09-096 - i+med laboratories: expanding beyond thailand · i+med laboratories: expanding beyond...

09-096 September 18, 2009

This case was prepared by Jennifer Jeng, Laura Rieber, Gautam Shewakramani, and Irina Starikova (MIT Sloan School of Management, MBA Class of 2009) under the supervision of lecturer M. Jonathan Lehrich.

Copyright © 2009, Massachusetts Institute of Technology. This work is licensed under the Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 Unported License. To view a copy of this license visit http://creativecommons.org/licenses/by-nc-nd/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA.

i+MED Laboratories: Expanding Beyond Thailand Jennifer Jeng, Laura Rieber, Gautam Shewakramani, Irina Starikova

After a long day of meetings, Komkrit Sajjaanantakul, Managing Director and Founder of i+MED Laboratories (i+MED), stared at the wall of his windowless office and reflected upon the eight-year progress of his company. Founded in 2001 in Bangkok, Thailand, i+MED had originally focused on rapid test manufacturing, producing commoditized products such as pregnancy and drug tests. Since the mid-2000s, however, i+MED had made substantial strides in growing its business, expanding into the medical supplies industry and launching two new products, with a handful of new innovations in the pipeline that were scheduled for commercialization in late 2009. Going forward, i+MED hoped to expand its innovative product offerings to become the missing link between Thailand’s national research and development laboratories and the global biotechnology markets. Khun1 Komkrit was pleased with i+MED’s success to date. The company had become a leading biotechnology company in Thailand, commanding 40% of the domestic market for basic diagnostic rapid tests and achieving revenue of over 68 million baht (nearly US$2 million) in 2008. However, Khun Komkrit was concerned that i+MED’s growth prospects and margins were being threatened by increased competition from China. Additionally, it was clear that i+MED’s innovative products could be of substantial benefit to other developing countries, paving the way for the firm to enter large untapped markets. For example, i+MED’s product CD4 SELECT, a reagent used to monitor the progression of HIV/AIDS, held a significant cost advantage over the current diagnostic standard and would benefit developing countries with large HIV/AIDS populations, such as India and many

1 Khun is a non-gender-specific title used in the Thai culture. It is considered polite to refer to a business partner with the title. It is similar to “-san” in Japanese, or a non gender-specific version of “Mr.”/”Mrs.” in English.

i+MED LABORATORIES: EXPANDING BEYOND THAILAND Jennifer Jeng, Laura Rieber, Gautam Shewakramani, Irina Starikova

September 18, 2009 2

nations in Africa. If i+MED were successful in introducing CD4 SELECT into one of these new markets, the company’s revenues would increase dramatically. Unfortunately, i+MED had had little experience operating in markets outside of Thailand. To penetrate a new geographic market, the firm would need access to local expertise and connections with prospective suppliers, customers, and distributors, and could not expect to rely on its existing Thailand-based marketing and sales forces. Moreover, introducing a new medical product would bring its own complications, including overcoming resistance to the unknown and unapproved. Lastly, if i+MED did decide to expand, it would need to analyze, size up, and select the market and channels to enter, not to mention the product(s) to offer. As Khun Komkrit packed his belongings to leave the office for the day, he wondered about the wisest, most profitable course of action.

Company Background

i+MED was founded in 2001 when Komkrit Sajjaanantakul and Witune Arayapipatkul, as MBA students at Chulalongkorn University in Bangkok, wrote an investment proposal to start a biotechno-logy innovation company. Neither Khun Komkrit nor Khun Witune had prior biotechnology experience, so their proposal primarily relied on whatever information they could find on the Internet. Nevertheless, their proposal was selected as the country’s first biomedical greenfield company to receive an investment of THB 34.5 million (approximately US$800,000) from Thailand’s Small and Medium Enterprises Venture Capital Fund in exchange for a 46% ownership stake. In accordance with the terms of the investment, in 2007 the company founders bought back the fund’s share in the company and raised additional capital from investor Pol Palalikit, who then became one of its major shareholders. By 2009, Komkrit, Witune, and Pol together owned about 60% of i+MED’s common stock. Key employees and several external shareholders owned the remaining 40%. i+MED employed over 70 people, of whom roughly 40 worked at the manufacturing plant in the Eastern Seaboard Industrial Complex, in the Rayong province of Thailand, and 20 worked in sales and were spread throughout Thailand’s major provinces. Only a dozen worked full-time in the Bangkok office. (See Exhibit 1 for i+MED’s organizational chart and short biographies of senior management.) In its short, eight-year history, i+MED had evolved through a series of three phases.

