CORONAVIRUS Archives

15/09/2023by EOS Intelligence EOS Intelligence No Comments

Retail Health Clinics Eye a Larger Piece of the US Primary Care Market

The utilization of retail health clinics (RHCs), also known as convenience care clinics, peaked during the coronavirus outbreak, with people rushing to get COVID-19 vaccinations or treatment for minor ailments when access to other care settings was restricted. FAIR Health (a non-profit organization managing a repository of 40 billion claim records) indicated that the utilization of RHCs increased by 51% from 2020 to 2021. Accordingly, the US retail health clinic market grew from US$1.78 billion in 2020 to US$3.49 billion in 2021 (as per estimates by Fortune Business Insights). With increasing familiarity and utilization, are RHCs set out to play a bigger role in the nation’s healthcare system?

RHCs move beyond low-acuity care

RHCs began with the concept of providing low-acuity care, spanning from minor illnesses and injuries to occasional visits for vaccinations or wellness screening. Increasingly, retailers are eyeing a larger share of the primary care market by making inroads into chronic disease management. Several are even expanding into mental and behavioral health.

Vaccinations

In 2022, nearly 40% of the patients at the RHCs came in for vaccinations. Much of this footfall can be attributed to the public health advisory recommending booster shots for COVID-19 vaccination. Even though the need for COVID-19 vaccinations is gradually expected to decline, the pandemic has established RHCs as a convenient venue for vaccinations. Before the coronavirus outbreak, about 50,000 adults died every year from ailments that could be prevented by vaccines, highlighting the value offered by RHCs in immunization delivery.

Diagnostics

During the pandemic, RHCs became a key provider of COVID-19 testing. Almost all the RHCs today have point-of-care testing capabilities. Flu and strep tests, lipid tests, pregnancy tests, glucose tests, etc., are among the diagnostics tests commonly offered at the RHCs. As RHCs aim to expand their services to penetrate deeper into the primary care market, the scope of diagnostic services is likely to widen. For instance, Walmart, which opened its first RHC in 2019, provides EKG tests and X-ray imagining services on-site as well.

Chronic disease management

In 2022, the Centers for Disease Control and Prevention (CDC) estimated that six in ten adults live with a chronic disease. This data indicates the vast opportunity this segment has to offer, and RHCs are vying for a piece of it. Analysis by Definitive Healthcare suggests that, in 2022, about one in ten diagnoses at the RHCs was related to a chronic condition. Nearly 6% of the claims were with the diagnosis of diabetes (Type 2 diabetes mellitus without complications and Type 2 diabetes mellitus with hyperglycemia).

As the opportunity for RHCs to contribute more to chronic disease management is vast, retailers are focusing on evolving the clinic offerings to provide treatment for chronic conditions such as diabetes, hypertension, chronic obstructive pulmonary disease, kidney disease, etc. For instance, in 2020, CVS launched HealthHubs, an enhanced RHC format, offering a larger suite of services including chronic disease management.

RHCs are able to provide chronic disease management at a lower cost. For instance, in 2022, the average charge per claim for Type 2 diabetes mellitus without complications was US$160 at an RHC compared with US$367 at a physician’s office, whereas for Type 2 diabetes mellitus with hyperglycemia, the average charge per claim was US$255 at RHC vs. US$639 at a physician’s office. Given that a chronic disease requires continuous long-term care, patients see RHC as a cost-effective and viable option for chronic disease management.

Mental and behavioral health

In early 2022, the Harris Poll data (based on a monthly survey among 3,400 people over the age of 18, physicians, and pharmacists) indicated that 41% of Gen Z and younger millennials were suffering from anxiety or depression conditions. However, the same study found that only 16% of those struggling with these mental conditions were comfortable seeking treatment from a therapist or mental health professional. A mystery shopper study (conducted in 2022) investigating 864 psychiatrists across five US states indicated that only 18.5% of psychiatrists were taking appointments for new patients with a significant wait time (median = 67 days). A person going through a breakdown or depression needs immediate attention. Thus, the low availability of psychiatry outpatient new appointments is concerning and one of the main reasons why mental health issues remain under-treated. With walk-in appointments and easy accessibility, RHCs are well-positioned to fill this gap.

