Is BRIC the Is BRIC the SaviorSavior for the Life for the Life Sciences and Medical Devices Sciences and Medical Devices

Sector?Sector?

Are Are you focusing on the right opportunities and best you focusing on the right opportunities and best practices in these markets? practices in these markets?

© 2013 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

15th May 2013

Reenita Das

Partner, Senior Vice President , Healthcare

Today’s Presenters

Eduardo Golisano Siddharth Saha

2

Business Leader, Healthcare, BRAZIL

Glenn Hou

Executive Director, Healthcare , CHINA

Program Leader, MedTech, RUSSIA

Sandeep Sinha

Director, Healthcare, INDIA

What are the roadblocks to

realizing the potential of BRICReenita Das

Focus Points for Today’s Panel Discussion

� Where are the Biggest Opportunities in Healthcare

3

� What is the Hidden Potential in each Region

� What are the Main Challenges to Leveraging the Potential

� Key to Success in the BRIC Markets

� Some Best Practices

BRIC is not delivering its promises of HIGH GROWTHWe are seeing increased role of State, declining Economic freedom, higher Protectionism….

BRAZIL• Inflation and low growth in 1Q • Too much bureaucracy with a

complex tax code• Need granting of concessions by

the government to improve infrastructure

• Local investment by foreign players helps them surpass bureaucratic hurdles to access

INDIA• Even as the Government

attracts FDI in healthcare, red tape and bureaucratic hurdles makes investors tread with caution

• Per capita spending in healthcare among the least compared to other BRIC nations

4

RUSSIA• Economy is very dependent on

the price of oil.• Like China, it is facing an aging

population explosion• Growing middle class with more

disposable income• Protectionism in play as State

limits the procurement of foreign / imported drugs

CHINA• High level of recent volatility• Great disparities between

regions and rural/urban centers dispels notion of one big healthcare market

• Aging population, growing middle class and a culture of consumerism

• The Government with its fiscal reserves can stimulate the economy when needed

Poll Question

What are the countries outside of BRIC that you are looking at?

• Africa

• Indonesia

• Vietnam

• Saudi Arabia

5

• Mexico

Where are the Biggest Opportunities in Healthcare?

6

Innovation and Technology Will Drive Healthcare Spending and Increase Access

BRAZIL

1. Intellectual Property protection has set the conditions for local companies to pursue innovation by engaging in technology transfer agreements

2. Offering products and solutions that are locally produced or locally developed alternatives focusing on

7

produced or locally developed alternatives focusing on needs of customers in terms of features and benefits.

3. Pressure to keep healthcare costs low, opens a big opportunity for generics and biosimilars as they

replace branded generics, originals and biologics.

Big impetus on Healthcare IT, as hospital efficiency becomes a priority

Addressable Market for Capital Equipment, Devices and Diagnostics

RUSSIA

1. One of the fastest and most attractive pharmaceutical markets due to low penetration. Locally-produced drugs, including innovative bio-

22%

50%50%Pharma

2020

Manufacturing of pharmaceuticals in Russia

2010 2020

8

innovative bio-pharmaceuticals and advanced generics

78%

Foreign Russian

2. Below average installed base of capital equipment for diagnostics and therapy - imaging modalities, radiation therapy etc.

3. Impetus to promote localization of production and technology transfer for medical devices

Unorganized Sector and Retail Take the Top Spots for Growth Potential

INDIA

1. Massive uptake of medical devices and consumables as Tier 2 & 3 cities improve hospital infrastructure and innovative delivery models are put in place

2. Impetus on customized / localized medical technology products

3. Specialized pharma products at low cost

9

3. Specialized pharma products at low cost

4. Private equity investment in healthcare delivery, which is boosted by private health insurance adoption and hence service utilisation

5. In the diagnostic services business, 80% of provision is in the unorganised sector which represents a huge opportunity

6. Similarly 90% of retail Pharma is unorganised which is a huge opportunity for organised players

Private Hospital Beds to Grow from 470,000 in 2012 to a Million in 2017

CHINA

1. Economically developed and large population centerssuch as Sichuan, Henan, and Anhui expected to show increase in consumption of high value consumables and devices for diagnostics and therapeutics

2. In-vitro diagnostics segment is set to grow at a CAGR of 20% and to USD5.7 bn in 2015

10

3. The private hospitals segment is positioned to play a key role in the Chinese healthcare delivery system, gaining 20% of beds share in the next 5 years compared to 10% currently.

4. IT will be widely used in the healthcare industry in China, EMR, remote monitoring, cloud database and clinical path software are in huge demand.

What are the Main Challenges to Leveraging this Latent Business Potential?