Phase 1: Rapid Diagnostic Test Manufacturing

Khun Komkrit and Khun Witune had heard about two other companies in Thailand that had invested in the production of rapid immunochromatography assay tests, and decided that the technology was so simple that they stood a good chance of building a successful business on it. With the SME VC Fund investment, Khun Komkrit and Khun Witune traveled to the United States to meet with deve-



lopers of the technology. After obtaining a technology license, i+MED started manufacturing rapid tests to detect pregnancy, screen drug abuse, and diagnose a range of infectious diseases. Facing competition from several established manufacturers of rapid tests both at home and in other South East Asian countries, i+MED decided to differentiate itself through the quality of its products and its commitment to service. The company’s manufacturing facility received Thailand’s GMP (Good Manufacturing Practices) certification, as well as ISO 13845:2003 certification. Additionally, in 2007 it obtained CE mark certification for its pregnancy tests – the first time such certification had been granted in Thailand. This allowed the company to export tests to European markets and to partner with a number of large pharmaceutical distribution companies to produce white-label tests.2 By 2008 i+MED had become one of the three largest rapid test manufacturers in Thailand, producing rapid diagnostic tests under its own label (i+LAB or i+CARE) as well as white-label tests for pharmaceutical distribution companies.

Phase 2: Expansion into Medical Supplies Business

From the very beginning, i+MED’s market strategy was to work outside-in, first targeting the territories where competition was less intense, namely those outside of Thailand’s metropolitan areas. By 2007, as the company had grown and become credible enough to earn larger accounts and successfully take on the competition, i+MED started targeting metropolitan areas. In 2008, the company saw an opportunity to enter the medical supplies business by installing chemistry analysis machines in public hospitals and clinics across the country and supplying related reagents at a premium price. Although public hospitals in Thailand had limited capital to spend, they were willing to pay premiums to suppliers of reagents who could “lease” them the requisite machines. Within a year of launching this new business, i+MED had doubled its revenues. As the company started supplying a broader range of medical supplies and chemistry machines, i+MED’s sales force grew from two in 2008 to 15 in 2009. The majority of new hires came from a competitor that was struggling. i+MED also began to reduce its reliance on intermediary medical distributors and increase profit margins from all of its products by selling directly to hospitals and central labs located in Thailand’s more densely populated areas. By 2009, i+MED’s primary customer was a large governmental pharmaceutical organization, helping the firm to dominate the Thai rapid test market.

Phase 3: Commercializing Thailand’s Biotechnology Innovation

In 2007, i+MED decided to diversify its business by moving away from manufacturing commoditized rapid tests and toward commercializing more innovative technologies developed by Thailand’s leading research universities (Exhibit 2). With support from Thailand’s National Innovation Agency

2 A “white label product” is a product that is manufactured by one company and sold to other companies which they then repackage as their own. (http://investorwords.com)



(NIA), i+MED became the sole licensee of two patented technologies developed by Thailand’s leading biotechnology researchers at Chiang Mai University:

• CD4 SELECT: a low-cost, non-flow-cytometry CD4 lymphocyte enumeration method, which employed unique monoclonal antibodies (Exhibit 3).

• AlphaTHAL: the world’s first rapid test for the genetic disorder Thalassemia. This once-in-a-lifetime test, cheaper and faster than the current standard, determined whether a patient was at risk for this anemia-producing condition.

i+MED commercialized both CD4 SELECT and AlphaTHAL and started selling these diagnostic products in Thailand in 2008. In January 2009, Thailand’s National Health Safety Office (NHSO) granted i+MED approval to sell CD4 SELECT to government-funded labs and hospitals providing care to HIV/AIDS patients. i+MED was now considering launching these products in other developing markets where Thalassemia and HIV/AIDS were prevalent. This third phase of i+MED’s evolution reflected the company’s long-term vision: to bridge the gap between Thailand’s national R&D labs and the biotechnology markets by leveraging its manufac-turing capabilities, lab service, sales force, and market knowledge. To this end, the company had already earned a solid reputation as one of the leading biotechnology companies in Thailand. Not only had i+MED been recognized as one of the Top 10 Innovative Companies by the NIA since 2006, but in 2008, CD4 SELECT had been chosen as one of the Top Innovative Products by Thailand’s National Science and Technology Development Agency (NSTDA).

