Indian Medical Devices Sector Report

Indian Medical Devices Sector

Sector Report

January 2014

Indian Medical Devices Sector

January 2014

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2Private and Confidential

Methodology and List of Abbreviations Used

3

Term Description

SME Small and Medium Enterprises

CY Calendar Year

FY Fiscal Year

FDA Food and Drug Administration

CDSCO Central Drugs Standard Control Organization

ISO International Organization for Standardization

GMP Good Manufacturing Practices

FDI Foreign Direct Investment

FIPB Foreign Investment Promotion Board

WHO World Health Organization

CLAA Central Licensing Approval Authority

IVD In Vitro Diagnostic

ECG Electrocardiogram

CT Computed Tomography

MRI Magnetic Resonance Imaging

GDP Gross Domestic Product

Private and Confidential

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

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

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

1

2

3

4

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

5

Table of Contents


Title Slide No.

Section 1: Industry Overview 6 – 11

Industry Overview 7

Market Evolution 8

Growth Drivers and Key Trends 9

Industry Landscape –Key Indian Players 10

Key Industry Segments 11

Section 2: Growth Drivers and Trends 12 – 18

Growth Drivers 13 – 15

Key Trends in the Sector 16 – 18

Section 3: Key Industry Segments 19 – 25

Diagnostic Imaging Segment 20

Medical Consumables Segment 21

In-Vitro Diagnostics Segment 22

Patient Aids Segment 23

Orthopaedics and Prosthetics Segment 24

Dental Products Segment 25

Other Medical Devices Segment 26

Section 4: Regulatory Environment 27 – 29

Section 5: Transactions in the Segment 30 – 32

Private Equity Investments 31

M&A Transactions 32

Contact Details 33

Section 1

Industry Overview

7

Industry Overview


Indian medical devices is a high growth industry currently dominated by imports

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

Key Highlights Chart 1: Indian Healthcare Sector, 2013E

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

2.8 3.13.6

4.2

5.46.3

7.4

8.7

10.2

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E

CAGR: 17.2%

Source: Espicom Q4’2013 Indian Medical Devices Report, Medical Buyer, o3

Analysis. Figures in USD bn. Assumed USD/INR - 60

CAGR: 17.4%

Hospitals75%

Pharma14%

Medical Devices

8%

Diagnostics3%

Total Market Size = USD 77.8 bn

8

Market Evolution


Emergence of Indian

Players Both in Hi-Tech

and Low-Tech Medical

Devices Segments

Moving Towards a Well

Established and Regulated

Sector

Domination of Foreign

Medical Device

Companies

Timeline

Growth

Post 2013 - Boom Phase?1980s - CurrentBefore 1980s

– 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

– Foreign medical device

companies sell products

through distributors

Figure 1: Evolution of Medical Devices Sector in India

Source: o3 Analysis

9

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:

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

Growth Drivers

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

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

Key Trends

10

Industry Landscape – Key Indian Players


Figure 2: Indian Medical Devices – Key Indian Players

SEGMENT GROWTH RATE (2008-13)

Cardiac Stents,

Pacemakers, Implants

Growth – 34.4%

FY

13 R

EV

EN

UE

S (

US

D m

n)

Medical Consumables

Growth – 17.4%

In a market dominated by

exports, medical consumables

is the only trade surplus sub

segment

10

20

50

150

Hospital Furniture

and Others

Growth – 14.6%

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

Diagnostic Imaging

and IV Diagnostics

Growth:15.3%

11

Key Industry Segments


All the sub segments are delivering a double digit growth rate (for the period 2008 – 13)

30%

16%

10%

9%

7%

3%

24%

Diagnostic Imaging Consumables IV DiagnosticsPatient Aids Ortho & Prosthetics Dental ProductsOthers

Chart 3: Indian Medical Devices Sector, 2013E

Total Market Size = USD 6.3 bn

Source: Espicom Q4’2013 Indian Medical Devices Report, Medical Buyer, o3 Analysis

Assumed USD/INR - 60

The Indian medical devices sector can be broadly classified into 6 key

segments:

– Diagnostic imaging

– Consumables

– IV diagnostics

– Patient aids

– Orthopaedics & prosthetics

– Dental products

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

Section 2

Growth Drivers and Trends

13

Growth Drivers


Chart 4: Cost Structure for a 250 Bedded Hospital Set-Up

Medical Equipment

29%

Building and Utilities

31%

Land33%

Other Equipments

7%

Chart 5: Growth of Indian Hospital Sector

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

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

Source: Industry Reports

Increase in

Healthcare

Facilities

Emerging Trends

Growth Drivers

2226

32

38

46

5558

2007 2008 2009 2010 2011 2012 2013E

CAGR: 17.5%

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%+

14

Growth Drivers (contd.)