Leading RHC chains have forayed into mental and behavioral health services. In 2020, MinuteClinic (an RHC chain owned by CVS) started offering mental and behavioral health counseling services. The company also added Licensed Mental Health Providers to its staff at select locations. In the same year, Walmart announced counseling services for US$1 a minute in partnership with Beacon Care Services, a subsidiary of Carelon Behavioral Health (formerly Beacon Health Options).

Retail Health Clinics Eye a Larger Piece of the US Primary Care Market by EOS Intelligence

Patient-centric approach differentiates RHCs from traditional providers

Definitive Healthcare estimates that as of March 2023, there were 1,800+ RHCs, of which 90% were owned by retail and pharmacy giants CVS (63%), Kroger (12%), Walgreens (8%), and Walmart (2%). Noticeably, the consumer-centric concepts and learnings from the retail segment have helped RHCs improve patient experience and satisfaction. Implementation of proven retail strategies is, in turn, defining and shaping the convenient care model and setting apart the RHCs from traditional healthcare providers.

Omnichannel engagement

Omnichannel engagement is a key retail concept enabling companies to offer a seamless consumer experience across various touchpoints. Health Care Insights Study 2022, based on a survey of 1,000 US-based respondents, indicated that four in ten people had a virtual consultation in the past year. The same study suggested that ~70% of the respondents think that the virtual consultation is better or about the same as the in-person visit. RHCs, owned by big-box retailers and pharmacy giants, are seizing the omnichannel opportunity by complementing their in-person visits with virtual care services.

MinuteClinic (owned by CVS) started piloting telehealth services in 2015. In 2021, the company provided 19 million virtual consultations, of which ~10 million were for mental and behavioral health. The Little Clinic (owned by Kroger) stepped into telehealth services following the country-wide shutdown due to the coronavirus outbreak in March 2020. In 2021, with the aim to extend virtual care, Walmart Health acquired MeMD, a 24/7 telehealth company providing on-demand care for common illnesses, minor injuries, and mental health issues.

Walk-in appointments

The average wait time for a primary care physician appointment in the 15 largest cities of the US was 26 days, as per Merritt Hawkins survey data (2022). RHCs typically accept walk-in patients. Moreover, RHCs are open for extended evening hours and over weekends when primary care physicians are not available. This allows the patients to visit an RHC at their convenience.

Geographic proximity

RHCs benefit from the wide footprint across the country established by their owners, the big-box retailers. For instance, CVS, operating 1,100 retail clinics across 33 states, indicated that more than half of the US population lives within 10 miles of a MinuteClinic as of March 2022.

However, currently, there is a geographic disparity as the majority of the RHCs are located in urban areas, with only 2% serving the rural population. From the business perspective, it makes sense to concentrate on the metropolitan areas targeting high-income populations. Moreover, just like traditional healthcare providers, RHCs also find it challenging to hire qualified staff to work at remote locations. However, as the popularity and utilization of RHCs increase, expansion to rural areas may come as a natural progression. For instance, Walmart is uniquely positioned to capture the rural market opportunity by leveraging the presence of its 4,000 stores located in medically underserved areas as designated by the Health Resources and Service Administration.

Dollar General is the first retailer to step up and penetrate this unserved market. In January 2023, Dollar General, in partnership with DocGo (a telehealth and medical transportation company), piloted mobile clinics set up at the parking lots at three of its stores in Tennessee. This initiative is Dollar General’s first step into retail healthcare, and there is no clarity yet on whether the company is looking at the in-store clinics model.

Fixed and transparent pricing

RHCs have fixed pricing for different types of treatments offered, and the treatment costs are communicated up-front to the patient. The Annual Consumer Sentiment Benchmark report based on a survey conducted in January 2022 indicated that 44% of the 1,006 respondents avoided care because of unknown costs. It is evident that besides the concern over affordability, the anxiety and fear around uncertain costs are making patients avoid healthcare services. RHCs help patients to evade this anxiety through cost transparency.

Multiple payment options

At RHCs, patients receive a more retail-like experience at the time of the payment. Besides the common mode of payment such as cash and cards, the RHCs also allow for contactless payments, including digital wallets, tap-to-pay platforms, touchless terminals and, thus making the payment process faster, simpler, and more convenient. This aligns with the growing popularity of contactless transactions. 80% of US consumers used some form of contactless payment mode in 2021, as per a survey of 1,000 US consumers conducted by Raydiant (an in-location experience management platform).

