Medical Devices Webinar June 2016
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View our June webinar titled "Will Medical Devices be the next growth catalyst in Indian Healthcare?" with speakers - Gautam Dhawan (Partner, Aurum Equity Partners LLP) and Probir Das (Managing Director, Terumo India Pvt. Ltd.).
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Medical Devices Webinar June 2016
- 2. 2 Speaker profiles Previous Work Experience: • Axis Capital • Ambit Corporate Finance • Lazard Brothers • Pepsi QualificaOons and Memberships • Business Management Diploma from IIPM (New Delhi) • Bachelor of Commerce from Sydhenam College, University of Mumbai • Speaker at various industry forums Gautam Dhawan Partner - Aurum Equity Partners Gautam has over 15 years of experience spread across several transacPons in Healthcare & Pharma, Consumer Markets and other sectors. Has advised many Indian and MNC companies in implemenPng their strategic iniPaPves
- 3. 3 Speaker profiles Current Role: • Started with Terumo in 2012 and responsible for expanding the subsidiary’s footprint in India and driving its long-term strategy • Heads Terumo’s businesses in India for Cardiac & Vascular and Hospital Products segments QualificaOons and Memberships • BSc Physiology, University of CalcuYa • Business Management Diploma from BharPya Vidya Bhawan • Co-Chair of Nathealth’s Medical Technology Forum • Over a decade teaching experience with Becton Dickinson’s “BD University” Probir Das Managing Director – Terumo India Pvt. Ltd Previous Work Experience: • Becton Dickinson • Boston ScienPfic • Herbalife • US Surgical CorporaPon • Johnson & Johnson Probir has over 25 years of experience spanning wellness, medical surgical and diagnosPcs domains in the healthcare space.
- 4. 4 Disclaimer • This document is presented solely for the internal use of the recipient to whom it is marked by Aurum Equity Partners LLP (Aurum) and cannot be published or disclosed in part or in whole to any third party without the specific wriYen consent of Aurum. This document is incomplete without reference to, and should be viewed solely in conjuncPon with the verbal briefing, as may have been provided, by Aurum. • This document shall be subject to the terms of any Non Disclosure Agreement that may have been entered into between Aurum and the recipient to whom it is marked. • In preparing this document Aurum has relied upon and assumed, without independent verificaPon, the accuracy and completeness of all informaPon available from published and public sources and/ or provided to it for the purposes of this document. Accordingly, neither Aurum nor any of its partners, employees, affiliates, agents or advisors make any representaPon as to the accuracy, completeness, reasonableness or sufficiency of any of the informaPon contained in this document, and none of them shall be liable for any loss or damage (direct or indirect) suffered as a result of reliance upon any informaPon contained in this document, or any omission of any informaPon from this document and any such liability is expressly disclaimed. • Aurum has developed this document and all concepts, structures, recommendaPons and analyses are proprietary to Aurum and cannot be used without the express wriYen consent of Aurum. • This document has been prepared for preliminary discussion purposes only without prejudice and should not be construed as an offer or invitaPon to purchase or sell any securiPes, businesses, or assets of any enPty referred to in this document.
- 5. 5 Global devices to reach USD 470+ bn by 2020 Global Medical Devices growing at 4% CAGR Source: Evaluate Medtech, Company Presenta9ons (USD Bn) Emerging markets to lead the growth Emerging, 87% Developed , 13% 375 478 0 200 400 600 2014 2020E 4% 2015 Total PopulaOon: 7.3 bn 2015E Total Medical Technology Spending: ~USD 370 bn Emerging, 23% Developed , 77% Significant opportunity to increase penetraOon of medical technology in emerging markets Significant control with top 30 companies Top 10 companies , 36% 11-30 companies , 26% Rest of Market, 38% Key Players include Medtronic, J&J, Siemens, Roche Key Trends: § Global growth at 4%; Neurology, IVD, Endoscopy, Ophthalmic segments are expected to lead the growth § Strong focus on cost containment and value based care § Top 30 companies account for 62% of the market; Industry under consolidaPon § Emerging markets to lead the growth
