Indian Medical Devices Sector Report

Indian Medical Devices Sector
Sector Report

Indian Medical Devices Sector
January 2014

January 2014

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Methodology and List of Abbreviations Used
1 Market sizes and company revenues across the report are presented in USD (mn/bn) assuming a USD/INR exchange rate of 60 – for all historical, current and projections Term SME CY 2 Source for the data points provided in the report includes Espicom Medical Devices Report Q4 2013, Medical Buyer, other industry reports and o3 Capital‟s primary research FY FDA CDSCO ISO GMP 3 Market sizes for all the segments of Indian medical devices sector, except IV Diagnostics, were presented at ex-factory prices in the source report which have been converted into market retail prices using suitable assumptions FDI FIPB WHO CLAA IVD ECG CT MRI GDP Description Small and Medium Enterprises Calendar Year Fiscal Year Food and Drug Administration Central Drugs Standard Control Organization International Organization for Standardization Good Manufacturing Practices Foreign Direct Investment Foreign Investment Promotion Board World Health Organization Central Licensing Approval Authority In Vitro Diagnostic Electrocardiogram Computed Tomography Magnetic Resonance Imaging Gross Domestic Product

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Executive Summary
 The Indian medical devices industry forms about 8% of the Indian healthcare sector and is expected to be worth USD 6.3 bn in 2013. It has grown at a CAGR of 17.2% for the period 2008 – 13 and is expected to grow to USD 10.2 bn by 2016 with a CAGR of 17.4%  The industry is highly fragmented with 65% of the manufacturers falling in the SME category. The higher-end of the market is dominated by foreign manufacturers, many of whom have established their subsidiaries in India

 The industry is highly dependent on imports with 77% of the demand being delivered through imports. Low or no customs duty have also encouraged imports rather than manufacture
 Ambitious expansion plans of corporate hospitals coupled with increased outsourcing of manufacturing by foreign companies, which are under pressure to reduce costs, are expected to fuel the growth of the industry. The increased focus of the Government on healthcare, increasing incidence of lifestyle diseases and rising proportion of senior citizens are also expected to boost the demand for medical equipments in the country  Several Indian medical device companies have enhanced their competitiveness by tying up with international companies for research and development and technical innovations  In terms of product segments, diagnostic imaging is the largest segment and is expected to contribute 30% of the overall market in 2013. Patient aids segment, consisting of portable aids and therapeutic appliances, is the fastest growing segment, having grown at a CAGR of 35.6% for the period 2008 – 13  Medical consumables, ophthalmic instruments and orthopaedic implants are the segments expected to witness high growth and attract private equity as well as strategic interest – Sutures India and Lotus Surgicals have recently got funded. Adler Mediequip was acquired by Smith & Nephew; Optics India was acquired by Essilor, TTK Healthcare acquired the orthopaedic implants business of Invicta Meditek  Indian medical devices industry remains unregulated with only a few products regulated through the provisions of Drugs & Cosmetics Act 1940 & Rules 1945. Such regulated products are classified as „drugs‟  Indian medical devices sector has witnessed increasing deal activity in the recent past as the Indian players try to gain access to foreign markets and consolidate their position at home. The activity is expected to increase in future with foreign players taking more interest in the industry and Indian companies making acquisitions abroad

– Around 31 private equity investments have been made in the sector with a combined deal value of USD 265 mn (from 2005 – till date). Investments have picked up in the last 2 years with CY12 and CY13 accounting for 18 such investments with total deal value of USD 226 mn

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Table of Contents
Title Section 1: Industry Overview Industry Overview Market Evolution Growth Drivers and Key Trends Industry Landscape –Key Indian Players Key Industry Segments Section 2: Growth Drivers and Trends Growth Drivers Key Trends in the Sector Section 3: Key Industry Segments Diagnostic Imaging Segment Medical Consumables Segment In-Vitro Diagnostics Segment Patient Aids Segment Orthopaedics and Prosthetics Segment Dental Products Segment Other Medical Devices Segment Section 4: Regulatory Environment Section 5: Transactions in the Segment Private Equity Investments M&A Transactions Contact Details Slide No. 6 – 11 7 8 9 10 11 12 – 18 13 – 15 16 – 18 19 – 25 20 21 22 23 24 25 26 27 – 29 30 – 32 31 32 33

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Section 1
Industry Overview

Industry Overview
Key Highlights Chart 1: Indian Healthcare Sector, 2013E
Medical Devices 8% Pharma 14% Diagnostics 3% Total Market Size = USD 77.8 bn

 The Indian healthcare sector is estimated to be valued at USD 77.8 bn in 2013, with hospitals forming the largest share of the market at c.75%
 The medical equipment and supplies industry is expected to be 8% or USD 6.3 bn of the Indian healthcare sector in 2013. The market is growing at a CAGR of 17.2%  The industry is very fragmented with more than 65% of Indian manufacturers falling in the SME category  Majority of domestic manufacturers focus on low margin, low technology products like disposables and medical equipment  High quality products are sought after, particularly in the private sector, and the high tech end of the medical device market is dominated by multinationals with extensive service networks  The market is still highly import dependent with 77% of the market consisting of imports  Like most of the developing low-cost countries, India is also predominantly a manufacturer of Class I & II devices (categorization as per US FDA), i.e. devices which are not considered to be high risk and do not need extensive clinical trials before receiving FDA approval  Indian manufacturers of good quality mid tech products struggle with a stigma for unreliability