Technology and automation

Technology and automation have been an integral part of modern retail. A reflection of this is seen in an RHC setup. For instance, at CVS MinuteClinic, the reception is a form of self-service kiosk. The patient is notified of the wait time (if any) and directed to fill out the electronic forms to share important personal and health-related data. The information submitted by the patient is directly shared with the healthcare professional on-site, who then confirms the details and proceeds with the diagnosis and course of treatment. Details of the diagnosis and treatment, along with the bill payment receipt, are automatically shared with the patient at the end of the visit. The communication for follow-up consultations or other reminders is automated. The process is highly streamlined and backed by automation.

Moreover, in the RHC model, the application of technology can be seen not only to improve patient experience but also to support clinical decision-making. For instance, in 2019, CarePortMD RHCs (owned by Albertsons grocery stores) started using the autonomous AI diagnostic system called LumineticsCore to detect a leading cause of blindness in diabetic patients. Such technological additions reduce the chances of human error, thus eliminating potential liability issues as well as increasing patient confidence. Walgreens, leveraging Inovalon’s Converged Patient Assessment decision support platform that provides insights into possible diagnoses using predictive analytics, is another case in point.

EOS Perspective

With all the growth and progress, RHCs are penetrating the underserved population and strengthening the current primary care delivery model. A report released by the National Association of Community Health Centers in February 2023 indicated that about a third of the US population does not have access to primary care. RHCs are well-positioned to fill this gap. Moreover, according to the data published by the Association of American Medical Colleges in 2021, the USA could struggle with a shortage of up to 124,000 physicians (across all specialties) by 2034. In the face of physician shortage, RHCs providing non-emergency care can help to alleviate the burden on the primary care providers.

To what extent the RHCs would be able to carve out a space for themselves in the primary care segment is still an ongoing debate. However, the owners of RHCs are determined to compete head-on with the traditional providers for the primary care market share and are rapidly foraying into alternative primary care models.

In May 2023, CVS completed the acquisition of Oak Street Health providing primary care to Medicare patients through its network of 169 medical centers across 21 states.

Walgreens holds a majority stake in VillageMD, offering value-based primary care to patients at 680 practice locations (including independent practices, Summit Health, CityMD, and Village Medical clinics at Walgreens, as well as at-home and virtual visits) across 26 states. In October 2021, Walgreens acquired a 55% stake in CareCentrix, an at-home care provider serving post-acute patients. The company has plans to acquire the remaining stake by the end of this year.

Amazon is another prominent retailer that made inroads in the primary care space this year with its acquisition of One Medical, a primary care provider with a network of 200+ medical offices in 27 markets across the USA.

It is foreseeable that at some point in time, the retailers will try to bring in the synergies between the RHC business and other alternative primary care service offerings with the aim to become a one-stop shop for all healthcare needs. As retailers take on a larger role in primary care delivery, the retailization of healthcare is certainly on the way.

17/08/2023by EOS Intelligence EOS Intelligence No Comments

New EU Pharma Legislation: Is It a Win-win for All Stakeholders?

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The revision of the EU pharmaceutical legislation represents a major achievement for the pharmaceutical sector within the European Health Union. The European Health Union, established in 2020 as a collaboration among EU member states, aims to effectively respond to health crises and improve healthcare systems across Europe. This revision provides an opportunity for the pharmaceutical sector to adapt to the demands of the 21st century, enabling greater flexibility and agility within the industry. The updated EU pharmaceutical legislation places a strong emphasis on patient-centered care, fostering innovation, and enhancing the competitiveness of the industry.

Limited market exclusivity to offer indirect opportunities to generic drug manufacturers

The COVID-19 crisis in 2020 raised a significant concern related to the accessibility and availability of life-saving medicines. The pandemic highlighted the significance of establishing effective incentives for the production of medicines to address medical needs during health emergencies.

Therefore, revised EU pharmaceutical legislation includes several rules and regulations to incentivize pharmaceutical companies to create a single market for medicines to ensure equal access to affordable and effective medicines across the EU. This is to be achieved through reducing the administrative burden by shortening authorization time, the duration required to review and grant approval for a new medicine, ensuring efficacy, safety, quality, and regulatory requirements. For example, the EU Commission will have 46 days instead of 67 days for authorization of medicine, whereas EMA (European Medicine Agency) will have 180 days instead of 240 days for the assessment of new medicine.