Sales and Marketing

In Thailand, medical device and supplies sales were based largely on relationships and reputation. i+MED’s strong reputation in the industry and its local knowledge had enabled it to grow its business by acquiring new customers and selling multiple products to existing ones. i+MED also gained credibility by offering prospective customers free samples of products before the customer made the commitment to purchase. Starting in 2007, i+MED’s sales model shifted away from selling 100% of its products via third-party distributors and toward direct sales. By 2008, approximately 80% of sales were generated through direct sales and 20% through distributors. Overall, i+MED realized a higher margin on direct sales, as the final prices to hospitals were the same. The firm intended to grow its sales force as needed for the domestic market, and for international sales select a few distributors who had a competitive advantage and specific regional knowledge. i+MED’s direct sales team was organized into three regions: Northwest, Northeast and South. Each team lived and worked in the same region as their customers, which enabled them to develop strong customer relationships and maintain a solid understanding of the territory. Sales team members were



compensated with a base salary and a percentage commission on the sales they generated. Team members had the option of selling products in several price tiers, which allowed them to offer discounts on large purchases. Rather than employ a dedicated marketing team, i+MED distributed marketing functions within the innovation and business development group. Khun Komkrit, a former architect, was able to significantly cut i+MED’s marketing expenses by using his design skills and his family’s photos to produce almost all of i+MED’s marketing materials in-house. Everyone at i+MED recognized Khun Komkrit’s baby daughter in the AlphaTHAL poster, and his sister-in-law gazed pensively in the poster for the firm’s leading pregnancy test (Exhibit 4). i+MED showcased and distributed information about its products through trade shows, its main marketing channel. The company was also regularly featured in numerous publications promoting Thailand’s Small and Medium Enterprises, such as the 2009 Thailand Top Innovative Companies.

Products and Services

i+MED Laboratories’ products and services were used for a number of applications and environ-ments, ranging from medical drug discovery to diagnostic patient care in hospitals. The company carried products that served primary end-users in hospitals, clinical laboratories, physicians’ offices, research universities, non-profits, government agencies, and other biotechnology and pharmaceutical companies. i+MED’s products and services were broken down into five business units. (See Exhibit 5 for the company’s income statement.) Medical Supplies The company supplied a number of medical supplies to provide medical care, per-form clinical tests, and conduct laboratory research. Products included virus filter masks, cell culture beads, tubes for blood samples, and disposable supplies. The majority of the medical supplies i+MED sold were commodities with shrinking margins; in January 2009 margins were approximately 20%. As of January 2009, Khun Komkrit was attempting to increase profitability within the medical supplies unit by introducing more innovative products. In partnership with Dr. Wanida Janvikul of MTEC (National Metal and Material Technology Center), i+MED had spent four years developing internal and external wound dressing with hemostatic chitosan, a substance that promoted blood clotting. Prototyping and manufacturing were expected to occur in 2009 and 2010. Bio-Business Services The company also offered customized biomedical prototyping services and leased research services. Past jobs included customized gold conjugation and rapid test prototyping. Though margins in this business unit were sometimes as high as 100%, typical project revenues were small (approximately THB 5,000 or US$140). Furthermore, contracts were rare (1-2 per year) as most customers typically had their own dedicated research staff.



Distribution Services i+MED earned revenue from distributing diagnostic products, medical supplies and lab machinery for other life sciences and biotech companies, such as Binax, First Sign, Coris BioConcept, Diazyme, IMMCO, Labor Diagnostika Nord and Randox. Margins from distribution services were typically 25%, after trading fees. Distributing products from other manufacturers helped i+MED maintain its distribution network and sales staff. In effect, this business unit helped i+MED maintain a high level of service and promote channels to introduce new products. Manufacturing Services Where it had excess manufacturing capacity, i+MED made money manufacturing for others. Life science and biotech companies, such as Bio-Design, were able to outsource to i+MED the manufacturing and packaging of biomedical products. OEM margins were approximately 25%. Diagnostic Products i+MED sold over 11 diagnostic products. This business unit provided products used to detect and quantify substances – such as viruses, bacteria, antibodies and drugs – in blood, other bodily fluids and tissue cultures from patients. Products were used to aid in the medical diagnosis of a condition or disease, detect the progress or recovery of a disease, and assess the efficacy of treatment. This business unit provided medical products related to fertility, sexually transmitted diseases, other infectious diseases, and drug abuse. i+MED’s basic, in-vitro test kits were manufactured under the company’s brands i+LAB and i+CARE. Products included home pregnancy kits, methamphetamine detection kits and syphilis diagnostic kits. These rapid test kits required little manufacturing expertise; consequently, competition was fierce with the entry of low cost manufacturers. As the products became commoditized, i+MED saw margins decrease from 40% in 2007 to 15% in 2008. Khun Komkrit’s own analysis indicated that i+MED had captured 40% of the Thai rapid test market and 25-30% of the Thai pregnancy test market. i+MED also manufactured more advanced antigen and antibody reagent test kits. These test kits were typically commercialized products that stemmed from scientific innovations developed in prominent academic institutions and successful clinical trials. Margins were approximately 50-60% for these scientifically complex, innovative diagnostic products, including AlphaTHAL and CD4 SELECT.