- 6. 6 Indian Medical Devices is under-penetrated Market segmentaOon of the healthcare Industry § Medical Devices (esOmated at ~USD 3.8 bn) accounts for only 4% of the USD 100 bn Indian healthcare industry § Low representaOon in the global scenario o India accounts for ~1% of the global USD 375 bn industry § Lowest per capita spend on Medical Devices o For e.g. India has 1 MRI per million populaPon, compared with 47 for Japan and 36 for USA Total Healthcare Market: USD 100 bn Source: NATHEALTH, IBEF, CRISIL, OECD 2015 Healthcare Delivery (59%) Pharma (15%) DiagnosPcs (6%) Medical Devices* (~4%) Others (17%) Various demand and supply side challenges have resulted in the under-penetraOon of the industry * Medical Devices market size as of 2014
- 7. 7 Classical challenges facing the industry Government & Regulatory § Low public spending § S k e w e d i n f r a s t r u c t u r e distribuPon § No separate regulaPon § Unfavourable duty structure Manufacturing § Difficulty in senng up local manufacturing & approvals § L a c k o f a c o m p o n e n t manufacturing ecosystem Medical Technology § Limited adopPon of medical technology § Lack of skilled manpower InnovaPon § No focus on local innovaPon § Lack of funding § Lack of global partnerships ResulOng in very few market appropriate products
- 8. 8 Indian healthcare vs peers Source: World Bank, WHO, Interna9onal Diabetes Federa9on Metrics India USA UK Australia China Brazil PopulaPon (bn) 1.31 0.32 0.06 0.02 1.37 0.21 Healthcare spend as % of GDP 4.7% 17.1% 9.1% 9.4% 5.5% 8.3% Total aged populaPon (65+age in mn) 79 48 12 4 137 17 Birth rate per 1,000 populaPon 20 12 13 13 12 15 Maternal mortality raPo (per 100,000 live births) 174 14 9 6 27 44 Diabetes cases (mn people) 65.1 24.4 3.0 1.6 98.4 11.9 Probability of dying from non- communicable diseases between age 30 and age 70 (%) 26.2% 14.3% 12.0% 9.4% 19.4% 19.4% Note: Indicators as per latest available data
- 10. (Sales in USD mn, 2014) 2.1 3.8 8.6 2008 2014 2020E CAGR: 10% 10 Nascent market with tremendous potenOal … Imports, 70% DomesPc ProducPon, 30% Sales < 2, 65% Sales between 2-20, 30% Sales > 20, 5% Source: NATHEALTH Medical Devices expected to grow at 15% CAGR Most players lack scale Dependent on Imports USD bn 750 players (2014)
- 11. 11 Across sub-segments Source: NATHEALTH Size of the sub-segments (USD bn) Expected growth p.a. (%) 0.5 14% 16% Fastest growing segment; growth across sub-segments 1.0 1.5 2.0 12% 18% 20% C&I PA&O DI I&A Growth driven by Suturing materials (17%), Others (e.g. Stents, reagents) 16% Growth driven by Imaging parts and accessories (15%), Radia9on Apparatus (14%) G r o w t h d r i v e n b y Ophthalmic instruments and Therapeu<c Alliances (19%) CAGR (2014-2020): 19% CAGR (2014-2020): 13% Note: Light circles represent size in 2014; dark circles represent size in 2020E Industry is classified into four segments: Instruments & Appliances (I&A), DiagnosOc Imaging (DI), Consumables & Implants (C&I), PaOent Aids and Others (PA&O) Fastest growing segment; growth across sub-segments Growth driven by Ophthalmic instruments and Therapeu9c Appliances (19%)
- 12. 12 I&A: Largest segment with highest imports Ophthalmic instruments, 16% Dental products, 11% TherapeuPc appliances, 10% Sterilizers, 3% Other instruments and appliances, 60% (2014 total market: USD 1.3 bn) • I&A is the largest segment accounPng for 34% of the overall market • Key sub-segments: Comprises of 4 main sub- segments- • Ophthalmic Instruments • Dental products • TherapeuPc Appliances (Mechno-therapy apparatus, therapeuPc respiraPon apparatus) • Other Instruments and Appliances (Blood pressure monitors, dialysis apparatus etc) • ConcentraOon: Highest import dependence (80%); MNCs dominate • Growth segments: Ophthalmic instruments and TherapeuPc Alliances (19% CAGR 2015E-2020); Dental (15%) • Key Trends: Focus on Intra Ocular Lenses, low cost innovaPon (ophthalmic), increasing cosmePc surgeries (dental), emergence of day care chains, demand for monitors etc due to huge lifetsyle disease burden • Key Players: Johnson & Johnson India, Bausch & Lomb India, Carl Zeiss, Forus Health Source: NATHEALTH, Aurum Research 0.7 1.3 2.9 0 1 2 3 4 2008 2014 2020E (USD Bn) 10% 15% Segment Break-up Segment Growth