The new directive incentives are expected to help in improving access to medicines in all member states, in developing medicines for unmet medical needs, and in conducting comparative clinical trials (CCT). Comparative Clinical Trials are clinical research studies aimed at comparing the efficacy and safety of distinct medical treatments. Such trials usually entail two or more groups of participants, each receiving a different treatment in order to ascertain the more effective, safer treatment that offers better outcomes for a specific condition.

The legislation also focuses on maintaining the availability of generic drugs and biosimilars to help countries with more affordable and accessible medicines across the EU. It also aims to provide enhanced rules for the protection of the environment, such as mandatory ERA (environmental risk assessment) of medicines which focuses on discarding medicines properly by ensuring the minimization of environmental risks that are associated with the manufacturing, use, and disposal of medicine on the EU market, promoting innovation, and tackling antimicrobial resistance (AMR).

The revised pharmaceutical legislation introduces a shortened period of regulatory protection, reducing it from 10 to 8 years, in order to establish a unified market for new medicines. This protection encompasses 6 years of regulatory data protection and 2 years of market protection. Companies can also benefit from an additional 2 years of data protection if they launch their medicine in all 27 EU member states and an extra 6 months of protection if their medicine addresses unmet medical needs or undergoes comparative clinical trials.

The revised EU pharma legislation also includes provisions for 2 years of market exclusivity for pediatric medicines and 10 years of market exclusivity for orphan drugs. The limited market exclusivity for branded drug manufacturers is expected to give the generic medicine makers more opportunities for production, hence improving the affordability and accessibility of medicines across the EU.

New EU Pharma Legislation: Is It a Win-win for All Stakeholders by EOS Intelligence

Assessing changes for the European Medicines Agency

The EMA is responsible for the evaluation and approval of new medicines while monitoring the safety and efficacy of the medicine. The revised EU pharmaceutical legislation has bestowed significant responsibilities upon the EMA. These responsibilities encompass expediting data assessments and providing enhanced scientific advice to pharmaceutical companies. The legislation has both positive and negative impact on the EMA.

On the positive side, it aims to harmonize regulatory processes across member states, leading to a more streamlined and efficient system. This is expected to improve the agency’s ability to assess medicines promptly, facilitating faster access to innovative treatments. Additionally, the legislation encourages collaboration among regulatory authorities and promotes international partnerships, which strengthen the EMA’s regulatory capacity and scientific expertise. Further, the new regime is likely to foster EMA to prepare a list of critical medicines and ensure their availability during shortages.

The challenges that EMA might face if the new pharma legislation is passed include increased workload and resource requirements, which may necessitate additional staff, expertise, and funding. Complex areas such as pricing, pharmacovigilance, data transparency, and reimbursement could pose difficulties, potentially leading to delays and discrepancies.

Balancing affordability and access to medicines while incentivizing pharmaceutical companies’ investment in R&D under strict regulations, health technology assessments, and data transparency could be a challenge. EMA might face obstacles in training, resource allocation, and maintaining regulatory consistency. Both positive and negative impact should be considered while implementing the revised legislation.

Overriding drug patents could ensure supply, albeit with challenges

Overriding a drug patent is a legal mechanism allowing governments to bypass the patent protection of medicines and medical technology during emergency situations.

Although it poses challenges to the original patent holder company, including implications on revenue streams, investments, and profitability, it enables the granting of compulsory licenses to generic drug manufacturers, which increases production and reduces prices, particularly during health emergencies, while still considering the rights and interest of patent holders (through compensation for the use of their invention during the emergency period). It also encourages voluntary licensing that allows generic manufacturers to produce and sell products with the patent holder’s permission while respecting patent rights, instead of overriding the patent as it is in compulsory licensing.

Amidst concerns pertaining to intellectual property (IP) rights and the fact that this move might potentially discourage pharma companies from investing in R&D initiatives, the revised EU pharmaceutical legislation proposes overriding drug patents, as it would enhance the availability of affordable and cost-effective medicines throughout the EU. The production of generic drugs and biosimilars is likely to help increase market competition, drive innovation, and introduce improved treatments across the EU, maintaining a competitive edge.

Overriding drug patents might also have ramifications on international trade and relationships, leading to disputes and strained ties between countries. While considering these laws, policymakers need to exercise caution to ensure both accessibility of medicines and adequate investments in R&D.