HIV/AIDS Care and Treatment

After a patient was diagnosed with HIV/AIDS, medical practitioners needed to monitor the strength of the patient’s immune system and assess the efficacy of the anti-retroviral therapy (ART). A standard test was to count CD4 lymphocytes, a specific type of white blood cell targeted by HIV/AIDS. The lower the number of CD4 lymphocytes present in a micro-liter of blood, the weaker the immune system and the more progressive the disease. Large changes in CD4 counts prompted practitioners to follow up with a viral load test to determine the number of HIV virus units in the body



as well as the disease stage, and evaluate whether the ART type or dosage had to be changed. Patients on ART needed a CD4 count every three to six months, depending on the disease’s progression.3

Standard Methodology for CD4 Counts

The gold standard and most accurate method for enumerating CD4 lymphocytes was flow cytometry. The flow cytometer, a large and complex piece of machinery, attached fluorescent markers to CD4 lymphocytes within a blood sample, illuminated each cell with a laser, and used a photo-sensor and computer to calculate the number of CD4 lymphocytes from the light scatter pattern.4 A typical flow cytometer from Becton-Dickson averaged approximately US$35,000.5 Flow cytometers were used by larger hospitals and clinics where the number of patients justified the cost of purchasing and maintaining the machine. In communities with low healthcare coverage or rural areas with limited access to intricate medical equipment, also known as “resource-limited settings,” flow cytometers were difficult to find.

CD4 SELECT: i+MED’s Alternative to Flow Cytometry

i+MED had partnered with Dr. Watchara Kasinrerk, a professor at Thailand’s Chiang Mai University and recipient of Thailand’s 2008 Outstanding Scientist Award, to commercialize CD4 SELECT, an alternative method for CD4 counting (Exhibit 6).6 Instead of using lasers and photo-sensors, the CD4 SELECT reagent employed antibody-coated magnetic micro-beads capable of binding to CD4 lymphocytes, through three points of contact, with 90% accuracy.7 The bead-bound lymphocytes could then be magnetically separated from the blood sample and counted using the automatic blood analyzer or complete blood count (CBC) machine kept as standard equipment at Western and Asian clinics, hospitals, and laboratories (Exhibit 7). CD4 SELECT tests took 45-60 minutes to process, the same length of time required by flow cytometry, and produced comparably accurate results. CD4 SELECT thus matched flow cytometry in quality, yet cost significantly less. Because the equipment, maintenance, and consumable materials were cheaper and technician training faster, CD4 Select cost only US$7 rather than $20. In the developed world, where there had been heavy investment in flow cytometers, CD4 SELECT was likely to face barriers to entry. However, where money was scarce and machines and trained technicians rare, the CD4 SELECT could significantly improve patient care at point-of-care facilities. Consequently, Komkrit believed, these competitive 3 “CD4 Count,” Lab Tests Online (http://www.labtestsonline.org/understanding/analytes/cd4/test.html, accessed December 2, 2008). 4 Bob Huff, “CD4 Monitoring in Resource-Limited Settings: The State of the Art in Bangkok” (http://www.thebody.com/content/art13496.html, accessed December 2, 2008). 5 The U.S. firm Becton-Dickinson’s FASCount flow cytometers ranged between US$25,000 and $50,000 depending on the country (http://www.bdbiosciences.com/immunocytometry_systems/products/display_product.php?keyID=86, accessed December 2, 2008). 6 Selected by the Thai government’s Foundation for the Promotion of Science and Technology, Dr. Kasinrerk was also the Director of Biomedical Technology Research Center (BIOTEC), a division of Thailand’s National Science and Technology Development Agency (NSTDA). 7 Scientific accuracy: sensitivity of 90%, a specificity of 90%, and an accuracy of 90%, with positive and negative predictive values of 75% and 97% (http://cvi.asm.org/cgi/reprint/13/5/598.pdf, accessed December 2, 2008).



advantages meant that CD4 SELECT could be well suited for resource-limited settings and developing economies. (See Exhibit 8 for a comparison between CD4 SELECT and flow cytometry.)

The Horizon for Expansion

Expanding the Business

Khun Komkrit was excited about the prospects of CD4 SELECT in the developing world. i+MED was in a unique position to capitalize on its Thailand success story by growing its sales of CD4 SELECT and exploring new markets. But if Khun Komkrit and his management team did decide to expand CD4 SELECT outside of Thailand, then they would need to evaluate a potential market and develop a strategy to enter it. Targeting sub-Saharan Africa was one possibility. With approximately 21 million people afflicted with HIV/AIDS (Exhibit 9), and a number of large NGOs that could serve as bulk buyers of CD4 SELECT, Africa was in the spotlight for global healthcare delivery. The success of CD4 SELECT in Africa would virtually guarantee a spot for i+MED on the map of global biotechnology businesses. Yet entering Africa seemed risky. i+MED would need to interface with a number of national governments and healthcare agencies. Regulations varied from country to country, and the prevalence of point-of-care facilities with compatible CBC machines was questionable. Additionally, sub-Saharan Africa was geographically and culturally very different from the Asian market. Much closer to Thailand, and facing a similarly catastrophic HIV/AIDS epidemic, was India.