Hospitals 75%
Source: ‘Indian Brand Equity Foundation’ (IBEF) Healthcare Report, News Articles, o3 Analysis Note: Pharma includes only domestic formulations market

Chart 2: Indian Medical Devices Sector, 2013E
CAGR: 17.4%
10.2 8.7

CAGR: 17.2%
6.3 5.4 2.8 3.1 3.6 4.2

7.4

2008

2009

2010

2011

2012

2013E

2014E

2015E

2016E

Source: Espicom Q4’2013 Indian Medical Devices Report, Medical Buyer, o3 Analysis. Figures in USD bn. Assumed USD/INR - 60

Indian medical devices is a high growth industry currently dominated by imports
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Market Evolution
Figure 1: Evolution of Medical Devices Sector in India

Moving Towards a Well Established and Regulated Sector

Growth
Emergence of Indian Players Both in Hi-Tech and Low-Tech Medical Devices Segments
– Many Indian companies such as Opto Circuits, RFCL, Sahajanand, Sutures India, Poly Medicure, Kanam Latex, etc. emerge Foreign players establish subsidiaries as well as enter into JV arrangements for R&D, manufacturing and marketing their products Increased M&A (both inbound and outbound) and private equity deal activity Sector remains weak on regulatory front with medical devices falling under the definition of „drugs‟ and only sterile devices regulated – – High growth expected through various factors contributing to the growth of overall Indian healthcare sector – underpenetrated market, increase in government healthcare spending, etc. Commissioning of new hospital beds in tier-2 and tier-3 locations a key trigger for growth Government puts proper regulatory system in place – Drugs and Cosmetics Bill 2013 has been sent to the Parliament which proposes a separate chapter on medical devices and setting up of a Medical Devices Technical Advisory Board India becomes a preferred R&D and manufacturing hub for world‟s leading medical device companies

–

–

–

Domination of Foreign Medical Device Companies
– Foreign medical device companies sell products through distributors

–

–

Before 1980s
Source: o3 Analysis

1980s - Current

Post 2013 - Boom Phase?

Timeline

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Growth Drivers and Key Trends
 Increase in healthcare facilities: Increase in healthcare facilities encourages the demand for medical equipments as about 29% of the cost of setting up a hospital/clinic is contributed by medical equipments  Increase in outsourcing:

Growth Drivers


Outsourcing of laboratory trials, R&D as well as manufacturing to India spurs demand for medical equipment
Government initiatives: Various initiatives taken by government such as increasing public investment in healthcare, promotion of health insurance and setting up health care centers are expected to boost the demand for medical equipment    Rising proportion of senior citizens: Increasing proportion of senior citizens adds to the use of medical devices and is also boosting the home healthcare market Rising Prevalence of lifestyle diseases: Lifestyle diseases spurs demand for cardiovascular, orthopedic and other such devices Medical tourism: Evolution of India as a medical tourism hub leading to demand for world class equipments



International collaborations: Indian players are placing more and more importance on technology by entering into technical collaborations with their foreign counterparts. Also, a lot of instances of R&D, marketing and manufacturing JVs are observed in the sector



Refurbished equipments:
Usage of refurbished medical devices, which are sold at a discount of 40-50% when compared to new ones, are gaining prominence. Around 5% of the overall market is accounted for by refurbished medical devices

Key Trends


Healthcare facilities in tier 2/3 locations: Hospitals in tier 2/3 locations are driving the demand for medical devices market. In addition to new hospitals being set up, existing hospitals, which earlier did not have adequate equipments, are sourcing new/refurbished equipments



Increasing M&A and PE deal activity: Industry experiencing consolidation with a rising number M&A transactions – both inbound as well as outbound – and private equity investments



Medical equipment financing services: Various medical equipment manufacturers are providing financing services to the healthcare delivery providers. Some such companies operating in India include – GE, Siemens, Phillips, amongst others

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Industry Landscape – Key Indian Players
Figure 2: Indian Medical Devices – Key Indian Players

150

In a market dominated by exports, medical consumables is the only trade surplus sub segment

FY13 REVENUES (USD mn)

50

20

10

Hospital Furniture and Others Growth – 14.6%

Diagnostic Imaging and IV Diagnostics Growth:15.3%

Medical Consumables Growth – 17.4%

Cardiac Stents, Pacemakers, Implants Growth – 34.4%

SEGMENT GROWTH RATE (2008-13)
Source: Espicom Q4’2013 Indian Medical Devices Report, Medical Buyer, Market Research. Revenues have been converted at an exchange rate of USD/INR - 60 Note: 1. Opto Circuits derives only c.4% revenues from India 2. ‘Hospital furniture and others’ segment include hospital furniture, wheelchairs, ophthalmic instruments, dental products, amongst others 3. ‘Cardiac stents, pacemaker and implants’ segment includes orthopaedics & prosthetics devices and patient aids segment 4. Revenue figures are approximate and have been sourced from public sources