New EU pharma legislation to benefit Eastern European countries

The difference in access to medicines between Eastern and Western European countries is evident from the fact that from 2015 to 2017, EMA approved 104, 102, and 101 medicines for Germany, Austria, and Denmark, respectively, compared to only 24 in Poland, 16 in Lithuania, and 11 in Latvia. These distinct differences in the availability of medicines between Eastern and Western European countries could be attributed to factors such as stronger healthcare systems in the Western region, higher healthcare budgets, and a greater ability to negotiate pricing and reimbursement agreements with pharmaceutical companies.

Western European countries have relatively better funded and more advanced healthcare infrastructure, including clinics, hospitals, and specialized healthcare services compared to Eastern European countries. Western European countries have a larger capacity to invest in research and development and contribute to the development of new medicines.

Moreover, differences in national healthcare policies contribute to the variation in pharmaceutical benefits and outcomes. The presence of a robust and extensive pharmaceutical manufacturing industry in Western European countries allows for faster production and distribution of medical supplies. Consequently, Western European countries generally have better access to medicines and medical supplies compared to Eastern European countries.

The new EU pharmaceutical legislation helps Eastern European countries by reducing the exclusivity period of newly introduced drugs. This measure can prevent branded drug manufacturers from selling drugs exclusively to more affluent countries.

Moreover, according to experts, branded drug manufacturers are likely to only theoretically benefit from a competition-free market for 12 years because the majority of medicines launched by them are unlikely to meet all the new criteria in order to be granted this extended competition-free market access. This might compel branded medicine manufacturers to expand their sales base and sell in Eastern European countries as well to maximize their revenues.

New EU pharma legislation to spur a changing investment landscape

With the approval of new EU pharmaceutical legislation, it is expected that investment plans within the pharmaceutical sector will undergo significant changes. The regulatory changes, which aim to reduce the time and administration burden, could help in attracting lucrative investments by offering faster returns for pharmaceutical companies.

The new legislation can be expected to bring more investments in the R&D and manufacturing sectors by addressing critical healthcare challenges. Furthermore, the availability of generic and biosimilars would also help by creating opportunities for investment in the production/manufacturing of cost-effective medicines.

Moreover, enhancement in transparency and data sharing can also lead to increased collaboration and partnerships in R&D, attracting investments from the public and private sectors in the medical space.

However, investment plans could vary depending upon various factors such as intellectual property rights, market dynamics, competitive landscape, etc. Pharmaceutical companies need to assess new legislation in order to adjust their investment strategies to navigate potential challenges.

EOS Perspective

Analyzing the winning stakeholders of the revised EU pharma legislation could be challenging at this point in time owing to the fact that the new regime focuses on addressing issues of affordability and innovation across the EU which tend to be contradicting. These aims are to be achieved by incentivizing R&D and manufacturing sectors, enhancing market competition, and promoting collaboration.

It cannot be denied that there will be several challenges while enforcing these changes. A few of these challenges include maintaining intellectual property rights, marrying affordability with innovation, and addressing the specific needs of various patients in different countries. Specific resources and coordination will be required to overcome these hurdles. As a result, the success or failure of the EU pharmaceutical legislation for stakeholders will depend on the legislation’s actual implementation, adaptation to changing market dynamics, stakeholder engagement, as well as whether the balance between accessibility, affordability, and innovation while maintaining competitiveness is achieved and maintained in the long term.

13/06/2023by EOS Intelligence EOS Intelligence No Comments

Scarcity Breeds Innovation – The Rising Adoption of Health Tech in Africa

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Africa carries the world’s highest burden of disease and experiences a severe shortage of healthcare workers. Across the continent, accessibility to primary healthcare remains to be a major challenge. During the COVID-19 pandemic, several health tech companies emerged and offered new possibilities for improving healthcare access. Among these, telemedicine and drug distribution services were able to address the shortage of health workers and healthcare facilities across many countries. New health tech solutions such as remote health monitoring, hospital automation, and virtual health assistance that are backed by AI, IoT, and predictive analytics are proving to further improve health systems in terms of costs, access, and workload on health workers. Given the diversity in per capita income, infrastructure, and policies among African countries, it remains to be seen if health tech companies can overcome these challenges and expand their reach across the continent.

