Executive Summary Medical Devices SA

Definition of Medical Devices and Diagnostics

The WHO defines a medical device as “an article, instrument, apparatus or machine that is used

in the prevention, diagnosis or treatment of illness or disease, or for detecting, measuring,

restoring, correcting or modifying the structure or function of the body for some health purpose.”

The medical device Industry is the most complex, segmented and diverse of all industries, ranging

from simple devices such as thermometers and tongue depressors, to state-of-the-art

implantable, combination and nuclear imaging, diagnostic and therapeutic technologies. This

complexity has also increased over the last decade because of the introduction of new hybrid

devices such as drug-eluting stents and other implantable devices that incorporate a

pharmaceutical component. In addition, new drug delivery mechanisms as well as Information

technology has contributed to this increasing complexity, as monitoring and imaging systems

incorporate telecommunications and data processing capabilities.

The Global and Local Landscape

Global

Currently the global market for medical devices is valued at between $320B- $400B up from

$160B in 2010 and projected to reach $440b by 2018. It is growing at approximately 4.4%

compound annual growth rate per year.

The USA medical device industry is the global leader with sales of around $136B p.a. This

represents approximately 38% of the global market and is projected to grow at a compound

annual growth rate of 6.1% in the next 5 years. There are approximately 7 000 medical device

companies in the US with the world’s 3 largest medical device companies being Johnson and

Johnson, GE and Medtronic.

Western Europe represents more than a quarter of the global medical device market, led by

Germany, France, the UK and Italy. This sector has become increasingly important for the

healthcare of EU citizens and an influencer on expenditure. With sales of €100B, the sector

represents some 25 000 companies, of which 95% are Small and Medium-sized Enterprises

(SMEs).

China has recently become the third largest medical device manufacturer with a market valued

at at about $50B and growing at an average of 20% annually since 2009. China has several

thousand local manufacturers of medical devices, of which 90% are focused on the production

of low-technology products like syringes and thermometers.

The African market for medical devices is expected to be to exceed $10B (R130B) by 2020. A

number the countries in Africa are emerging as both users and manufacturers of medical devices.

Egypt and South Africa lead the group with a combined market value of US$8B (in 2016).

Private industry

KPMG has reported that the revenues generated by Medical Device technologies as a global

industry has grown from R9 Billion in 2009 to R 12.1 billion in 2014, with over 20 000 jobs

supported as a result (KPMG, 2014). The global market forecast indicates a Compound Annual

Growth Rate (CAGR) for 2015-2020 of 8.6%, which will raise the market to ZAR 20.0 Billion by

2020. This means that aggressive growth is expected from this sector, which will deliver long-

term dividends to shareholders.

Job Creation

Aggressive growth in Medical Device industries has resulted in healthy demands for new inter-

disciplinary Engineers, Clinicians and Scientists. Employment for such people is projected to

grow around 23% from 2014 to 2024, which is greater than the average for all other

occupations. The acceleration in technology and its application to medical devices is one of the

main drivers of this growth. This is especially noticeable in for example, smartphone technology,

3D printing/manufacture and advances in computer science (software, hardware and

methodologies).

Recently there has been progressive uptake of BME applications at blue chip technology

companies who have not historically been active in the medical technology market. For example,

Apple now has a BME dept. that focusses on developing sensors to track blood sugar levels.

Google are also developing glucose sensors that will aim to track blood sugar through contact

with the eye. Rapid advances in technology will continue to alter the BME domain creating new

areas to work in on an ongoing basis. This translates into very favourable job prospects.

Global uptake in Education

BME is an established pre-graduate degree in the United States with at least 124 programmes,

including the Ivy-league schools supporting them. There is a similar pattern across the rest of the

world, such degrees are commonplace at most top universities.