India’s Potential: the Indian Healthcare Market and Infrastructure

India was one of the largest healthcare markets in Asia. Valued at US$42 billion, it was expected to grow to US$57 billion by 2012,8 of which the diagnostic equipment and disposables market would account for US$1.2 billion (Exhibit 10). India’s HIV/AIDS population was the world’s third largest, estimated at 2.4 million people.9 Although the Indian public health infrastructure had significant bottlenecks, the government was determined to provide care for people with HIV/AIDS. Significant money was being invested, including approximately US$246 million which the government had allocated to a National AIDS Control Organisation (NACO) program, as well as the Gates Foundation’s US$258 million Avahan initiative. UNAIDS estimated that in 2008 India was treating about 158,000 patients with ART and spending roughly $171 million on HIV/AIDS, comparable to Thailand’s 153,000 and $192 million (Exhibit 11).10

8 Business Monitor International, “India Pharmaceuticals and Healthcare Report” (Q3 2008). 9 UNAIDS, “2008 Report on the Global AIDS Epidemic” (http://www.unaids.org/en/KnowledgeCentre/HIVData/GlobalReport/2008/2008_Global_report.asp). 10 UNGASS, “Country Progress Report 2008: India” (http://data.unaids.org/pub/Report/2008/india_2008_country_progress_report_en.pdf).



Indian Health Infrastructure

Healthcare services were provided by both the public and private sector. As of January 2009, private healthcare facilities in India provided superior quality care, had better facilities, and accounted for more than 65% of primary care facilities and more than 40% of hospitals. The public healthcare system had roughly 200,000 primary facilities. These facilities provided basic care, usually based on visible symptoms from patients. More complex medical cases were referred to secondary facilities (roughly 9,900 hospitals), where basic blood analysis could be performed using hemato-analyzers. Typically, a secondary facility would have trained doctors and nurses. Advanced cases were referred to tertiary facilities (roughly 200 facilities). These were typically teaching and large urban hospitals. Only a select number of these tertiary hospitals, and none of the primary and secondary facilities, had access to flow cytometers for CD4 counting. The public healthcare sector was plagued by severe personnel shortages. Public hospitals were overcrowded and finances remained scarce for providing extra beds and facilities. The situation was perpetuated by low government spending on healthcare overall, despite the fact that the majority of the population was forced (by low income) to use public facilities. Indeed, the Federation of Indian Chambers of Commerce and Industry (FICCI) believed that it would cost approximately US$200 billion over five years (2008-2013) to solve what they called a “crisis in Indian healthcare.”11 According to a 2008 study conducted by FICCI, even though 72% of India’s population lived in rural areas, 80% of doctors, 75% of dispensaries and 60% of hospitals were in urban areas.

HIV/AIDS Diagnosis and Treatment in the Public Health Infrastructure

In the public sector, HIV and AIDS diagnosis and treatment was managed by NACO, a government body in charge of setting policy and providing treatment for all HIV/AIDS patients within the public health infrastructure. All public health facilities within India were required to refer HIV/AIDS patients to NACO-affiliated centers, and all NACO-affiliated centers were required to adhere to NACO policies and procedures. In 2008, NACO managed 172 ART centers and 58 CD4 count centers across the country, and also offered counseling services to families and patients. Among the ART centers, 80-90 had flow cytometers, usually in urban and major suburban areas and typically affiliated with hospitals or with large medical colleges performing research. For both public and private patients, the most prevalent method for performing CD4 counts in India was Becton-Dickson’s FASCount flow cytometers, which cost roughly US$30,000 per machine. Each test took 60-90 minutes to complete and required a senior lab technician performing the test in a sterile environment. At a public facility a CD4 count cost the NACO system roughly US$30-40. NACO centers provided HIV patients with two free CD4 counts per year, and charged the patient Rs250 (approximately US$5) for each additional CD4 count.