Africa is the second most populated continent with a population of 1.4 billion, growing three times faster than the global average. Amid the high population growth, Africa suffers from a high prevalence of diseases. Infectious diseases such as malaria and respiratory infections contribute to 80% of the total infectious disease burden, which indicates the sum of morbidity and mortality in the world. Non-communicable diseases such as cancer and diabetes accounted for about 50% of total deaths in 2022. High rates of urbanization also pose the threat of spreading communicable diseases such as COVID-19, Ebola, and monkey fever.

A region where healthcare must be well-accessible is indeed ill-equipped due to limited healthcare infrastructure and the shortage of healthcare workers. According to WHO, the average doctor-to-population ratio in Africa is about two doctors to 10,000 people, compared with 35.5 doctors to 10,000 people in the USA.

Poor infrastructure and lack of investments worsen the health systems. Healthcare expenditure (aggregate public healthcare spending) in African countries is 20-25 times lower than the healthcare expenditure in European countries. Governments here typically spend about 5% of GDP on healthcare, compared with 10% of GDP spent by European countries. Private investment in Africa is less than 25% of the total healthcare investments.

Further, healthcare infrastructure is unevenly distributed. Professional healthcare services are concentrated in urban areas, leaving 56% of the rural population unable to access proper healthcare. There are severe gaps in the number of healthcare units, diagnostic centers, and the supply of medical devices and drugs. Countries such as Zambia, Malawi, and Angola are placed below the rank of 180 among 190 countries ranked by the WHO in terms of health systems. Low spending power and poor national health insurance schemes discourage people from using healthcare services.

Health tech solutions’ potential to fill the healthcare system gaps

As the prevailing health systems are inadequate, there is a strong need for digital solutions to address these gaps. Health tech solutions can significantly improve the access to healthcare services (consultation, diagnosis, and treatment) and supply of medical devices and drugs.

Health tech solutions can significantly improve the access to healthcare services (consultation, diagnosis, and treatment) and supply of medical devices and drugs.

For instance, Mobihealth, a UK-based digital health platform founded in 2017, is revolutionizing access to healthcare across Africa through its telemedicine app, which connects patients to over 100,000 physicians from various parts of the world for video consultations. The app has significantly (by over 60%) reduced hospital congestion.

Another example is the use of drones in Malawi to monitor mosquito breeding grounds and deliver urgent medical supplies. This project, which was introduced by UNICEF in 2017, has helped to curb the spread of malaria, which typically affects the people living in such areas at least 2-3 times a year.

MomConnect, a platform launched in 2014 by the Department of Health in South Africa, is helping millions of expectant mothers by providing essential information through a digital health desk.

While these are some of the pioneers in the health-tech industry, new companies such as Zuri Health, a telemedicine company founded in Kenya in 2020, and Ingress Healthcare, a doctor appointment booking platform launched in South Africa in 2019, are also strengthening the healthcare sector. A study published by WHO in 2020 indicated that telemedicine could reduce mortality rates by about 30% in Africa.

The rapid rise of health tech transforming the African healthcare landscape

Digital health solutions started to emerge during the late 2000’s in Africa. Wisepill, a South African smart pill box manufacturing company established in 2007, is one of the earliest African health tech success stories. The company developed smart storage containers that alert users on their mobile devices when they forget to take their medication. The product is widely used in South Africa and Uganda.

The industry gained momentum during the COVID-19 pandemic, with the emergence of several health tech companies offering remote health services. The market experienced about 300% increase in demand for remote healthcare services such as telemedicine, health monitoring, and medicine distribution.

According to WHO, the COVID pandemic resulted in the development of over 120 health tech innovations in Africa. Some of the health tech start-ups that emerged during the pandemic include Zuri Health (Kenya), Waspito (Cameroon), and Ilara Health (Kenya). Several established companies also developed specific solutions to tackle the spread of COVID-19 and increase their user base. For instance, Redbird, a Ghanaian health monitoring company founded in 2018, gained user attention by launching a COVID-19 symptom tracker during the pandemic. The company continues to provide remote health monitoring services for other ailments, such as diabetes and hypertension, which require regular health check-ups. Patients can visit the nearest pharmacy instead of a far-away hospital to conduct tests, and results will be regularly updated on their platform to track changes.