The Local Environment

The South African medical devices market (consumption, production and trade) was estimated

at US$1.2 billion in 2013 and was forecast to grow at a compound annual growth rate (CAGR)

of 7.74% between 2013 and 2018. This places the current 2017 value at close to US$1.6B or

R20B. Current per capita expenditure on medical devices stands at US$ 24 and is at a similar level

to other developing countries such as Brazil (US$ 30 per capita), but considerably lower than in

developed countries such as Germany (US$313) and the United States (US$ 399) per capita

(Deloitte, 2014).

This suggests that there is ample room for growth. The reasons underlying such growth include

population growth, increased life expectancy, growing quadruple disease burden and increased

domestic healthcare spend due to the introduction of the NHI.

A growing private sector is one of the key features of the South African medical device market.

Close to 70% of the medical practitioners in the country work for the private sector. Nevertheless,

local players are likely to take a growing share of the South African market as they move into

more high-tech areas, claiming much of the extra value from the predicted market growth.

In recent times, a number of landscaping reports have been compiled regarding the Medical

Devices landscape in South Africa, including:

• BMI-Research SA Medical Devices report (2016) – A comprehensive evaluation of and

projections of the financial performance for local industry until 2020.

• The South African Medical Device Industry – Facts (SAMED, 2015) – list of members,

definition of a medical device, size and details of SA industry, regulatory requirements,

limited SWOT analysis, incentives available to the industry, details on public and private

health facilities and the procurement process, and codes of practice

• Medical Devices Sector Report (Wesgro, 2015) - key trade and investment related

statistics for the medical devices sector, specifically, global trade and investment flows

including an analysis of top markets and products for South Africa and the Western Cape

highlighting the largest and fastest growing products and sub-sectors – includes same

(plus additional) data as the SAMED report from the Business Monitor International, 2014

Report, foreign direct investment in the sector, and incentives

• Developing an Ecosystem to support the local Medical Device & Diagnostics Industry in

South Africa: Recommendations from an International Perspective (MRC-PATH

Medtronic, March 2014) – purpose was to identify the strengths, opportunities, gaps and

barriers to growing the industry and make recommendations on how to strengthen the

local medical device and diagnostics industry in South Africa – covers the medical devices

industry in general, regulatory, funding, procurement process, skills and competencies

• Research to Guide the Development of Strategy for the Medical Devices Sector of South

Africa (Deloitte, commissioned by IDC/DTI, 2014) – details on SA medical devices industry,

trade, classification, regulatory, manufacturing, incentives, R&D, procurement, and

recommendations for development of the sector

• Situational Analysis of the RSA Medical Device Innovations Landscape (Acorn

Technologies, 2008) – overview of the industry, gaps, challenges and the centers of

competence model

All projections from all reports predict a rapidly growing Medical Device Industry sector. To

summarise the latest BMI (2016) report, ‘There will be positive growth for the healthcare sector

as the SA economy begins to pick up and health spending continues to grow, primarily to support

the introduction of the national health insurance scheme. This will boost demand for medical

devices with the market seeing high single-digit growth in local currency terms. Domestic

production will continue to grow in sophistication, but the majority of the market will remain

dependent on imports.’

Financial projections (BMI 2016) for the SA sector are as follows:

Currently approximately 95% of medical devices are imported into South Africa due to a lack

of competitive local options. This represents an extremely attractive financial opportunity. As

a result:

• In 2016, Wesgro was instrumental in forming a Western Cape Medical Devices Cluster. Its

objective is to spur growth in the local Medical devices Industry, along with procurement

from the healthcare sector. Wesgro has also completed a feasibility study for a Cape Health

Technology Park (CHTP). This awaits final approval from government. If successful, and a

large piece of land has already been appropriated for the purpose, this will drive dramatic

growth in this sector in the Western Cape (WC).

• The DTI and IDC have made several recent investments in Medical Device technology

applications in the WC.

• In a related effort to spur local growth, in April 2017 government approved new industry

regulations which enables preferential competitive terms for local Biomedical technologies

companies versus their international rivals

• Funding has become available from TIA, SHIP, GHIA and others funding bodies to boost local

Medical Device R&D.