11 Business Monitor International, op. cit.



According to several public health and AIDS workers in India, the biggest bottleneck to HIV/AIDS diagnosis and treatment in India was the short supply, high cost, and infrastructural challenges of administering accurate CD4 counts. Rural clinics, for example, often lost supplies to corruption or theft, and experienced intermittent electricity black-outs that resulted in periods where reagents stored in refrigerators often went bad and had to be discarded. Even in central and urban areas, many HIV/AIDS patients in India were not easily served by the NACO facilities and therefore not receiving free testing or treatment, in part because they lived on the margins of society and lacked resources to access the care.12

Potential Go-to-Market Strategies for India

Khun Komkrit felt that although the Indian market had a lot of potential – size, government attention, proximity to Thailand – it was not without its risks. Therefore, it was important to carefully weigh the possible approaches to enter the Indian market. Providing Directly to the National AIDS Control Organisation (NACO) NACO was the largest buyer of CD4 tests in India, purchasing roughly 100,000 CD4 tests per year for 50,000 patients.13 NACO had a centralized procurement division that purchased CD4 counters from providers through a standard government RFP (request for proposal) process. NACO approval would result in CD4 SELECT being deployed across the NACO network for standardization purposes. The approval process would likely take 6-12 months and there was no guarantee that approval would be granted. Selling Directly To Private Point-of-Care Providers These included private hospitals, health care practices, clinics, and labs. (See Figure 1 for more detail.) According to experts, private labs that owned approximately 300-400 flow cytometers performed roughly 100,000-150,000 CD4 tests across the nation. The smaller labs, which hosted a majority of the country’s 7000 CBC machines, outsourced their CD4 tests. Blood samples were collected and then shipped to the larger centers via a cold supply chain where CD4 tests were performed. If the private players were convinced of the benefits of CD4 SELECT, they would be quick to adopt the technology, given the potential for increasing profit margins. Yet many of them required their testing procedures to be accredited by several agencies, such as the American College of Pathology, a step that would require a significant investment for i+MED.

12 Casewriters’ interviews. 13 Casewriters’ interviews with Indian distributor Trivitron.



Figure 1 Private Point-of-Care Health Infrastructure

PPrriivvaattee HHoossppiittaallss PPrriivvaattee PPrraaccttiicceess PPrriivvaattee CClliinniiccss PPrriivvaattee LLaabbss

- Large private hospitals that were not concerned about price, but rather by being “state-of-the- art"

- Run by foundations or corporations

- Usually internationally accredited

- Served upper and middle class

- Run by doctors out of home offices

- Owned bench top products that did not require machinery

- Preferred processes that did not get labs involved

- Procured basic medical supplies through local clinics

- Similar to nursing homes/mini-hospitals

- Cheaper than private hospitals

- Performed simple surgical procedures

- Run by entrepreneurs or foundations

- Dedicated to diagnostics

- Common for patients from Private Practices and Private Clinics to be referred to labs

o Larger hospitals referred patients to labs for more complex tests

- 4 types of labs:

o Manual equipment: <50 tests per day, simple equipment such as CBC, centrifuge, hot air oven

o Basic automated equipment; 50-500 tests per day, more complex tests, possessed simple flow cytometers

o Fully automated equipment: >500 tests per day, possessed state-of- the-art equipment

o National chains: e.g., Metropolis, Dr. Lals, referrals from all 3 other private healthcare providers

Selling via Local Distributors This was closest to i+MED’s current strategy for international sales of other products. However, previous attempts to distribute CD4 SELECT through local distributors had not been successful due to the lack of direct contact with the customer to help teach and facilitate usage. There were few national distributors for medical supplies in India. In order to service the entire country successfully, i+MED would need to engage with at least three or four smaller distributors. Other foreign companies selling diagnostic products had been helped by local Indian distributors with the government approval process for import. However, distributors tended to focus only on the



biggest, most profitable customers, namely hospitals in urban areas, and large national chains of private labs, where the need for a lower-cost CD4 counting method was not as dire. Partnering with NGOs NGOs would provide i+MED access to harder-to-reach, rural areas where a large percentage of HIV-infected people resided and where there were fewer health care options. Although a number of small NGOs worked with AIDS patients in India, it was the larger NGOs such as the Avahan (Gates Foundation), Clinton Foundation, and the World Health Organization (WHO) that had influence over agencies such as NACO. The Gates Foundation’s presence in India was primarily focused on HIV awareness and prevention, and the foundation operated independently of NACO. The Clinton Foundation and WHO operated as a support structure for NACO, filling holes and providing funding and expertise in laboratory work, research, and care as needed. A few smaller NGOs, such as YRG Cares, provided independent first-line care and treatment to HIV patients. TreatASIA, another international NGO, performed independent research. Partnering with one of the large NGOs would be procedurally similar to penetrating NACO, with slightly less bureaucracy but with more stringent requirements for qualification. However, recognition from a large NGO would mean significant influence with NACO for future sales. Smaller NGOs, on the other hand, were easier to penetrate, but represented a very small market.