Scarcity Breeds Innovation – The Rising Adoption of Health Tech in Africa by EOS Intelligence

Start-ups offering advanced solutions based on AI and IoT have been also emerging successfully in recent years. For instance, Ilara Health, a Kenya-based company, founded during the COVID-19 pandemic, is providing affordable diagnostic services to rural population using AI-powered diagnostic devices.

With growing internet penetration (40% across Africa as of 2022) and a rise in investments, tech entrepreneurs are now able to develop solutions and expand their reach. For instance, mPharma, a Ghana-based pharmacy stock management company founded in 2013, is improving medicine supply by making prescription drugs easily accessible and affordable across nine countries in Africa. The company raised a US$35 million investment in January 2022 and is building a network of pharmacies and virtual clinics across the continent.

Currently, 42 out of 54 African countries have national eHealth strategies to support digital health initiatives. However, the maximum number of health tech companies are concentrated in countries such as South Africa, Nigeria, Egypt, and Kenya, which have the highest per capita pharma spending in the continent. Nigeria and South Africa jointly account for 46% of health tech start-ups in Africa. Telemedicine is the most offered service by start-ups founded in the past five years, especially during the COVID-19 pandemic. Some of the most popular telemedicine start-ups include Babylon Health (Rwanda), Vezeeta (Egypt), DRO Health (Nigeria), and Zuri Health (Kenya).

Other most offered services include medicine distribution, hospital/pharmacy management, and online booking and appointments. Medicine distribution start-ups have an immense impact on minimizing the prevalence of counterfeit medication by offering tech-enabled alternatives to sourcing medication from open drug markets. Many physical retail pharmacy chains, such as Goodlife Pharmacy (Kenya), HealthPlus (Nigeria), and MedPlus (Nigeria), are launching online pharmacy operations leveraging their established logistics infrastructure. Hospitals are increasingly adopting automation tools to streamline their operations. Electronic Medical Record (EMR) management tools offered by Helium Health, a provider of hospital automation tools based in Nigeria are widely adopted in six African countries.

Medicine distribution start-ups have an immense impact on minimizing the prevalence of counterfeit medication by offering tech-enabled alternatives to sourcing medication from open drug markets.

For any start-up in Africa, the key to success is to provide scalable, affordable, and accessible digital health solutions. Low-cost subscription plans offered by Mobihealth (a UK-based telehealth company founded in 2018) and Cardo Health (a Sweden-based telehealth company founded in 2021) are at least 50% more affordable than the average doctor consultation fee of US$25 in Africa. Telemedicine platforms such as Reliance HMO (Nigeria) and Rocket Health (Uganda) offer affordable health insurance that covers all medical expenses. Some governments have also taken initiatives in partnering with health tech companies to provide affordable healthcare to their people. For instance, the Rwandan government partnered with a digital health platform called Babylon Health in 2018 to deliver low-cost healthcare to the population of Rwanda. Babylon Health is able to reach the majority of the population through simple SMS codes.

Government support and Public-Private Partnerships (PPPs)

With a mission to have a digital-first universal primary care (a nationwide program that provides primary care through digital tools), the Rwandan government is setting an example by collaborating with Babylon Health, a telemedicine service that offers online consultations, appointments, and treatments.

As part of nationwide digitization efforts, the government has established broadband infrastructure that reaches 90% population of the country. Apart from this, the country has a robust health insurance named Mutuelle de Santé, which reaches more than 90% of the population. In December 2022, the government of Ghana launched a nationwide e-pharmacy platform to regulate and support digital pharmacies. Similarly, in Uganda, the government implemented a national e-health policy that recognizes the potential of technology in the healthcare sector.

MomConnect, a mobile initiative launched by the South African government with the support of Johnson and Johnson in 2014 for educating expectant and new mothers, is another example of a successful PPP. However, apart from a few countries in the region, there are not enough initiatives undertaken by the governments to improve health systems.

Private and foreign investments

In 2021, health tech start-ups in Africa raised US$392 million. The sustainability of investments became a concern when the investments dropped to US$189 million in 2022 amid the global decline in start-up funding.

However, experts predict that the investment flow will improve in 2023. Recently, in March 2023, South African e-health startup Envisionit Deep AI raised US$1.65 million from New GX Ventures SA, a South African-based venture capital company. Nigerian e-health company, Famasi, is also amongst the start-ups that raised investments during the first quarter of 2023. The company offers doorstep delivery of medicines and flexible payment plans for medicine bills.

