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WORKING DRAFT 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 26 th -27 th , 2013 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited
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A view on Medical Devices in Africa

Jan 14, 2015

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Presentation by McKinsey made at the Euro-Africa Health Investment Conference, March 26 - 27, 2013, London, United Kingdom.
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Page 1: A view on Medical Devices in Africa

WORKING DRAFT

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

Page 2: A view on Medical Devices in Africa

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

Page 3: A view on Medical Devices in Africa

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?

Page 4: A view on Medical Devices 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

Page 5: A view on Medical Devices in Africa

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)

Page 6: A view on Medical Devices in Africa

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)

Page 7: A view on Medical Devices in Africa

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

Page 8: A view on Medical Devices in Africa

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

Page 9: A view on Medical Devices in Africa

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”

Page 10: A view on Medical Devices in Africa

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

Page 11: A view on Medical Devices in Africa

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

Page 12: A view on Medical Devices in Africa

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

Page 13: A view on Medical Devices in Africa

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

Page 14: A view on Medical Devices in Africa

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

Page 15: A view on Medical Devices 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

Page 16: A view on Medical Devices in Africa

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

Page 17: A view on Medical Devices in Africa

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

Page 18: A view on Medical Devices in Africa

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

Page 19: A view on Medical Devices in Africa

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