- 13. 13 DI: Driven by increasing chronic diseases • DiagnosPc Imaging (DI) accounts for 32% of the overall market • Key sub-segments: Comprises of three main segments: • Imaging parts and accessories • Electro-diagnosPc apparatus (ECG, Ultrasound, MRI etc.) • RadiaPon apparatus (CT Scanners, X-Ray etc.) • ConcentraOon: ~65% through imports • Growth segments: Imaging parts and accessories (15%), RadiaPon Apparatus (14%) • Key Trends: Technology collaboraPons with MNCs, low cost innovaPon by internaPonal and local players, growing incidence of chronic diseases, growth expected in low/mid systems due to expansion of healthcare infrastructure outside metros • Key Players: BPL Medical, GE Healthcare, Philips Healthcare, Siemens, Schiller, Perfint, Trivitron 0.8 1.2 2.3 0 0.5 1 1.5 2 2.5 2008 2014 2020E (USD Bn) 6% 13% Segment Break-up Segment Growth Imaging parts and accessories, 36% Electro diagnosPc apparatus, 36% RadiaPon Apparatus, 29% (2014 total market: USD 1.2 bn) Source: NATHEALTH, Aurum Research
- 14. 14 C&I: Low end, high domesOc parOcipaOon • Consumables and Implants (C&I) accounts for 18% of the overall market • Key sub-segments: • Syringes, needles and catheters • Bandages and dressings • Suturing materials • Others (Stents, Blood-grouping reagents; first aid kids, gloves etc) • ConcentraOon: Segment with highest domesPc parPcipaPon (50%) • Growth segments: Suturing materials (17%), Others (e.g. Stents, reagents) 16% • Key Trends: Huge populaPon driving the market, high birth rate and maternal mortality rate, rising incidence of CVD, significant PE interest • Key Players: Hindustan Syringes, Lotus Surgicals, Sutures India, Beckton Dickinson India, Ethicon (J&J) 0.4 0.7 1.6 0 0.5 1 1.5 2 2008 2014 2020E (USD Bn) 12% 14% Segment Break-up Segment Growth Syringes, needles and catheters, 70% Bandages and dressings, 11% Suturing materials, 5% Others, 14% (2014 total market: USD 0.7 bn) Source: NATHEALTH, Aurum Research
- 15. 15 PA&O: Fastest growing segment • PaPent Aids & Others (PA&O) accounts for 16% of the overall market • Key sub-segments: Comprises of three main segments • Orthopedics and prosthePcs (FixaPon devices, ArPficial joints etc.) • Portable aids (Pacemakers, Hearing Aids) • Others (Wheel Chairs, Hospital Furniture) • ConcentraOon: High import dependency (~75%) • Growth segments: PotenOal across all sub- segments - Portable aids 20%; Orthopedics 19%, Others 19% • Key Trends: Focus on minimal invasive surgeries, increasing trauma cases, growing acceptance of knee & hip surgeries, desire for beYer quality of life through paPent aids • Key Players: Medtronics India, St. Jude Medical, Smith & Nephew 0.2 0.6 1.8 0 0.5 1 1.5 2 2008 2014 2020E (USD Bn) Segment Break-up Segment Growth Orthopedics and prosthePcs, 48% Portable aids, 41% Others, 11% (2014 total market: USD 0.6 bn) Source: NATHEALTH, Aurum Research
- 16. 0.4 0.8 0 0.5 1 2012 2016E 16 In-Vitro DiagnosOcs: Driven by growth in labs • In-vitro DiagnosPcs (IVD) segment is growing at 19% CAGR and expected to reach USD 0.8 bn by 2016E • Key sub-segments: • Biochemistry (Largest segment) • Immunochemistry • Hematology • Others (Microbiology, Urianaylysis etc) • ConcentraOon: Majorly led by global players; high prevalence of imports • Growth segments: Good potenPal across all sub- segments – especially Hematology and Immunochemistry • Key Trends: High growth segment globally, increased automaPon, leasing of instruments with major revenues coming from reagents, keen interest by strategic players • Key Players: Siemens, Roche DiagnosPcs, Transasia Biomedicals, Accurex Biomedicals (USD bn) Industry Size Source: Medical Buyer Biochemistry, 25% Immunochemis try, 22% Hematology, 17% Microbiology, 6% Others, 30% Segment Break-up (2014E total market: USD ~0.6 bn) Note: IVD segment not included in Medical Device as per NATHEALTH, but forms an important component in diagnosis of dieseases INR converted to USD based on exchange rate of 65 2014 market size es9mated based on growth rate of 19% p.a. Biochemistry market size es9mated using a growth of 12% for 2014
