A view on Medical Devices in Africa


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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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A view on Medical Devices in Africa

  1. 1. 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
  2. 2. Objectives for this session ▪ 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 |1
  3. 3. Emerging markets become an ever more important focus %, $ billions Global Medical Device Market1 Growth drivers in emerging markets Developed markets Emerging markets2 100% = 313 355 397 445 80 77 73 69 ~3 19 20 23 27 31 ~13 2008 10 12 14 1 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 2016 81 322 CAGR 2010-16 % 2 Government HC spend increasing fast, steadily rising as percent of spend ▪ Expanding insurance coverage ▪ Investment in delivery and medical infrastructure 3 Physician education and training on the rise Key to market penetration and development, especially for medical products What is happening in Africa? 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 SOURCE: Health Research International 2010; Business Monitor International; McKinsey analysis McKinsey & Company |2
  4. 4. From the turn of the century Africa has started to generate superior growth Africa Real GDP, CAGR, percent based on 2000 constant USD Broad independence and first military coups 4.8 Communism, oil shocks, and selfenrichment The lost decade 4.5 3.8 3.1 1970 - 80 1980 - 90 ▪ ▪ ▪ ▪ ▪ Most African countries (32) gain independence (e.g., Algeria, Nigeria) Several military coups (DRC, Ghana) 1964 – Mandela sentenced 1967 – Egypt six-day war SOURCE: World Bank. McKinsey ▪ ▪ ▪ Last decade +96% 4.9 1960 - 70 ▪ AIDS, drought, genocide, terrorism, and Mandela 5.3 2.6 ▪ World 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 ▪ ▪ ▪ ▪ 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 2.6 2.8 2.5 1990 - 2000 ▪ ▪ ▪ ▪ ▪ 2000 - 10 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) McKinsey & Company |3
  5. 5. In turn, Africa’s medical products market to exceed $10bn by 2020 Africa medical product market forecast USD billions Overall pharma market to reach about USD 54-62bn (roughly 35% Gx) 15.1 ▪ Increasing expenditure 12% ▪ Expanded provision 10.0 1.3 11.8 1.4 10% ▪ Maturing business environment Others 3.9 0.6 Top 151 13.5 10.4 3.3 2010 Sales per capita USD 1.6 14% 8.7 2020 Base 2020 Realistic 2020 Optimistic Africa 4.0 8.0 9.4 12.1 Top 15 5.0 10.4 12.5 16.2 1. South Africa, Egypt, Algeria, Nigeria, Morocco, Angola, Tunisia, Libya, Ethiopia, Sudan, Ghana, Kenya, Cameroon, Tanzania, Uganda SOURCE: WHO; World Bank; IMF; African Development Bank; BMI; McKinsey Africa Pharma, Medical Product 2020 Model McKinsey & Company |4
  6. 6. Example – South Africa’s medical product market growth expected to accelerate to 11% p.a. South African medical product sales R1 bn, 2008-11    Upgrade of hospitals nationally ($2-3bn over 3 years) +11% p.a. Phased introduction of national health insurance (additional $2030bn into the system over next 15 yrs) Rapidly growing middle income segment / consuming class (1520% growth of middle income groups by some estimates) 2.1 1.9 +3% p.a. 1.8 1.6 1.2 1.2 1.3 1.4 1.4 08 09 10 11 12 13 14 15 16 1 Nominal SOURCE: BMI Pharmaceuticals & Healthcare Report, Q2 2012; McKinsey analysis McKinsey & Company | 5
  7. 7. Where to focus - Selected African countries are emerging and will be worth $1.8bn in 2016 Africa medical device market size US $bn Remainder of Africa Selected Countries Morocco South Africa + Egypt Egypt 8.1 +13% p.a. Libya 7.1 6.4 5.6 5.0 Sudan Nigeria 3.9 Uganda Ghana 1.5 Kenya 4.4 1.7 1.9 3.0 2.7 2.4 2.2 1.2 1.4 1.6 1.8 0.9 1.0 1.8 2.6 2.9 1.5 2.3 3.2 2.0 2010 11 12 13 14 15 2016 0.8 Tanzania ▪ 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 South Africa SOURCE: Business Monitor International; WHO; McKinsey analysis McKinsey & Company |6
  8. 8. What it takes to win in Africa with medical products 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) Focus for innovation End-to-end solutions: build turn-key disease solutions (i.e., integrated diagnosis, treatment and follow up) and fully integrated supply chain solutions Go big in a few select markets: biggest potential and most accessible from an operating perspective (incl. JVs, M&A, alliances, integration) 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) 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 SOURCE: McKinsey analysis McKinsey & Company |7
  9. 9. A view on Medical Device innovation for access in Africa ▪ Innovation – Partnerships for technological transfers ▪ Top innovative products still have their space but the broader categories (diagnostic, surgical tools, hand-held devices) need to have “near-market” innovation ▪ 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 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 subindustries ▪ African companies have opportunity to become “spiders in the web” McKinsey & Company |8