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Key Industry Segments
Chart 3: Indian Medical Devices Sector, 2013E  The Indian medical devices sector can be broadly classified into 6 key segments:

Total Market Size = USD 6.3 bn

–
– – –

Diagnostic imaging
Consumables IV diagnostics Patient aids Orthopaedics & prosthetics Dental products

24% 30%  3% 7% 

– –

Diagnostic imaging sector, consisting of electro-diagnostic apparatus, radiation apparatus and imaging parts & accessories forms the largest sub segment with 33% market share Consumables sector, forming 18% of the overall sector, is growing at a healthy rate of 17% (2008-13E). This is the only segment with a positive balance of trade IV diagnostics segments, including instruments and reagents, forms c.10% of the overall market, having grown at a CAGR of 21% for the period 2008-13E Patient aids is the fastest growing segment, having grown at a CAGR of 36% for the period 2008–13E. The market consists of portable aids and therapeutic appliances Orthopaedics and prosthetics market, forming 8% of the overall market, is the second fastest growing segment Dental products primarily include „capital equipments‟ – dental drill, dental chairs, etc. and „instruments & supplies‟ – dental cement, teeth & other fittings etc. Other medical devices segment includes wheel chairs, ophthalmic instruments, hospital furniture, medical & surgical sterilizers ultra violet apparatus

9% 10%

16%




Diagnostic Imaging Patient Aids Others Consumables Ortho & Prosthetics IV Diagnostics Dental Products

Source: Espicom Q4’2013 Indian Medical Devices Report, Medical Buyer, o3 Analysis Assumed USD/INR - 60

 



All the sub segments are delivering a double digit growth rate (for the period 2008 – 13)
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Section 2
Growth Drivers and Trends

Growth Drivers Emerging Trends

Growth Drivers


Increase in Healthcare Facilities

The average real household disposable income of Indians is expected to grow at a CAGR of 5.3% in the period from 2005 to 2025. This is causing increased demand and ability to pay for quality healthcare, leading to expansion of corporate hospitals – Leading chains like Apollo, Fortis, Narayana Healthcare, Manipal and HCG are setting up new hospitals, thus investing in high-end medical equipment

Chart 4: Cost Structure for a 250 Bedded Hospital Set-Up
Other Equipments 7% Medical Equipment 29%

Land 33% Building and Utilities 31%
Source: Industry Reports



Due to the Government thrust on healthcare reform, the public health delivery system is also expected to grow. The Planning Commission has allocated USD 50 bn under the 12th Five-Year Plan (FY13 - FY17) to the Ministry of Health and Family Welfare The emergence of India as a preferred destination for medical tourism is also encouraging the expansion of hospitals. Medical tourism is expected to grow at a CAGR of over 25% for the period from 2012 to 2015E Medical equipment accounts for 29% of the total cost incurred in setting up a hospital (250 bedded). Hence, the growth of the hospital sector will simultaneously ensure the growth of the medical equipment sector

Chart 5: Growth of Indian Hospital Sector



CAGR: 17.5%
55 46 38 32 22 26 58



2007

2008

2009

2010

2011

2012

2013E

Source: Industry Reports. Figures in USD bn Please note in the 2007 – 2013 period, INR has depreciated at a CAGR of 6% against USD, and hence growth rates measured in INR terms will be 20%+

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Growth Drivers Emerging Trends

Growth Drivers (contd.)
 Global medical equipment outsourcing market is forecasted to reach USD 40 bn by 2016 growing at a CAGR of 16.3%
– Regions such as Latin America, India and China are expected to attract increased interest from MNCs due to their competitive benefits – low cost and highly qualified specialists

Increase in Outsourcing
Highly qualified medical specialists

Engineering expertise Location advantage to penetrate Asian markets Outsourcing to India Experience in long distance project execution



Multinational device makers are outsourcing or relocating their manufacturing operations to India – Philips Healthcare plans to make India production hub to serve the emerging markets in Asia Pacific. GE, Siemens, Toshiba etc are also ramping up their operations in India

Quality product development



Outsourcing of laboratory trials and R&D will lead to growing demand for diagnostic equipments – About 70 multinational companies including Eli Lilly, GE and Delphi, have R&D facilities in India

Lower wages



Indian companies have started to comply with ISO and GMP standards to increase confidence levels of foreign companies and promote outsourcing interest in manufacturing in India

Table 1: Government Initiatives Driving the Sector



Government Initiatives

Driver National Rural Health Mission (NRHM) Rashtriya Swasthya Bima Yojana (RSBY) National Health Policy (NHP) Government contracts & grants

Action taken Mobile healthcare delivery outlay in 2012-13 budget further increased Launch of health insurance coverage for Below Poverty Line (BPL) families Aims to increase public health expenditure to 2.5% of GDP by 2017 Setting up of hospitals and Community Health Centers both in urban and rural areas 