However, South Africa’s domestic medical device industry remains underdeveloped, with

imports catering for 90% of the market by value. As such, the 90/10 ratio of imports to exports

creates a large balance of trade deficit currently estimated at R 15 B p/a.

Together with pharmaceuticals, medical devices are the 5th largest contributor to South Africa’s

trade deficit. Most imports are from Europe, the United States of America (USA), China, Japan

and increasingly from India. Importers are able to offer products at lower prices because of the

economies of scale enjoyed by large huge multinational manufacturers and the fact that import

tariffs are only levied on a few medical devices.

Cheaper products, often of a lower quality, are also imported from China and because of the

lack of regulation many of these products are of questionable quality which may impact on

patient health. Although these low-quality products often come with little or no after-sales

support, local distributors and agents mentioned that the importers of these products are often

awarded tenders to supply the local healthcare market.

South Africa has a two-tiered healthcare system (private and public sector) that continues to

provide significantly divergent standards of healthcare, with the public sector lagging in its ability

to provide sufficient quality care to the broader population. Private health care patients (~20%)

are predominantly covered by medical insurance while the remaining 80% are required to attend

under-resourced and over-crowded public health facilities. To counter this inequity in the hope

of providing better healthcare, a proposed National Health Insurance (NHI) for all citizens has

been initiated by the National Department of Health.

From an infectious and non-communicable disease burden perspective, the South African

public health market provides a wealth of commercial opportunities for locally produced

medical and diagnostic devices. However, the Department of Health currently relies heavily on

imported devices and test kits in its service delivery due to the perceived lower cost of these

imports. Furthermore, there are no incentives, as yet, to procure locally manufactured medical

devices and diagnostics tests, even though they are manufactured to global standards and, in

most cases, exceed the quality of imported products that have open access to the South African

market, with no reciprocal customs or other tariff barriers.

The Department of Health, Department of Science and Technology, Department of Trade and

Industry and Department of Economic Development all have direct and overlapping vested

interests in the growth of a vibrant local innovation and manufacturing medical device sector and

all have a role to play in its development.

Local Trends, Constraints and Drivers

Growth drivers for the South African medical devices industry can broadly be split into two

groupings: (1) Demographic and epidemiological changes that are driving demand; (2)

Healthcare provider response to the increased demand.

Population growth, longer life expectancy, recognition that disease burden must be reduced and

the demand for private sector healthcare can be considered to be part of grouping 1; whilst

increasing per capita spend on healthcare, introduction of the NHI and growing numbers of per

capita healthcare professionals reflect government and private sector responses in group 2.

We are also witnessing an increase in the global focus on health innovation development in South

Africa, coming from international foundations and global health organisations. This trend is in

line with the significant commitment we see locally within the South African national government

to invest in the development of the sector. Similarly, South Africa's academic institutions

continue to grow their biomedical engineering programs and are becoming increasingly focused

on how to commercialize on their technologies.

In South Africa we are constrained by a lack of widespread commercialization expertise, however,

and need to draw on the experience within the local medical devices industry as well as from

international organizations in order to facilitate skills transfer. We also need to deal with the lack

of access to capital, and unlock the bottlenecks in information sharing and collaboration that are

hindering the medical devices value chain at present.

SA Industry Players

The South African medical equipment industry consists of multinational manufacturers whose

products are imported by satellite branches, agents or distributors, local manufacturers,

wholesalers and retailers. Multinational companies present in South Africa often operate in a

joint venture capacity with local firms. Each of the leading multinational companies has at least

one representative office for the purpose of sales, distribution and service, but there is little

manufacturing activity, with only Fresenius doing so in Port Elizabeth.

End users vary from healthcare providers such as private hospital groups and the public health

care sector to individual health professionals such as general practitioners. The end users of some

products are the patients themselves. Some local manufacturers export their products.