Increase in

Outsourcing

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

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

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

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

Outsourcing to India

Engineering expertise

Location advantage to

penetrate Asian markets

Quality product

development

Lower wages

Experience in long distance

project execution

Highly qualified medical

specialists

Emerging Trends

Growth Drivers

Government

Initiatives

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

Driver Action taken

National Rural Health

Mission (NRHM)

Mobile healthcare delivery outlay in

2012-13 budget further increased

Rashtriya Swasthya Bima

Yojana (RSBY)

Launch of health insurance coverage

for Below Poverty Line (BPL) families

National Health Policy

(NHP)

Aims to increase public health

expenditure to 2.5% of GDP by 2017

Government contracts &

grants

Setting up of hospitals and

Community Health Centers both in

urban and rural areas

Table 1: Government Initiatives Driving the Sector


15

Growth Drivers (contd.)


Rising

proportion of

Senior Citizens

Chart 7: Age Wise Population Distribution

35%25%

58%65%

7% 11%

2001 2012

0-14 15-59 60+

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

A rise in the aged population will

increase the demand for medical devices

like blood pressure monitors,

glucometers, wheelchairs etc


Emerging Trends

Growth Drivers

Rising

Prevalence of

Lifestyle

Diseases3.3%

2.8%2.5%

1.3%

0.2%

4.9%

3.7%

2.7% 2.6%

0.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

CHD Diabetes Asthma Obesity Cancer

2005 2015E

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

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

Chart 6: Percentage of Population with Lifestyle Diseases


16

Trends in the Sector


International

Collaborations

There have been several instances where international companies have tied up with their Indian counterparts for

R&D, technical innovations and marketing arrangements

Trivitron – DiaSorin

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

Manipal Group –

Everist Genomics

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

Garuda – Welch AllenOn 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

Trivitron – HitachiOn Aug 25, 2011, Trivitron Healthcare entered into a partnership with Hitachi

Medical Systems to market latter's high-end medical imaging solutions in India

Emerging Trends

Growth Drivers

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

17

Trends in the Sector (contd.)


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

Emerging Trends

Growth Drivers

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

18

Trends in the Sector (contd.)


Emerging Trends

Growth Drivers

Private Equity

Investments

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

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

Section 3

Key Industry Segments

20

Diagnostic Imaging Segment


Key Highlights Chart 8: Indian Diagnostic Imaging Segment Breakup, 2013E

Electro-diagnostic Apparatus

40%

Radiation Apparatus

26%

Imaging Parts &

Accessories34%

Total Market Size = USD 1,885 mn

995 1,0481,166

1,312

1,619

1,885

2008 2009 2010 2011 2012 2013E

CAGR: 13.6%

Source: Espicom Q4’2013 Indian Medical Devices Report, o3 Analysis. Figures in

USD mn. Assumed USD/INR - 60

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

The segment can be broken down into:

– Electro-diagnostic apparatus: Includes ECG, ultrasound, MRI,

amongst others

– Imaging parts and accessories: Includes contrast media, medical X-

ray film, X-ray tubes

– Radiation apparatus: Includes CT scanners and other medical X-ray

apparatus

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

Overview

Diagnostic Imaging

Chart 9: Indian Diagnostic Imaging Segment Growth

GE Healthcare

Philips Healthcare

Siemens Medical Solutions

Hitachi Medical

Schiller Healthcare

Toshiba Medical Systems

Trivitron

Cura Medical Equipment

Table 2: Key Players in the Segment

21

Medical Consumables Segment


Key Highlights Chart 10: Indian Medical Consumables Segment Breakup, 2013E

Syringes, Needles, Catheters

70%

Bandages and Dressings

11%

Suturing Material

6%

Other Consumables

13%


463

560 576

706

887

1,033

2008 2009 2010 2011 2012 2013E

CAGR: 17.4%

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


– 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

Overview

Consumables

Chart 11: Indian Medical Consumables Segment Growth

Hindustan Syringes

Ethicon

B Braun

Sutures India

Kanam Latex

Stericat Sutures

Lotus Surgicals

Centennial Sutures




22

In-Vitro Diagnostics Segment


Key Highlights Chart 12: Indian Diagnostic Imaging Segment Breakup, 2013E

Immuno-chemistry

44%

Bio-chemistry

21%

Hematology13%

Microbiology 10%

Others12%

Total Market Size = USD 660 mn

252

312366

421

542

660

2008 2009 2010 2011 2012 2013E

CAGR: 21.3%

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

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


– 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

– Others: Includes Blood gas and electrolyte, coagulation

instruments, molecular diagnostics and urinalysis instruments and is

estimated to be worth USD 75 mn in 2013

Overview

IV Diagnostics

Chart 13: Indian Diagnostic Imaging Segment Growth

Transasia Bio-Medicals

CPC Diagnostics

Roche Diagnostics

Siemens

Accurex Biomedical

Beckman Coulter

Span Diagnostics

Tulip Diagnostics


23

Patient Aids Segment


Key Highlights Chart 14: Indian Patient Aids Segment Breakup, 2013E

Portable Aids72%Therapeutic

Appliances28%


127

192

263

322

473

582

2008 2009 2010 2011 2012 2013E

CAGR: 35.6%

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

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

– 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

Overview

Patient Aids

Chart 15: Indian Patient Aids Segment Growth

St Jude Medical

Phonak India

Medtronics

Shree Pacetronix

Medi Safe International

MediVed




24

Orthopaedics and Prosthetics Segment


Key Highlights Chart 16: Indian Orthopedics & Prosthetics Segment Breakup, 2013E

Other Artificial Body Parts

57%

Artificial Joints26%

Fixation Devices

17%


107143

193

245

352

443

2008 2009 2010 2011 2012 2013E

CAGR: 32.9%

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

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

– 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

Overview

Orthopaedics

Chart 17: Indian Orthopedics & Prosthetics Segment Growth

Smith & Nephew

Johnson & Johnson

Zimmer Holdings

Stryker Orthopaedics

Narang Medical

Atlas Surgical Company




25

Dental Products Segment


Key Highlights Chart 18: Indian Dental Products Segment Breakup, 2013E

Instruments & Supplies

84%

Capital Equipments

16%


76 82101

117

163

198

2008 2009 2010 2011 2012 2013E

CAGR: 21.0%

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

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

– 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

Overview

Dental Products

Chart 19: Indian Dental Products Segment Growth

Danaher Corporation

Midmark Corporation

Confident Dental

Medi Ray Healthcare

Meditech India

Mectron India




26

Other Medical Devices Segment


Key Highlights Chart 20: Indian Other Medical Devices Segment Breakup, 2013E

Ophthalmic Instruments

19% Hospital Furniture

4%

Medical, Surgical Sterilisers

4%

Wheelchairs2%

Other71%


783 765

922

1,050

1,321

1,499

2008 2009 2010 2011 2012 2013E

CAGR: 13.9%

'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

Overview

Other Medical Devices

Chart 21: Indian Other Medical Devices Segment Growth

Fresenius Kabi

Midmark Corporation

ASCO

Medi Ray Healthcare

Atlas Surgical Company

Narang Medical




Section 4

Regulatory Environment

28

Regulations Governing the Segment


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:

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.