Welfare programmes and policy measures of the Government are indirectly supporting the medical equipment industry The government is currently working towards establishing a medical regulatory agency, in addition to new legislation around medical devices, in order to create a fair and legitimate marketplace The government is taking steps to collaborate with the private sector to offer quality services at a subsidized cost



Source: Industry Reports

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Growth Drivers Emerging Trends

Growth Drivers (contd.)
 Unhealthy dietary patterns, lack of physical exercise and rising stress levels have led to an alarming increase in the incidence of lifestyle disorders such as cardiovascular diseases, diabetes, cancer etc These are expected to spur the demand for orthopaedic devices, cardiovascular devices, ophthalmic devices, diagnostic imaging products and in-vitro diagnostics – – Diagnostic imaging market is expected to grow at a rate of 17% annually till 2018 Orthopaedic products market, valued at USD 443 mn in 2013E, has grown at a CAGR of 33.0% for the period 2008 – 13E Chart 6: Percentage of Population with Lifestyle Diseases
6.0% 5.0% 4.0% 3.3% 3.0% 2.0% 1.0% 0.2% 0.0% CHD Diabetes 2005 Source: Industry Reports Asthma 2015E Obesity Cancer 2.8% 2.5% 2.7% 4.9% 3.7%

Rising Prevalence of Lifestyle Diseases



2.6%

1.3%
0.2%



Medical devices companies have launched various products to address fast growing lifestyle diseases segment – Roche’s ‘Accu-Check’ Go blood glucose monitors; J&J has recently launched ‘One Touch’ diabetes reading monitor in India



Rising proportion of Senior Citizens


India‟s average life expectancy over the past two decades has significantly improved from 57 years to 64 years (as per WHO statistics) and is likely to increase further – The %age of population above 60 years of age is increasing

Chart 7: Age Wise Population Distribution
58% 35% 65%

25%
7%

11%

A rise in the aged population will increase the demand for medical devices like blood pressure monitors, glucometers, wheelchairs etc

2001 0-14
Source: Industry Reports

2012 15-59 60+

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Growth Drivers Emerging Trends

Trends in the Sector
 There have been several instances where international companies have tied up with their Indian counterparts for R&D, technical innovations and marketing arrangements On July 30, 2012, DiaSorin, an Italian clinical diagnostics company, entered into a joint development agreement with the Indian firm Trivitron Healthcare. The agreement would provide an entry to DiaSorin in the Indian IVD market On May 23, 2012, Everist Genomics (EGI), a US based manufacturer of monitoring and cancer diagnostic products, formed a JV with Manipal Group in India to tap the market primarily for sales of its mobile monitoring devices On Sep 6, 2011, Welch Allen, a US based manufacturer of diagnostic products and medical devices engaged Garuda Med Equipments as its exclusive marketing and distribution partner in India On Aug 25, 2011, Trivitron Healthcare entered into a partnership with Hitachi Medical Systems to market latter's high-end medical imaging solutions in India

International Collaborations

Trivitron – DiaSorin

Manipal Group – Everist Genomics

Garuda – Welch Allen

Trivitron – Hitachi



Demand from Tier 2/3 Location Hospitals

Hospitals in tier 2/3 locations are driving the demand for medical devices market. In addition to new hospitals being set up, existing hospitals, which earlier did not have adequate equipments, are sourcing new/refurbished equipments Domestic players, which supply products at lower cost as compared to MNCs, will benefit here – Companies such as Mysore-based Skanray Technologies, have taken advantage of such gaps in medical treatment and brought out products that cheap but effective. For instance, Skanray's USB-based ECG unit called „Cardiskan‟ converts laptops, or personal computers, into a 12 -channel electrocardiogram system. As a result, rural diagnostic centres can now offer ECGs for as low as 20% of the cost they earlier used to charge Skanray is also planning to launch a highly cost effective ultrasound machine, which would offer similar cost benefits to diagnostic chains and customers



– 

Tier 2/3 locations become all the more important with a number of diagnostic centres coming up, thereby creating a market for medical devices

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Growth Drivers Emerging Trends

Trends in the Sector (contd.)


Usage of Refurbished Medical Devices

India is an established market for refurbished medical devices. Key product segments in India include - diagnostic imaging devices such as CT and MRI scanners, C-arms, patient monitoring devices, anesthesia equipment, laboratory equipment Small hospitals operating in tier 2/3 cities of the country are struggling to meet the cost of new imaging equipments, resulting in increased opportunities for low-cost medical devices. Refurbished medical devices are sold at 40–50% discounts compared with the cost of new equipments in the country The market in India is growing at over 15% per year. About 5% of the overall revenues generated from the sales of medical devices in the country are accounted for by refurbished medical devices. Japan serves as the key supplier of refurbished medical devices to India GE has invested in setting up a facility in Bangalore to overhaul about 150 refurbished medical imaging units for sale in India









M&A / Consolidation in the Sector

The Indian medical devices industry is witnessing consolidation as Indian players try to gain access to foreign markets and consolidate their positions at home and at the same time, foreign companies enter India through acquisitions Some recent instances of domestic and inbound M&A include: – – – – India based Skanray acquired Pricol Engineering and L&T Medical & Systems Purple Medical Solutions acquired MIV Therapeutics Smith & Nephew acquired Adler Mediequip Essilor International acquired Optics India