Local firms tend to be small or medium sized businesses with less than 50 employees and often

combine distribution activity with manufacturing. The South African medical device industry

association (SAMED) represents approximately 160 manufacturers and suppliers of an estimated

300 000 different medical devices. Of the more than 700 local industry players, the association

estimates that fewer than 5% actually manufacture the devices. The industry employs

approximately 4000 people.

SAMED reported that on average two new companies join the association monthly. Association

members include: The South African Laboratory and Diagnostic Association (SALDA), The Medical

Imaging Systems Association (MISA) and MDMSA (Medical Device Manufacturers of South

Africa).

Most South African manufacturers focus on producing basic medical equipment & supplies.

Output by the domestic medical manufacturing industry is in the region of USD200m-USD300m,

of which more than half is exported. Production is focussed on fairly low technology items.

The SA medical device manufacturing sector has a small base of well-established companies that

have developed and manufacture their own products, are exporting, and continue to innovate

around new products and/or processes. However, this sector, displays the following

weaknesses:

• The companies are diverse in terms of their product ranges, which means the opportunity for

products and technology collaboration and clustering are poor.

• The level of industry-university or industry-science council collaboration is poor. This is

characterized by the extremely low proportion of university-based medical technology

innovations that are either initiated by industry or that managed to get taken up by industry

and commercialized.

• Many of the companies operate in ‘boot-strap’ mode with all the concomitant restrictions

imposed by being under-financed.

• The lack of clusters of medical technology firms is more to do with the relatively small size

(number of companies) of the sector, and the product diversity and hence the lack of common

value chains.

Job Creation

A large number of national and international companies are active in the Medical Device market

in South Africa. A few of these include, HealthQ, Litha Medical, Lodox, Medi-Safe Surgicals,

Southern Implants, Southern Medical, Southern ENT, BSN Medical, Fresenius, Becton

Dickinson, Boston Scientific, Elekta, General Electric, Johnson & Johnson, Medtronic, Philips,

Siemens, Smith & Nephew, Stryker.

The Western Cape (WC) region is the ‘hotspot’ for BME and the Medical Devices industry in

South Africa. This may be owing to the closely situated collaborative ecosystem of four

universities, two academic hospitals, the Medical Research Council and the CSIR.

With the projected market growth, South African graduates in BME can expect to have an

abundance of options available to them across a wide variety of fields.

A number of spin-off companies have originated in WC Universities, for example, Kit Vaughan’s

Cape Ray breast digital imaging system, George Vicatos’ facial reconstruction system, Peter Zilla’s

Strait Access Technologies heart valve replacement and repair devices, and Stellenbosch

Nanofibres, which are actively investigating medical applications. It is arguable that SU, in

comparison to UCT, has been insufficiently active in this domain to date.

Uptake in Education

Historically in South Africa, UCT, Wits and UP have been most active in providing degrees in

Biomedical Engineering. However, this circumstance is rapidly changing as several other

Universities are currently planning to provide such degrees. BME in SA will be a very busy space

by 2020!

In the Western Cape, the strong health sciences faculties at UCT and Stellenbosch University has

meant that about 45% of local medical technology companies commercialising inventions have

come from these Universities. The following is a non-exhaustive list of Biomedical Technology

Companies that have come out of the Western Cape Universities.

Stellenbosch University

• Diacoustic Medical Devices – Automated Paediatric Cardiac Auscultation (APCA) system is a

portable hand-held device providing healthcare providers with clinical decision support to

distinguish between pathological and physiological heart murmurs

• Surfactant Medical Technologies (SMT) – a synthetic surfactant formulation consisting of a

combination of readily accessible phospholipids and synthetic peptides

• Stellenbosch Nanofibres – some products of which are intended for medical applications

• Azargen – plant genetic engineering for human protein production

• Unistel Medical Labs – Genetic DNA profiling

• Kathleho Biomedical – a recent platform for the R&D and commercialisation of innovative

biomedical engineering concepts.