Complex and Confusing Regulatory Entry Framework Creates Barriers for MNCs

BRAZIL

1. The main challenge to a potential entry in Brazil is timeline

• Regulatory requirements are extensive and complex

• Compliance with all requirements can take up to 8 years depending

12

can take up to 8 years depending on the entry strategy and the product offering

2. Once in the market, the challenges will be in market reach:

• Channel negotiation power

• Physical distribution in a such a large geography and climate

Successful Western Medical Brands Taking Longerto Achieve Mainstream Acceptance

RUSSIA

1. The regulatory framework for the healthcare sector in Russia is incoherent, lacking transparency. Currency fluctuation adds to revenue woes in $ terms . Informal payments in several cases due to lack of financial transparency. SME’s find it difficult to flourish

2. Any pharmaceutical product to be imported to, manufactured or distributed in Russia is subject to obligatory state registration, which

13

Registration Process

distributed in Russia is subject to obligatory state registration, which normally results in lengthy – 1 to 3 years, and costly – approx. $25,000 per brand. These bureaucratic procedures along with planned import limits, challenges suppliers’ market entry plans.

3. Sustainability of the medical business is challenging as imported brands are up against local names produced by hundreds of local manufacturers. Time needed to gain acceptance as switching does not occur easily based on brand and quality

Healthcare Divide and Unequal Distribution of Institutions Supporting Service Delivery

INDIA

1. Private sector provides 70 – 75% of total healthcare in the country, rest is provided by Government

2. Urban rural divide is high with most private healthcare projects being carried out only in tier 1 cities and metros

3. Inadequate and inconsistent Government

20%

6%8% 8%

9%

1%

Disease

Burden

Beds Doctors Nurses Community

and Health

Workers

Lab

Technicians

India’s Share of Global Disease and Manpower

14

3. Inadequate and inconsistent Government funding, inadequate infrastructure support from Government

4. Lack of adoption of quality standards. Hospitals in tier 2 & 3 cities are not focused on healthcare standards and quality care

5. Lack of distinct status for the medical devices industry along with lack of quality standards

6. Compulsory license by government for low cost pharma products to reduce the cost of treatment

Healthcare Expenditure Composition

32%

50%

2%

16%

61%

19% 17%

3%

Govt. Spending Out of Pocket

Expenses

Private Insurance

Paid Expenses

Others

India

Global

Government Controlled Policies Restrict Innovation and Market Access

CHINA

1. CFDA has new product registration requirements; this along with GMP requirements and complex tendering and distribution processes significantly impacts market access

2. Imported products are up against local manufacturers who have the support of the State with regard to funding and

15

have the support of the State with regard to funding and policy; these local companies now vie for share in the high tech medical devices segments

3. Government reforms of reimbursement in hospitals has a great impact on the pricing of healthcare products, low priced domestic brands are favored and the State is continuously revising down price points for high value medical consumables

Key to Success in the BRIC Markets

Tropicalization, Customization, Regionalization

1. A complex market less understood by "outsiders". Need to seek and employ local talent - either own employees or external consultants - with a large industry network, always makes processes more effective.

2. Scale is crucial in Brazil. Investments need to be in accordance with market dynamics. A local manufacturing facility will improve negotiating power with regulators and the State.

17

power with regulators and the State.

3. Sustainable growth will most certainly come from partnership with local players as they know decision makers, influencers and gatekeepers. Local companies dominate volume while MNC’s play in value-added segments. The right partnership ensures both value and volume.

No Short Term Fix, Returns Take Time Coming –Capitalize on the Needs of the Moment

1. To succeed in the long term, OEM’s need to establish a strong presence in terms of distribution structures, not just a quick fix of partnering with local players. Existing quality can be leveraged when positioned in tandem with appropriate pricing i.e. value proposition has to be spot on

2. Direct sales being challenging for small to medium sized

18

2. Direct sales being challenging for small to medium sized companies, innovative models such as online sales channels are being tested. Large multi-nationals however, can succeed by virtue of their scale and reach

3. Patience and perseverance is needed to establish brand recognition; brand does not work in isolation; demand, visibility, accessibility and outcomes are key to adoption

Customization and PPP is Key to Success

1. Tailor business model to better address Indian market needs

2. PPP (public private partnership) opportunity is the way to address the healthcare need of masses

3. Quick replication of business model with good reach and reasonable ROI

4. Products and services designed for various segment of population and healthcare providers

19

and healthcare providers

5. Target non corporate healthcare provider which is looking at next level of growth

6. Pay per use model in medical technology and healthcare IT sectors for Healthcare providers

7. Products and Solutions which will reduce the initial cost of establishment for hospitals, will always be welcomed by private healthcare providers

Localization and Lobbying with Decision Makers Cannot be Ignored

1. Tailor business models to better address China market needs, such as GE’s “In China, for China” program

2. Bolster relationship with central and local Governments

3. Customize products and solutions to the Chinese requirements and specs

20

4. In order to deal with the local complexities with regard to access, MNCs needs to building larger sales teams or partner with lower tier distributors to tap the rural markets

5. Leveraging local resources or partnering with strong local players; notable examples being Medtronic acquiring Kanghui and Stryker acquiring Trason

Best Practices

21

Seeking a Partner Creates More Value Than GoingSolo

The Situation

• A global pharmaceutical company has defined entry to Brazil as an strategic move to leverage its presence in Latin America. Entry to Brazil would take them 6 to 8 years.