1

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

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

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

2

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

Foreign investments in the

Indian medical devices sector

have to adhere to FIPB

guidelines

29

Requirements for the Manufacture, Import and Sale of Devices


Source: CDSCO, www.icac.in

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

Table 9: Conformity Assessment for Medical Devices

Class Risk Level Device Examples Conformity Assessment Procedure

A Low riskThermometer,

tongue depressor

Sole responsibility of manufacturers,

no need of manufacturing license from

CLAA

BLow-moderate

risk

Hypodermic needle,

suction equipment

Notified body should assess and

certify the manufacturing facility quality

management system, manufacturer

must register with CLAA

CModerate-high

risk

Lung ventilator,

bone fixation plate

Certification by notified body is

required with regard to the design and

manufacture of the device,

manufacturers must apply for a license

from CLAA

D High risk

Heart valve,

implantable

defibrillator

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

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

Section 5

Transactions in India Medical Devices Sector

Private Equity Investments in Indian Medical Devices Sector

31

Table 10: Private Equity Investments in Indian Medical Devices Sector


Private Equity

Transactions

Date Investor Target Deal Value

2013 India Value Fund Advisors Trivitron 25.0

2013 Samara Capital Lotus Surgical Sutures 25.0

2013 New Enterprise Associates Panacea Medical 5.8

2013 TPG Growth Sutures India 24.2

2013 Ascent Capital Skanray Technologies 15.0

2013 Goldman Sachs BPL Medical Technologies 18.3

2013 Norwest Venture Perfint Healthcare 10.0

2012 CX Partners Sutures India 33.3

2012 Fidelity Growth Partners India Trivitron 29.2

2012 India Innovation Fund and Indian Angel Network Consure Medical NA

2012 Peepul Capital CURA Healthcare 16.2

2012 Accel Management; Norwest Venture; IDG Ventures Perfint Healthcare 6.0

2012 Accel Management; IDG Ventures Forus Health 5.0

2010 Accel Management; Norwest Venture; IDG Ventures Perfint Healthcare 8.4

2009 Evolvence Life Sciences Sutures India 7.0

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.

39

102

124

13

9

9

0

2

4

6

8

10

12

14

0

20

40

60

80

100

120

140

Prior CY2012 CY2013

Deal Value (USD mn) # of Deals

M&A Transactions in Indian Medical Devices Sector

32

Table 11: Inbound / Domestic M&A Transactions in Indian Medical Devices Sector


Date Buyer Target Deal Value

2013 Skanray Healthcare Pricol Engineering NA

2013 Smith & Nephew Adler Mediequip NA

2012 Skanray Healthcare L&T Medical & Systems NA

2012 Purple Medical Solution MIV Therapeutics (India) NA

2012 Essilor International Optics India NA

2011 Siemens Ltd Siemens Healthcare Diagnostics 31.2

2011 The Barwale Group John Fowler Ocular Lenses NA

2011 Trivitron Healthcare Kiran Medical Systems Limited NA

2010 Marck Biosciences Ravish Infusions 1.2

2010 Opto Circuits India NS Remedies 1.5

2009 TTK Healthcare Orthopaedic implants business of Invicta Meditek NA

2008 Philips Healthcare Meditronics NA

2008 Trivitron Healthcare Vision Engineering 1.7

2008 Philips Healthcare Alpha X-Ray Technologies NA

2008 Siemens Medical Solutions Dade Behring Diagnostics 9.6

Table 12: Outbound M&A Transactions in Indian Medical Devices Sector

Date Buyer Target Deal Value

2012 Transasia Bio Medical Maxmat NA

2012 Trivitron Healthcare Labsystems Diagnostics 20.3

2012 Transasia Bio Medical Drew Scientific and JAS Diagnostics NA

2010 Opto Circuits Cardiac Science 54.8

2010 Opto Circuits Unetixs Vascular 9.7

2008 Opto Circuits Criticare Systems 70.0

2006 Opto Circuits Eurocor 13.0

M&A

Transactions

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

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.

Contact Details

Mumbai

Bangalore

New York

o3 House

No. 27, Magrath Road

Bangalore – 560025

Tel: +91 80 4241 0000

[email protected] www.o3capital.com

635 Madison Avenue

15th Floor

New York, NY – 10022

Tel: +1 212 826 0303

[email protected]

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

901, Piramal Tower, Peninsula Corporate Park

G.K. Marg, Lower Parel

Mumbai – 400013

Tel: +91 22 6111 5700

[email protected]

Shiraz Bugwadia

[email protected]

+91 98205 53003

Prashant Jain

[email protected]

+91 99723 91391

Gawir Baig

[email protected]

+91 98335 95806

Arun S

[email protected]

+91 98200 55097

Saurabh Soni

[email protected]

+91 97315 22278

Private and Confidential 33

Documents

Indian Medical Devices Sector Report