Looking Ahead

Khun Komkrit had a difficult decision ahead of him. i+MED was a successful business, but entering a new market represented uncharted waters. The task required a significant commitment of finances and human resources. India seemed like a promising market, but one in which i+MED had no experience. But though India might not be the best market to launch CD4 SELECT and i+MED globally, it wasn’t clear that sub-Saharan Africa was more promising. Perhaps i+MED should launch AlphaTHAL internationally first, or focus on its proven products, or begin with developed countries, or even wait and see how its commercialization pipeline turned out. i+MED had thrived by seizing every opportunity. Now Khun Komkrit wondered whether he had not too few opportunities, but too many.

Study Questions

1. What has made i+MED Laboratories so successful thus far? 2. How would you evaluate the potential markets and options for market entry for CD4 SELECT?

What factors would be critical to consider? What risks and benefits are associated with each choice?

3. What would you recommend to i+MED? Why?


Exhibit 1 Organizational Chart and Management Team Bios (as of January 2009)

Mr. Komkrit Sajjaanantakul founded i+MED right after completing his MBA degree at Chulalongkorn University, Thailand. Prior to that, he was an architect, having worked in Thailand, the Philippines, and the United States for more than 13 years, and was a lecturer at Chulalongkorn University, Faculty of Architecture. He has a Master’s degree (with honors) in Architecture from the University of Michigan, Ann Arbor, USA, and a Bachelor’s degree in Architecture from Chulalongkorn University. Mr. Witune Arayapipatkul co-founded i+MED with Mr. Komkrit after completing his MBA degree at Chulalongkorn University. Mr. Witune has a degree in Sciences and Medical Technology from Mahidol University, Thailand, and received additional training in medical technology in Europe and Japan. He has over 15 years of experience in analytical medical technology laboratories. Before that he worked at the Asian Development Bank in the field of public health in Cambodia. Mr. Pol Palalikit has a Commerce and Accounting degree from Chulalongkorn University and an MBA from Florida Atlantic University, USA. In addition to serving as i+MED’s President, he runs a family jewelry business.

Source: i+MED.



Exhibit 2 i+MED Products and Services: Margin versus Level of Innovation

Source: Casewriters’ analysis.

Exhibit 3 CD4 SELECT Test Kit, Product Insert, Reagent, and Rotator

Source: i+MED marketing materials.



Exhibit 4 Posters for i+MED’s AlphaTHAL and Pregnancy Test Products

Exhibit 5 i+MED Income Statement, 2007 and 2008

Source: Company financial documents.



Exhibit 6 CD4 SELECT-Related Development Timeline

Year 2009 Year 2010

• Build a plant to manufacture CD4 SELECT • Gain approval from Thai NHSO (National Health

Security Office) • Projected sales of US$360,000 (up from

US$30,000 in 2008) • Automate by creating a prototype machine to

process test kits

• Test and manufacture machine to automate process, for two product offerings (manual and automated)

Source: i+MED senior management.

Exhibit 7 How CD4 SELECT Works

Source: i+MED marketing materials.




Exhibit 8 Comparison between CD4 SELECT and Flow Cytometry

Costs in US$ CD4 SELECT Flow Cytometry

Equipment Cost • Magnetic rack: $80

• Rotating mixer: $250

• CBC machine (usually already in

place in the facility): $10,000‐

15,000)

• $50,000‐150,000

Cost Per Test • $7

• Prices expected to decrease to $5

as i+MED achieved manufacturing

economies of scale

• $20 (consumable materials $12, trained

labor and maintenance $8)

Maintenance

Cost

• Limited maintenance required • $2,000

• Needed specialized technicians to perform

on‐going calibration and maintenance of

complex components: laser, photo‐sensor,

single‐cell column

Training • Less than three hours • Up to one week

Size • Kit: 10 ounces, 2 cubic inches

• Magnetic rack: 1 pound, 100 cubic

inches

• Rotating mixer: 1 pound, 160 cubic

inches

• CBC machine (usually already in

place in the facility): 30‐35 pounds,

roughly 1 cubic foot

• Machine (including computer workstation):

140‐190 pounds, 14 cubic feet

• Frequent machine transport between

point‐of‐care centers unlikely

Sources: Sysmex (http://www.sysmex.com/us/img/poch100i_10-1025_04_2006.pdf, accessed December 2, 2008); Spectron Corporation (http://www.spectroncorp.com/Flow/products_coulter.htm, accessed December 2, 2008); Becton Dickinson (http://www.bdbiosciences.com/immunocytometry_systems/brochures/FACSCalibur_specs.shtml, accessed December 2, 2008).


