see broader efforts in Africa emerging, but still lots of room to build
13 SOURCE: McKinsey
Recent partnerships in Africa
McKinsey & Company | 14
Support to establish local R&D hubs is another way
to transfer tech and improve access
SOURCE: Web search, press searches
Strategic initiatives
▪ Entered the Indian market through
$1.65bn acquisition of Howmedica, a
Pfizer subsidiary and leading producer of
orthopedic implants and instruments in 99
▪ Headquartered in Gurgaon, Haryana
▪ Has a 20% share in the joint replacements
market in India, but also sells surgical
equipment and hospital beds
▪ Significant investments in R&D infrastructure
– Opened first global technology center in Gurgaon
– Conducts product development on all categories of
operation
– Functions as a global talent hub for Stryker
operations throughout the world
– Plans to set up state-of-the-art operation theater at
the Gurgaon facility for interactive visual learning
with partners around the world
▪ Phase-wise product launch approach
– Went national after one year of launch in a region
(e.g., autologous blood transfusion product,
CONSTAVAC CBC II, the first such product in India)
▪ Market expansion through technology use
– Setting up telemedicine centers in India for
educational purposes through alliances with reputed
research institutes
McKinsey & Company |
704634
548
294
190 17114713389
53
2010 2009 2008 2007 2006
Net income
Revenue
Others
Medical imaging systems
In-vitro diagnostic
Patient monitoring and life support
Fivefold revenue growth over the past five years
Expand its business rapidly in these years
CAGR
39%
34%
Revenue and net income
$ mn
Global sales performance 2010
6
25
25
45
1
32
25
42
Others
Emerging market
Developed market
China
Revenue by product
%
Revenue by region
%
Strong local medical device players with
‘global profile’ emerging – Mindray example
SOURCE: Company website; annual reports; literature search
1991 2005 2006 2007 2008
Mindray
founded
Mindray international, the
Cayman islands holding
company, was established
IPO at
NYSE
Acquired Datascope’s
patient monitoring
device business for
$209mn
Current 2009 2010 2011
Acquired a controlling
stake of Shenke
medical, an infusion
pump manufacturer
McKinsey & Company |
The markets are very different and still shaping and growing
16
45 Global players
have 2-3%
shares
51 6 global players
including (incl. Mindray)
25
5 Global players
Share of
total business
from small
player incl. locals
South Africa
Nigeria
Kenya
▪ Most products are still imported (e.g.,
90% in Kenya), and global link through
local distributors
▪ Some local production in South Africa but
focus mostly on distribution
▪ The market still looking for broader
quality/price balance and service/tech.
support
▪ Players like Toshiba and Mindray now
making strong in-roads
Local players should
▪ Start investing in selected
granular opportunities
▪ Look for similar opportunities
already implemented ex-Africa
▪ Early ventures/entrepreneurs
should actively seek investment
to capture selected growth
SOURCE: McKinsey analysis
McKinsey & Company |
Some deal activity detected in last few years
17
NOT EXHAUSTIVE
Medical product-related acquisitions in Africa
(Number, per year)
Note: Completed and pending deals
SOURCE: Dealogic, McKinsey analysis
7
44
1
4
10 2012 11 09 2008
▪ Deals split over
Continent (in lead
countries)
▪ Avg. ~ USD 10m deals
▪ Equally split across
majority/partial interests,
ouright purchases and
increased stakes
▪ 50% of deals focused on
local manufacturing
▪ Most acquisitions by
other industry players
McKinsey & Company |
Questions we are asking ourselves
▪ How can access to Med devices be achieved in Africa?
▪ What role can local technologies play? How much is
“already invented” and just needs to be
transferred/recreated?
▪ Should the government intervene, like in PPP/PDP type
deals seen in Pharma and across Emerging Markets, to
create a local industry that boosts access?
▪ What is the view of the group on status of players in
Africa?
▪ Are they an investment opportunity or better to place your
money in players from other (emerging) markets?
▪ <Your question here>
18