- 17. 17 Scarcity of quality assets has led to few PE deals Source: VCCEdge PE investments in Medical Devices SegmentaOon of # of deals 155 119 24 17 7 2012 2013 2014 2015 2016 YTD § CumulaOvely USD 326 mn has been invested in the Medical Devices segment (2012-2016 YTD) § 2012 and 2013 witnessed few high Ocket size deals: • 2012: Trivitron (USD 74 mn), Sutures India (USD 38 mn) • 2013: Trivitron (USD 25 mn), Lotus Surgicals (USD 24 mn), Sutures India (USD 23 mn) Less than $2 mn, 21% $2-$5 mn, 21% $5-$15 mn, 38% Greater than $15 mn, 20% Total number of deals with disclosed value (2012-2016 YTD): 29 § Most deals (~40%) are small Ocket size with less than USD 5 mn investment § Private equity interested in players with innovaOve products and technologies – scarcity of quality assets § Key segments being funded: DiagnosOc Imaging, Sutures etc. (USD mn) Note: Includes PE and VC deals
- 18. 18 And strategic investments Source: VCCEdge M&A in Medical Devices 23 29 15 2013 2014 2015 § CumulaOvely ~USD 70 mn has been invested by strategic players across 5 disclosed deals (2013-2015) § Average deal size in the range of USD 15 mn § Key Deals: • 2013: Smith & Nephew+Adler Mediequip (USD 23 mn) • 2014: Peters Surgical + Stericat Gutstrings (USD 12 mn); Arkray+ Span diagnosPcs (USD 12 mn) • 2015: Cipla+Jay Precision (USD 15 mn) • Key segments of interest: Orthopedic, IVD, Respiratory • Scarcity of quality assets given the extreme fragmentaOon in the industry (USD mn) Note: Includes domes9c and inbound deals # deals 3 5 2 Deals with disclosed value 1 3 1 Few deals with disclosed transac9on values
- 19. 19 Will recent iniOaOves give the required impetus? Source: NATHEALTH, Govt websites Initiative § Promote domesPc manufacturing and innovaPon § Benefits: Capital and technology grants, training, best-in-class infrastructure Make in India Remarks § Drax NaPonal Medical Device Policy sPll under implementaPon § Inverted duty structure § TradiPonal challenges (labor laws, power supply) persist Challenges § Both in brownfield and greenfield projects § PromoPng interest by MNCs in local manufacturing 100% FDI through automaOc route § Impact of the policy will be gradual § Includes provisions for clinical trials of medical devices § Provision for creaPon of a Medical Devices Technical Advisory Board to advise the Government on technical maYers Dran Drugs & CosmeOcs (Amendment) Bill, 2015 § No risk based regulatory classificaPon of Medical Devices § Bill pending with the Government for approval
- 20. 20 To achieve industry’s long term vision… India needs a customized model to be one of the largest medical technology hubs and a leader in exports and innovaOon Source: NATHEALTH DomesPc Demand § Organic demand driven by factors including rising income, ageing populaPon, increasing chronic disease burden Local InnovaPon § I n n o v a P v e p r o d u c t s customized to the needs of the country § InnovaPons manufactured at an appropriate cost Manufacturing Hub § Leverage India’s inherent strengths (e.g. low cost manufacturing) § P o s i P o n I n d i a a s a manufacturing hub for domesPc producPon and exports Vision: To be a USD 50 bn industry by 2025
- 22. 22 Aurum view Ø Indian Medical Devices Industry at an inflecOon point offering significant opportuniOes for players to build scale o Nascent industry and opportuniPes across the board o Opportunity to focus on low cost yet innovaPve products, manufacturing hub for exports o Stated vision of achieving USD 50 bn size by 2025 Ø Growth potenOal of the industry will keep private equity and overseas strategic interest elevated o DomesPc companies with a focus on frugal innovaPon solving the classic access and affordability issue across India healthcare will aYract investor interest o India is a fast growing medical device player – will conPnue to interest overseas strategic investors Ø Segment to witness increased acOvity o Government will drive through regulatory and policy impetus o Greater investments will be made by local entrepreneurs o Global MNCs look to emerging markets such as India for fuelling growth o Increased collaboraPons (Technical, markePng, manufacturing) o Changing regulatory regime with higher conformity standards will push out smaller players Medical Device has the necessary ingredients to grow rapidly and emerge as a significant global player in manufacturing in the long term