Instances of recent outbound acquisitions include: – – Transasia Bio Medical acquired Maxmat, Drew Scientific and JAS Diagnostics Trivitron acquired Labsystems Diagnostics

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Growth Drivers Emerging Trends

Trends in the Sector (contd.)
 Private equity community has shown increased interest in the Indian medical devices sector. Around 9 private equity investments have been witnessed in the CY 2013. Investment targets primarily include medical consumables and diagnostic equipments companies Some of the well known brands in India have witnessed multiple rounds of funding in the recent past – Trivitron, Sutures India and Perfint Healthcare Some of the recent PE investments in the space include – – IVFA invested in Trivitron Healthcare, Norwest invested in Perfint Healthcare, Ascent Capital invested in Skanray, Goldman Sachs invested in BPL Technologies Samara Capital invested in Lotus Surgicals, TPG invested in Sutures India

Private Equity Investments

 



Medical Equipment Financing

Healthcare equipment financing is picking up in India and is making setting up of a healthcare facility affordable and effective. It is an option available to the growing healthcare facilities as they plan to grow their patient care capabilities. Such facilities can lead to greater levels of penetration, making medical technology accessible to smaller hospitals, medical practitioners and pathological laboratories Financing services provided by medical equipment manufacturing companies turns out to be cheaper as compared to bank debt financing. Some of the such manufacturing companies providing financing services in India include GE Capital, Siemens, Phillips, amongst others



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Section 3
Key Industry Segments

Diagnostic Imaging Overview

Diagnostic Imaging Segment
Key Highlights   Diagnostic imaging is the largest segment of the Indian medical devices sector, constituting c.30% of the overall segment The segment is also the largest contributor to the overall imports for the Indian medical devices sector, c.33% –  Majority of the higher-end diagnostic equipments such as MRI, CT Scanners, etc. are imported
Radiation Apparatus 26%

Chart 8: Indian Diagnostic Imaging Segment Breakup, 2013E
Total Market Size = USD 1,885 mn Imaging Parts & Accessories 34%

Electrodiagnostic Apparatus 40%

The segment can be broken down into: – – – Electro-diagnostic apparatus: Includes ECG, ultrasound, MRI, amongst others Imaging parts and accessories: Includes contrast media, medical Xray film, X-ray tubes Radiation apparatus: Includes CT scanners and other medical X-ray apparatus

Chart 9: Indian Diagnostic Imaging Segment Growth
CAGR: 13.6%
1,619 1,312 995 1,048 1,166

1,885



Due to the large capital expenditure and high level of competition, equipments are generally leased out. In this way, hospitals and laboratories save on capital expenditure



Strong growth is expected in the low-end and mid-range systems purchased by small hospitals and facilities in rural areas
Table 2: Key Players in the Segment     GE Healthcare Philips Healthcare Siemens Medical Solutions Hitachi Medical     Schiller Healthcare Toshiba Medical Systems Trivitron Cura Medical Equipment
2008 2009 2010 2011 2012 2013E

Source: Espicom Q4’2013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60

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Consumables Overview

Medical Consumables Segment
Key Highlights    Medical consumables is the second largest segment of the Indian medical devices sector, constituting c.16% of the overall segment The segment is the only trade surplus segment of the Indian medical devices sector The segment can be broken down into: – Syringes, needles and catheters: Largest subcategory of the consumables market (70%, USD 723 mn). Key Indian player engaged in the segment is 'Hindustan Syringes and Medical Devices' Bandages and dressings: Forms c.11%, USD 114 mn of the consumables market. Due to the existence of a sizeable local manufacturing base producing basic dressings, only around a third of the market is supplied via imports Suturing material: Forms c.6%, USD 62 mn of the consumables market. Around a third of the market is supplied via imports. Key foreign player is Ethicon, a Johnson & Johnson brand. Indian players include Sutures India, Lotus Surgicals, Centennial Sutures Other consumables: Forms c.13%, USD 134 mn of the consumables market. The market consists of products such as blood-grouping reagents, first-aid kits, ostomy products and surgical gloves
560 463

Chart 10: Indian Medical Consumables Segment Breakup, 2013E
Other Consumables 13% Total Market Size = USD 1,033 mn

Suturing Material 6%

Bandages and Dressings 11%

–

Syringes, Need les, Catheters 70%

Chart 11: Indian Medical Consumables Segment Growth
CAGR: 17.4%
1,033 887 706 576

–

–

Table 3: Key Players in the Segment     Hindustan Syringes Ethicon B Braun Sutures India     Kanam Latex
2008 2009 2010 2011 2012 2013E

Stericat Sutures Lotus Surgicals Centennial Sutures

Source: Espicom Q4’2013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60

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IV Diagnostics Overview

In-Vitro Diagnostics Segment
Key Highlights   In-Vitro Diagnostics segment forms c.10% of the Indian medical devices sector and is estimated to be worth USD 660 mn in 2013E The segment includes both instruments and reagents
Microbiology 10% Hematology 13% Biochemistry 21%