Exhibit 9 Global AIDS Statistics, End of 2007 (’000, number of people living with HIV)

UNAIDS Region Country 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 East Asia 289 360 424 485 546 598 649 680 711 723 Eastern Europe &

Central Asia 201 300 438 647 898 1,119 1,282 1,395 1,456 1,494

Middle East & North Africa 250 264 279 305 319 334 338 351 365 378

South & South East Asia Bangladesh 8 8 8 11 12 12 12

Cambodia 120 130 130 120 120 110 98 88 81 75 India 2,500 2,600 2,700 2,700 2,700 2,700 2,600 2,500 2,500 2,400 Indonesia 3 18 59 93 120 140 170 200 240 270 Iran 21 28 37 46 55 63 70 76 82 86 Laos 1 2 2 3 4 4 6 Malaysia 23 29 36 44 51 57 63 69 74 80 Myanmar 280 290 300 300 290 290 280 270 260 240 Nepal 44 49 53 56 59 61 64 66 68 70 Pakistan 31 37 44 51 59 67 74 81 88 96 Philippines 2 4 6 7 8 8 Singapore 2 2 3 3 3 4 4 4 4 4 Sri Lanka 2 3 3 3 3 3 3 4 4 4 Thailand 740 720 690 660 640 620 610 610 610 610 Viet Nam 65 92 120 160 190 220 240 260 270 290 South & South

East Asia Total 3,831 3,998 4,174 4,245 4,302 4,349 4,295 4,250 4,305 4,251

Sub-Saharan Africa Total (44 countries) 15,991 17,101 17,935 18,762 19,270 19,675 19,809 20,045 20,291 20,510

Grand Total 20,562 22,023 23,250 24,444 25,335 26,074 26,373 26,721 27,128 27,356 Blanks indicate data unavailable. Source: UNAID, “2008 Report on the Global AIDS Epidemic” http://www.unaids.org/en/KnowledgeCentre/HIVData/GlobalReport/2008/2008_Global_report.asp.



Exhibit 10 Indian Medical Device Market

e/f = estimate/forecast (US$ billion) 2006 2007e 2008f 2009f 2010f 2011f 2012f

Medical device market 1.91 2.12 2.35 2.61 2.91 3.24 3.60

Medical device market as % of total

healthcare market

4.89% 4.98% 5.16% 5.43% 5.85% 6.08% 6.32%

Diagnostic equipment 0.37 0.42 0.47 0.53 0.60 0.68 0.77

Therapy and rehabilitation equipment 0.34 0.38 0.41 0.46 0.50 0.55 0.61

Disposables 0.31 0.34 0.36 0.39 0.42 0.46 0.49

Monitoring equipment 0.26 0.29 0.33 0.37 0.42 0.47 0.53

Medical aids 0.18 0.20 0.22 0.24 0.26 0.29 0.32

Surgical 0.12 0.13 0.15 0.16 0.18 0.19 0.21

Other 0.33 0.37 0.41 0.46 0.52 0.59 0.66 Sources: Association of Medical Devices and Suppliers of India (AMDSI), The Associated Chambers of Commerce and Industry of India (Assocham), Central Drugs Standard Control Organization (CDSCO), Business Monitor International.

Exhibit 11 HIV/AIDS Healthcare Expenditure and Disease Prevalence in Thailand and India

approximate estimates Thailand India

Annual HIV/AIDS Expenditures US$192 million US$171 million

Total People Living with HIV/AIDS 0.61 million 2.47 million

Current Number of ART patients 153,000 158,000, of which 35,000 are

treated in private hospitals

Forecast Number of ART Patients in

3‐5 years

220,000 230,000 14

Current CD4 Test Market Size 15 306,000 tests/year,

which translates to revenue of

US$1.53 million at US$5 per test

316,000 tests/year,



Forecasted CD4 Test Market Size in

3‐5 years 16

440,000 tests per year,



460,000 tests per year,


US$2.3 million at US$5 per test Sources: UNGASS, “Country Progress Report 2008: Thailand” and “Country Progress Report 2008: India”; www.globalhealthfacts.org (accessed January 12, 2009); NACO, “Country Progress Report 2007”; World Health Organization, “2008 Epidemiological Fact Sheet on HIV and AIDS, India.”

14 Assumes an increase roughly proportionate to that of Thailand’s estimate (as forecasted by UNGASS). 15 Current CD4 market size calculated by multiplying current number of ART patients by 2 (minimum number of CD4 tests performed per year). 16 Forecasted CD4 market size calculated by multiplying forecasted number of ART patients by 2 (minimum number of CD4 tests performed per year).


http://www.globalhealthfacts.org/

09-096 - i+med laboratories: expanding beyond thailand · i+med laboratories: expanding beyond...

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