UCT

• Lodox – low radiation dose X-ray and Ultrasound imaging applications

• Cell-Life – e-Health technology development company

• Cape Ray Medical – low dose x-ray coupled with ultrasound or breast cancer detection

• Strait Access Technologies – heart valve and deployment device for heart valve repair

• Serapix CC – biosensors/diagnostic

• Antrum Biotech – extra-pulmonary TB diagnostic test – rapid bedside testing

• Attri Orthopedics – design of orthopaedic implants exclusively for people who have suffered

loss of bone tissue due to surgery.

UWC

• Hyrax Biosciences – clinical DNA analysis and drug resistance genotyping

Despite the above, HEI’s face a number of constraints to innovation

For example:

• The business of HEI’s is to grow good people. However, HEI’s have critical skill/human-capacity

shortages. They do not have the requisite manpower to meet the needs of training all the BME

students required. These students will become the innovators that Industry needs. There are

ample interested students but HEI’s lack the funding to train them. Clearly, sustained

investment is required in, for example, student bursaries, the staff compliment to train the

students and to some extent, the infrastructure underlying both.

• Government incentives to HEI’s are determined by research output metrics in the form of

awarded degrees and journal publications. The job performances of HEI staff are judged by

these indices, meaning there is no choice other than to prioritize them. Despite this,

technological innovations from HEI’s are widespread and common. There has been an historic

notion on the part of government, and possibly also industry, that education and innovation

are mutually exclusive. However, this is patently untrue. The above lists testify to this, and one

need look no further than Google for an excellent example.

• Funding for innovations to date has focussed on a project-by-project approach. This approach

has been ubiquitous among specialist agencies, such as the Technology Innovation Agency

(TIA), the Support Program for Industrial Innovations (SPII) and others. While such funding for

individual projects/innovations is obviously a good thing, accessing such schemes does not

help HEI’s to build sustainable long-term pipelines for innovation. Investment is required in

human capacity that is focussed on market-driven requirements. This also means that

appropriate government funding instruments require synchronization with the private sector.

• A one-size-fits-all solution is not appropriate for all higher education institutions. There are

pronounced asymmetries between the various institutions in terms of their involvement and

their capacities in the BME domain. For example, what UCT needs and what SU needs is

different. Further, HEI’s are in direct competition with science councils for government

funding. This despite the councils enjoying selective advantages regarding government

financial support.

• R&D innovations from HE institutions tend to adopt a technology-push rather than market-

pull strategy. Research often does not address the needs of the market and in instances where

this is the case, the cost of introducing the technology far outweighs the return on investment.

The knowledge and capacity to drive the industry-oriented commercial successes of

technological innovations is not usually available in academic institutions. This includes

knowledge regarding Medical Device Regulation, which means that compliance is often sought

at great expense after R&D giving rise to innovations, rather than early-on or intrinsic to the

process.

Ideally, a far greater synergy or synchronization is required between academia and industry than

currently exists. This approach is common in more developed countries. For example, in Germany

more than 70% of funding for HEI Engineering projects come from partners in Industry. Academia

and industry should really team up to tackle SA’s healthcare issues. In return for relatively small

investments in the form of bursaries and operating costs companies then receive the expert

knowledge of the supervisor/s, the innovative environment of the university and, following

project completion, a student trained specifically for the company’s needs.

Should the intended MDD TICP be established and be able to address such constraints, much

progress will be made to improving the outlook for the sector as a whole.

The SA Medical Devices Stakeholder Forum (MDSF)

The SA-MDSF was formed in late 2016. This is a national forum composed of representatives from

government funding bodies (DST, IDC, TIA etc.) science councils (MRC and CSIR), industry

representatives from groups of companies (MDMSA and SAMED) and higher education

institutions including SU. The purpose of the MDSF is to strategically grow the local Medical

Devices Industry by unifying the efforts of the members of the forum. The Gates Foundation has

provided significant funding to develop the medical device innovation sphere in particularly the

Western Cape, which is the ‘hotspot’ for Medical Devices in SA. SU is involved in this effort

through the participation of the Director of the IBE on the committees composing the MDSF. This

represents one of several (intended) sources of future external funding for the IBE. The following

diagram is represents the structure of the MDSF.