  10. 10. There are important access barriers Limited infrastructure/ capacity Countries with poor health-care infrastructure (e.g., number of physicians and hospital beds) Poor quality Markets with physicians lacking awareness or skills (e.g., to perform advanced procedures) Restricted funding and reimbursement Markets with infrastructure and quality, but restrictions on funding or pricing (e.g., medical device spending/ healthcare spending) Broad access Markets with good infrastructure, capacity/quality, and favorable funding or pricing situation Most Africa today CEE today Short-term Rest of Europe today Long-term McKinsey & Company |9
  11. 11. The African medical device market includes 6 main areas not yet balanced versus global references Global sales share Estimated Africa sales % %1 Imaging devices 12 30-35 Short/mid-term focus In Vitro diagnostics 13 Cardiovascular disease therapies 11 10 10 ▪ Simpler, lower cost machines, especially handhelds requiring to lower “capex” needs ▪ Lower cost and higher Orthopaedic devices 10 15-20 Monitoring devices 6 10 Basic products (aids, surgical,beds…) 48 15 389 flexibility of devices for implant, chronic disease etc 5 Total projected sales, US $bn ▪ Centralized education, procedural standards and data analysis 1 Based on 2012 projected sales SOURCE: Health Research International McKinsey & Company | 10
  12. 12. Some of the initial efforts we observe on local African innovation ▪ Low cost, mobile X-ray units for use in small urban poly-clinics and in rural hospitals and clinics ▪ Low cost, portable ultrasound units for use in small health facilities and amongst community-based health workers ▪ Remote, digital imaging centres with centralised interpretation and reporting Low-cost, mobile imaging Remote handheld ultrasound Centralised interpretation and reporting SOURCE: McKinsey analysis McKinsey & Company | 11
  13. 13. Collaboration for knowledge and technical transfer from large global players is key– China example Partnership examples Deal structure Deal rationale ▪ Established joint ▪ GE: Leverage Shinva’s product portfolio and strengths venture (GE 49% stake) ▪ Total JV investment $25mn 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 ▪ Philips acquired ▪ Philips: Leverage Goldway’s complementary patient Goldway in a deal worth $46mn 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 ▪ Medtronic acquired ▪ Medtronic: Expand beyond the high-end ortho market 15% stake of Weigao with $221mn ▪ Established a JV for orthopedic product line (Medtronic 51% stake) 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 SOURCE: Literature search; McKinsey analysis McKinsey & Company | 12
  14. 14. We see broader efforts in Africa emerging, but still lots of room to build Recent partnerships in Africa  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 SOURCE: McKinsey McKinsey & Company | 13
  15. 15. Support to establish local R&D hubs is another way to transfer tech and improve access Strategic initiatives ▪ Significant investments in R&D infrastructure – Opened first global technology center in Gurgaon – Conducts product development on all categories of ▪ 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 SOURCE: Web search, press searches 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 | 14
  16. 16. Strong local medical device players with ‘global profile’ emerging – Mindray example Fivefold revenue growth over the past five years Global sales performance 2010 Revenue and net income $ mn Revenue by product % 6 CAGR 704 Revenue 548 25 39% Net income 634 Revenue by region % 1 32 34% 45 25 294 2006 25 Patient monitoring and life support 89 2007 147 133 2008 2009 In-vitro diagnostic 2010 Developed market Emerging market Others 171 China Medical imaging systems 190 53 42 Others Expand its business rapidly in these years Mindray founded 1991 Mindray international, the Cayman islands holding company, was established 2005 2006 SOURCE: Company website; annual reports; literature search Acquired Datascope’s patient monitoring device business for $209mn IPO at NYSE 2007 2008 2009 Acquired a controlling stake of Shenke medical, an infusion pump manufacturer 2010 2011 Current McKinsey & Company |
  17. 17. The markets are very different and still shaping and growing South Africa 45 Share of total business from small player incl. locals Global players have 2-3% shares ▪ Most products are still imported (e.g., ▪ ▪ Nigeria ▪ 51 6 global players including (incl. Mindray) 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 Kenya ▪ 25 5 Global players SOURCE: McKinsey analysis ▪ granular opportunities Look for similar opportunities already implemented ex-Africa Early ventures/entrepreneurs should actively seek investment to capture selected growth McKinsey & Company | 16
  18. 18. Some deal activity detected in last few years NOT EXHAUSTIVE Medical product-related acquisitions in Africa (Number, per year) 7 ▪ Deals split over 4 4 ▪ ▪ 4 ▪ 1 ▪ 2008 09 10 11 2012 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 Note: Completed and pending deals SOURCE: Dealogic, McKinsey analysis McKinsey & Company | 17
  19. 19. 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> McKinsey & Company | 18