Chart 12: Indian Diagnostic Imaging Segment Breakup, 2013E
Others 12%
Total Market Size = USD 660 mn



The segment can be broken down into:
– Immuno-chemistry: Forms c.44% of the overall IV diagnsotics segment and is estimated to be worth USD 291 mn in 2013, growing at a CAGR of 30% for the period 2008 – 13 Bio-chemistry: Forms c.21% of the overall segment and is estimated to be worth USD 137 mn in 2013, growing at a CAGR of 16% for the period 2008 – 13 Hematology: Forms c.13% of the overall segment and is estimated to be worth USD 88 mn in 2013, growing at a CAGR of 17% for the period 2008 – 13 Microbiology: Forms c.10% of the overall segment and is estimated to be worth USD 69 mn in 2013, growing at a CAGR of 18% for the period 2008 – 13

Immunochemistry 44%

–

–

Chart 13: Indian Diagnostic Imaging Segment Growth
CAGR: 21.3%
542

660

–

421
366 312 252

–

Others: Includes Blood gas and electrolyte, coagulation instruments, molecular diagnostics and urinalysis instruments and is estimated to be worth USD 75 mn in 2013

Table 4: Key Players in the Segment    Transasia Bio-Medicals CPC Diagnostics Roche Diagnostics    Accurex Biomedical Beckman Coulter Span Diagnostics
2008 2009 2010 2011 2012 2013E

Source: Medical Buyer, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60



Siemens



Tulip Diagnostics

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Patient Aids Overview

Patient Aids Segment
Key Highlights  Patient Aids segment forms c.9% of the overall India medical devices sector and is estimated to be worth USD 582 mn in 2013E –  Fastest growing segment within the Indian medical devices sector, having grown at a CAGR of 36% for the period 2008 – 13E Chart 14: Indian Patient Aids Segment Breakup, 2013E
Total Market Size = USD 582 mn

Segment can be broken down into: – Portable aids: Includes hearing aids and pacemakers. Forms c.72%, USD 419 mn of the overall segment – Over 90% of the market is supplied by imports, which are primarily sourced from Ireland and the USA, with Australia, Denmark and Singapore additional sources of supply Chart 15: Indian Patient Aids Segment Growth
CAGR: 35.6% Therapeutic Appliances 28% Portable Aids 72%

–

Therapeutic appliances: Includes mechano-therapy and artificial respiration apparatus. Forms c.28%, USD 163 mn of the overall segment
– Imports supply the majority of the market with China, the USA and South Korea the leading suppliers

582 473

Table 5: Key Players in the Segment
263

322

  

St Jude Medical Phonak India Medtronics

  

Shree Pacetronix Medi Safe International MediVed

192

127

2008

2009

2010

2011

2012

2013E

Source: Espicom Q4’2013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60

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Orthopaedics Overview

Orthopaedics and Prosthetics Segment
Key Highlights  Orthopaedics and prosthetics segment forms c.7% of the overall India medical devices sector and is estimated to be worth USD 443 mn in 2013E – –  Segment has grown at a high rate of 33% for the period 2008 – 13E Imports account for around 90% of the market, with the USA being the leading supplier of imported products
Fixation Devices 17% Artificial Joints 26%

Chart 16: Indian Orthopedics & Prosthetics Segment Breakup, 2013E
Total Market Size = USD 443 mn

Other Artificial Body Parts 57%

Segment can be broken down into: – Fixation devices: Forms c.17%, USD 75 mn of the overall segment – – Switzerland was the leading supplier of imported fixation devices in 2012 with a 40% share, followed by the USA and Germany

Artificial joints: Forms c.26%, USD 115 mn of the overall segment – Over 90% of the market is supplied by imports, the majority of which are sourced from the USA

Chart 17: Indian Orthopedics & Prosthetics Segment Growth
CAGR: 32.9%
443 352 245 193 143 107

–

Other artificial body parts: Largest subcategory within the orthopaedics & prosthetics market forms c.57%, USD 252 mn of the overall segment

–

Majorily import driven with US being the key supplier to the market

Table 6: Key Players in the Segment    Smith & Nephew Johnson & Johnson Zimmer Holdings    Stryker Orthopaedics Narang Medical Atlas Surgical Company

2008

2009

2010

2011

2012

2013E

Source: Espicom Q4’2013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60

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Dental Products Overview

Dental Products Segment
Key Highlights  Dental products segment forms c.3% of the overall India medical devices sector and is estimated to be worth USD 198 mn in 2013E –  Segment has grown at a high rate of 21% for the period 2008 – 13E
Capital Equipments 16%

Chart 18: Indian Dental Products Segment Breakup, 2013E
Total Market Size = USD 198 mn

Dental products segment can be broken down into: – Capital equipments: Forms c.16%, USD 32 mn of the overall dental products segment. Includes products such as dental drills, dental chairs and dental x-ray – The majority of the market is supplied by imports. In terms of principal suppliers, dental drill engines are primarily sourced from South Korea, X-ray apparatus from Finland and dental chairs from China Chart 19: Indian Dental Products Segment Growth
CAGR: 21.0%
198 163 117