The Problem/ Industry Needs – The PAIN POINTS

The need for a Medical Devices Technology Innovation Program is evident. Despite having

strong academic institutions, science councils, government support, and an organized medical

devices industry, South Africa still struggles to successfully commercialize technologies and to

drive those technologies into the market to generate impact. The TIP will allow for the

provision of commercialization expertise as well as incubation/acceleration services to

promising opportunities from within the South African health innovation pipeline, which is a

severely unmet need in South Africa.

Growth in the medical devices sector in South Africa will contribute to increased access,

affordability, and availability of healthcare and drive job creation and economic

empowerment by developing local innovators and entrepreneurs in the health ecosystem.

This will help meet the significant healthcare and economic needs of the South African

population, as the country faces stagnant economic growth and the grapples with the decline

of other major industries.

Industry Pain Points are listed in order of priority as follows:

1. Need for greater industry/community cohesion along the value chain (public &

private).

2. Regulatory & quality management challenges/constraints.

3. A lack of policies that promote support local industry competitiveness (preferential

procurement).

4. Insufficient or poorly capacitated R&D and manufacturing incentives (costs related

to raw material & labour).

5. Need for interventions aimed at maintaining and building a skilled labour force.

6. Insufficient efforts and interventions aimed at stimulating local innovation and

technology development (localisation & other- what financial & non-financial

support is required). Should technology development be stimulated per disease

focus areas, enabling technologies and inputs/ components would be required.

7. Lack of strategic integrated infrastructure required by the industry.

Industry SWOT Analysis

Strengths

• Second largest economy in Africa with rich mineral resources

• Well establish innovation sector in the HEIs and SETIs

• Steady demand for medical devices, even during an economic downturn.

• Businesses benefit from good observance of contracts and intellectual property

rights

• Large population

• Strong private healthcare sector

Weaknesses

• The small size of the domestic market and the fact that only approximately 5% of

the devices used are manufactured locally.

• A “work in progress” regulatory framework for medical devices resulting in the

import of poor quality medical devices and long registration periods for some

medical device classes.

• Medical device research industry is underfunded, limiting the amount of research,

innovation and manufacture of medical devices in South Africa.

• Currency volatility over the years has hampered industry planning

• Extensive regulation results in a rigid labour market

• Poor healthcare infrastructure, particularly in the extensive rural areas, limits

service efficiency

• Private healthcare sector out of reach for most of the Black population

• Chronic shortage of medical personnel

• Purchasing procedures complex and fragmented

Opportunities

• A weakening Rand could be a positive driver for the local development and

manufacture of medical devices.

• New product lines driven by market demand and the introduction of innovative

technology.

• Emerging e-health solution. The development of medical device applications for

use on an iPad, iPhone or handheld device, present opportunities for the medical

fraternity and patients.

• Improved healthcare services in the rest of Africa will mean new markets for South

Africa-based multinationals, local manufacturers and importers.

• Emergence of affluent, Black middle class

• Inter-regional trade agreements facilitate trade flows and reduce costs

• Government health funding is set to increase in real terms through to FY2017-18

• National health insurance (NHI) scheme which is prompting further investment in

the public healthcare system

• Public-private partnership growth

Threats

• Increasing number of imports, as well as increasing number of cheap imports of

inferior quality.

• Inefficient public procurement and payment systems place smaller companies

under pressure and reduce business confidence in local suppliers and distributors.

• The increasing drive to bring down healthcare costs could mean difficulties

ensuring new technologically advanced devices are reimbursed by medical insurers

and medical aids.

• The introduction of the National Health Insurance (NHI) is positive but concerns

exist over the current model and whether the scheme will be managed correctly.

• Centralisation of certain functions within the National Department of Health

threatens to undermine the role of provincial health departments in delivering

healthcare services