The Move

The company acquired a "shell" company, and hired local professionals

BRAZIL

22

• The company acquired a "shell" company, and hired local professionals with prior experience in the Regulatory area.

• The company also acquired a mature product portfolio

• They build a small scale manufacturing site to obtain a manufacturer authorization, and then it outsourced manufacturing with a CMO.

The Result

• This pharmaceutical company started full scale operations 2 years prior to the initial estimation of launching a “greenfield” initiative

Success Based on Long Term Commitment and Deep Involvement at the Grass Roots Level

Leading supplier of advanced wound care products that is growing at 20+% annually in Russia, started operations in 1997. Russian operations one of the most profitable divisions in Europe.

Key to Success Included the Following Strategies:

RUSSIA

23

� Early development and nurturing of strong distribution channels to support a wide portfolio of 2,500 products

� Enhancing local manufacturing capabilities and beefing up logistics operations near Moscow

� Educational programmes for clinicians, nurses, social workers, patients and families

� CSR initiatives include programme of discounted products for the disabled

Global Players with a Local Approach

1. Healthcare and Consumer Goods Supplier– able to reach masses by way of community programs, health and hygiene campaign and able to reach bottom of pyramid and created huge brand loyalty

2. Leading Skin and Wound Care Manufacturer – quality product, innovation is the key message, training and education way of market

INDIA

24

innovation is the key message, training and education way of market building exercise created huge brand loyalty amongst healthcare providers

3. International Pharma and Diagnostics Supplier – Oncology drugs, strong brand reliability amongst doctors and hospitals by way of market building exercise, reliable products, quick service and strong distribution network.

Domestic Players are Trying to Upgrade Capabilities and MNC’s are Localizing

1. Shenzhen Mindray – Mindray is the largest domestic medical device company in China. Its revenue grew from $ 59million in 2003 to $1,060million in 2012, representing a CAGR of 38% in the past ten years. Mindray’s major strategy includes product line expansion within the ICU/OR area and mid/hi-end product positioning.

CHINA

25

2. Philips – Philips partnered with Neusoft to manufacture its CT scanner locally and acquired Goldway to penetrate into the low-end market in China. It shows the power of local manufacturing and distribution.

3. GE – GE launches “In China, for China” program and developed suitable products to meet Chinese hospital needs, its Linglong series X-ray machine entered county/township hospitals and gain market share for GE in Chinese mid/low-end medical device market.

We Need to Change the Dialogue in BRIC…Where Will Additional Value be Derived From?

STRATEGY 1:Add knowledge to add value:Education and training of physicians away from Tier 1 cities using social media, website available in several languages, featuring educational modules

STRATEGY 2:

STRATEGY 4Prepare and plan for the long haul. The fundamental market exists – it’s a case of positioning, convincing and proven benefits realization

.

2626

STRATEGY 2:Partnership with local healthcare providers and governments.

STRATEGY 3Building products for Emerging Markets- customizing based on user needs of features and benefits

Next Steps

Develop Your Visionary and Innovative SkillsGrowth Partnership Service Share your growth thought leadership and ideas or

join our GIL Global Community

27

Join our GIL Community NewsletterKeep abreast of innovative growth opportunities

Your Feedback is Important to Us

Growth Forecasts?

Competitive Structure?

What would you like to see from Frost & Sullivan?

28

Emerging Trends?

Strategic Recommendations?

Other?

Please inform us by “Rating” this presentation.

Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare, and Twitter

http://www.facebook.com/FrostandSullivan

http://www.linkedin.com/companies/4506

29

http://twitter.com/frost_sullivan

http://www.linkedin.com/companies/4506

http://www.slideshare.net/FrostandSullivan

For Additional Information

Francesca Valente

Corporate Communications

Healthcare

+54 11 4777 5300Francesca.valente@frost.com

Reenita Das

Partner

Healthcare

(408) 857-9386

rdas@frost.com

30

Nils Frenkel

Sales Director

Healthcare

(210) 247-2451

Nils.frenkel@frost.com