Instruments & Supplies 84%

–

Instruments & supplies: Forms c.84%, USD 167 mn of the overall dental products segment. Includes products such as dental cement, teeth & other fittings, artificial teeth and other dental fittings – Majority of the market is supplied by imports with Germany and USA being the main suppliers

Table 7: Key Players in the Segment
76

101 82

 

Danaher Corporation Midmark Corporation

 

Medi Ray Healthcare Meditech India
2008 2009 2010 2011 2012 2013E



Confident Dental



Mectron India

Source: Espicom Q4’2013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60

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Other Medical Devices Overview

Other Medical Devices Segment
Key Highlights   'Other medical devices' sector is estimated to be worth USD 1,499 mn in 2013E, having grown at a CAGR of 14% for the period 2008 – 13E Key segments included in other medical devices include: – – – – – Ophthalmic Instruments. Includes cataract and refractive surgery devices. Forms c.19%, USD 285 mn of the segment Hospital Furniture. Forms c.4%, USD 60 mn of the segment Medical, surgical sterilisers. Forms c.4%, USD 60 mn of the segment Wheelchairs. Includes mechanically propelled and not mechanically propelled wheelchairs. Forms c.2%, USD 30 mn of the segment Other. Includes blood pressure monitors, endoscopy apparatus, dialysis apparatus, anaesthetic instruments, amongst others. Forms c.71%, USD 1,064 mn of the segment
Other 71% Wheelchairs 2%

Chart 20: Indian Other Medical Devices Segment Breakup, 2013E
Ophthalmic Instruments 19% Total Market Size = USD 1,499 mn Hospital Furniture 4%

Medical, Surg ical Sterilisers 4%

Chart 21: Indian Other Medical Devices Segment Growth
CAGR: 13.9%

1,499 1,321

Table 8: Key Players in the Segment
1,050

  

Fresenius Kabi Midmark Corporation ASCO

  

Medi Ray Healthcare Atlas Surgical Company Narang Medical

922 783 765

2008

2009

2010

2011

2012

2013E

Source: Espicom Q4’2013 Indian Medical Devices Report, o3 Analysis. Figures in USD mn. Assumed USD/INR - 60

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Section 4
Regulatory Environment

Regulations Governing the Segment
1 Act regulating the medical devices segment in India In India, medical devices industry remains unregulated, however, only certain equipments are regulated through the Drugs & Cosmetics Act 1940 & Rules 1945
A list of medical devices notified under the Drugs and Cosmetics Act and hence regulated includes:       Disposable Hypodermic Syringes and Needles Disposable Perfusion Sets In-vitro Diagnostic Devices Cardiac Stents Drug Eluting Stents Catheters        Intra Ocular Lenses I.V. Cannulae Bone Cements Heart Valves Scalp Vein Set Orthopaedic Implants Internal Prosthetic Replacements

Indian medical devices industry remains unregulated with only a few products regulated through the provisions of Drugs & Cosmetics Act. Such regulated products are classified as ‘drugs

The latest amendments bill, the Drugs and Cosmetics Bill, 2013, has been sent to the Parliament, after being cleared by the Union Cabinet in July 2013 and aims to replace the Drugs and Cosmetics Act, 1940, which was amended in 2008. It is expected to have separate chapter on medical devices. The new bill also aims to establish a Medical Devices Technical Advisory Board, in line with the existing Drugs Technical Advisory Board. Once the Bill is passed, the definition of medical device will no longer be read in the light of the definition of „drugs‟ as specified under the Drugs and Cosmetics Act.

2

Foreign Investment Promotion Board (FIPB) approvals India permits 100% FDI in pharmaceutical sector through automatic approval route in the new projects but the foreign investment in the existing pharmaceutical companies are allowed only through FIPB's approval Given medical devices falls under the category of pharmaceuticals in India, FIPB approval process applies to any foreign investment in the sector
Foreign investments in the Indian medical devices sector have to adhere to FIPB guidelines

Source: CDSCO, News articles, Espicom Q4’2013 Indian Medical Devices Report

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Requirements for the Manufacture, Import and Sale of Devices
 In Feb 2009, the Drug Consultative Committee (DCC) and the Drug Technical Advisory Board (DTAB) approved new formal regulations for India's medical device sector  An Expert Committee consisting of experts of relevant fields of the devices constituted by the Government shall assist the Central Licensing Approval Authority (CLAA) in evaluation of application of devices  Under these guidelines: – Medical devices shall be classified as per their risk level and intended use – Medical devices sold in India should bear the ICAC mark to indicate their conformity with the provisions of this schedule to enable them to move freely within the country and to be put into service in accordance with their intended purpose – Once a medical device is placed on the market in India, the manufacturer shall adhere to requirements of post-marketing surveillance (PMS) to systematically monitor the performance of the device during use
C Moderate-high risk Lung ventilator, bone fixation plate Table 9: Conformity Assessment for Medical Devices

