Presentation by McKinsey made at the Euro-Africa Health Investment Conference, March 26 - 27, 2013, London, United Kingdom.

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
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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
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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
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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)
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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
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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
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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
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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
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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”
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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>
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