Class

Risk Level

Device Examples Thermometer, tongue depressor

Conformity Assessment Procedure

A

Low risk

Sole responsibility of manufacturers, no need of manufacturing license from CLAA
Notified body should assess and certify the manufacturing facility quality management system, manufacturer must register with CLAA Certification by notified body is required with regard to the design and manufacture of the device, manufacturers must apply for a license from CLAA Devices manufacturing facility will be inspected jointly by CLAA and state licensing authority, certification by notified body is required with regard to the design and manufacture of the device, manufacturers must apply for a license from CLAA

B

Low-moderate risk

Hypodermic needle, suction equipment

D

High risk

Heart valve, implantable defibrillator

With the increased emphasis on safety and quality standards, these regulations are expected to improve the opportunities for India’s medical devices sector. At the same time, due to the high level of conformity and approvals required, smaller players may find themselves at a disadvantage, thus encouraging consolidation in the market
Source: CDSCO, www.icac.in

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Section 5
Transactions in India Medical Devices Sector

Transactions Private Equity

Private Equity Investments in Indian Medical Devices Sector
Table 10: Private Equity Investments in Indian Medical Devices Sector
Date Investor 2013 India Value Fund Advisors 2013 Samara Capital Target Trivitron Lotus Surgical Sutures Deal Value 25.0 25.0

2013 New Enterprise Associates
2013 TPG Growth 2013 Ascent Capital 2013 Goldman Sachs 2013 Norwest Venture 2012 CX Partners 2012 Fidelity Growth Partners India

Panacea Medical
Sutures India Skanray Technologies BPL Medical Technologies Perfint Healthcare Sutures India Trivitron

5.8
24.2 15.0 18.3 10.0 33.3 29.2

140 13 120 100 80 60 102 40 20 0 Prior CY2012 CY2013 # of Deals 39 124 9 9

14 12 10 8 6 4 2 0

2012 India Innovation Fund and Indian Angel Network
2012 Peepul Capital 2012 Accel Management; Norwest Venture; IDG Ventures 2012 Accel Management; IDG Ventures 2010 Accel Management; Norwest Venture; IDG Ventures 2009 Evolvence Life Sciences

Consure Medical
CURA Healthcare Perfint Healthcare Forus Health Perfint Healthcare Sutures India

NA
16.2 6.0 5.0 8.4 7.0

Deal Value (USD mn)

Source: Capital IQ, vccedge.com, Industry research; Deal Value in USD mn. Assumed USD/INR – 60

Around 31 private equity investments have been made in the Indian medical devices sector with a combined deal value of USD 265 mn. Investments have picked up in the last 2 years with CY12 and CY13 accounting for 18 such investments with total deal value of USD 226 mn.
Segments which have got funded primarily include diagnostic imaging and medical consumables.

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Transactions M&A

M&A Transactions in Indian Medical Devices Sector
Table 11: Inbound / Domestic M&A Transactions in Indian Medical Devices Sector
Date Buyer Target Pricol Engineering Adler Mediequip Deal Value NA NA

2013 Skanray Healthcare 2013 Smith & Nephew

2012 Skanray Healthcare
2012 Purple Medical Solution 2012 Essilor International 2011 Siemens Ltd 2011 The Barwale Group 2011 Trivitron Healthcare 2010 Marck Biosciences

L&T Medical & Systems
MIV Therapeutics (India) Optics India Siemens Healthcare Diagnostics John Fowler Ocular Lenses Kiran Medical Systems Limited Ravish Infusions

NA
NA NA 31.2 NA NA 1.2

2010 Opto Circuits India
2009 TTK Healthcare 2008 Philips Healthcare 2008 Trivitron Healthcare 2008 Philips Healthcare 2008 Siemens Medical Solutions

NS Remedies
Orthopaedic implants business of Invicta Meditek Meditronics Vision Engineering Alpha X-Ray Technologies Dade Behring Diagnostics

1.5
NA NA 1.7 NA 9.6

Indian medical devices sector has witnessed a mix of domestic, inbound and outbound acquisitions. Opto Circuits – India’s largest medical devices company – has made some big ticket acquisitions in the US and European markets.

Table 12: Outbound M&A Transactions in Indian Medical Devices Sector Date Buyer Target Maxmat Labsystems Diagnostics Drew Scientific and JAS Diagnostics Cardiac Science Unetixs Vascular Deal Value NA 20.3 NA 54.8 9.7

2012 Transasia Bio Medical 2012 Trivitron Healthcare 2012 Transasia Bio Medical 2010 Opto Circuits 2010 Opto Circuits

2008 Opto Circuits
2006 Opto Circuits

Criticare Systems
Eurocor

70.0
13.0

Source: Capital IQ, vccedge.com, Industry research; Deal Value in USD mn. Assumed USD/INR – 60

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Gawir Baig [email protected] +91 98335 95806

Prashant Jain [email protected] +91 99723 91391 New York Mumbai Bangalore Arun S [email protected] +91 98200 55097

www.o3capital.com

o3 House No. 27, Magrath Road Bangalore – 560025 Tel: +91 80 4241 0000 [email protected]

Saurabh Soni [email protected] +91 97315 22278

o3 Capital is the exclusive Indian member of IMAP (www.imap.com) – Global M&A Advisory

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