The companies that have raised investments in recent years offer mostly telemedicine and distribution services and are based in South Africa, Nigeria, Egypt, and Kenya. That being said, start-ups in the space of wearable devices, AI, and IoT are also gaining the attention of investors. Vitls, a South African-based wearable device developer, raised US$1.3 million in funding in November 2022.

Africa-based incubators and accelerators, such as Villgro, The Baobab Network, and GrowthAfrica Accelerator, are also supporting e-health start-ups with funding and technical guidance. Villgro has launched a US$30 million fund for health tech start-ups in March 2023. Google has also committed US$4 million to fund health tech start-ups in Africa in 2023.

Digital future for healthcare in Africa

There were over 1,700 health tech start-ups in Africa as of January 2023, compared with about 1,200 start-ups in 2020. The rapid emergence of health tech companies is addressing long-running challenges of health systems and are offering tailored solutions to meet the specific needs of the African market.

Mobile penetration is higher than internet penetration, and health tech companies are encouraged to use SMS messaging to promote healthcare access. However, Africa is expected to have at least 65% internet penetration by 2025. With growing awareness of the benefits of health tech solutions, tech companies would be able to address new markets, especially in rural areas.

Companies that offer new technologies such as AI chatbots, drones, wearable devices for remote patient monitoring, hospital automation systems, e-learning platforms for health workers, the Internet of Medical Things (IoMT), and predictive analytics are expected to gain more attention in the coming years. Digitally enabled, locally-led innovations will have a huge impact on tackling the availability, affordability, and quality of health products and services.

Digitally enabled, locally-led innovations will have a huge impact on tackling the availability, affordability, and quality of health products and services.

Challenges faced by the health tech sector

While the African health tech industry has significantly evolved over the last few years, there are still significant challenges with regard to infrastructure, computer literacy, costs, and adaptability.

For instance, in Africa, only private hospitals have switched to digital records. Many hospitals still operate without computer systems or internet connections. About 40% of the population are internet users, with countries such as Nigeria, Egypt, South Africa, Morocco, Ghana, Kenya, and Algeria being the ones with the highest number of internet users (60-80% of the population). However, 23 countries in Africa still have low internet penetration (less than 25%). This is the major reason why tech companies concentrate in the continent’s largest tech hubs.

On the other hand, the majority of the rural population prefers face-to-face contact due to the lack of digital literacy. Electricity and internet connectivity are yet to reach all parts of the region and the cost of the internet is a burden for many people. Low-spending power is a challenge, as people refuse to undergo medical treatment due to a lack of insurance schemes to cover their medical expenses. Insurance schemes provided in Africa only cover 60% of their healthcare expenses. Even though health tech solutions bring medical costs down, these services still remain unaffordable for people in low-income countries. Therefore, start-ups do not prefer to establish or expand their services in such regions.

Another hurdle tech companies face is the diversity of languages in Africa. Africa is home to one-third of the world’s languages and has over 1,000 languages. This makes it difficult for companies to customize content to reach all populations.

Amidst all these challenges, there is very little support from the governments. The companies face unfavorable policies and regulations that hinder the implementation of digital solutions. Only 8% of African countries have online pharmacy regulations. In Nigeria, regulatory guidelines for online pharmacies only came into effect in January 2022, and there are still unresolved concerns around its implementation.

Lack of public investment and comprehensive government support also discourage the local players. Public initiatives are rare in providing funding, research support, and regulatory approval for technology innovations in the health sector. Private investment flow is low for start-ups in this sector compared to other industries. Health tech start-ups raised a total investment of US$189 million in 2022, which is not even 10% of the total investments raised by start-ups in other sectors in Africa. Also, funding is favored towards the ones established in high-income countries. Founders who don’t have ties to high-income countries struggle to raise funds.

EOS Perspective

The emergence of tech health can be referred to as a necessary rise to deal with perennial gaps in the African healthcare system. Undoubtedly, many of these successful companies could transform the health sector, making quality health services available to the mass population. The pandemic has spurred the adoption of digital health, and the trend experienced during the pandemic continues to grow with the developments in the use of advanced technologies such as AI and IoT. Telemedicine and distribution have been the fastest-growing sectors driven by the demand for remote healthcare services during the pandemic. Home-based care is likely to keep gaining momentum with the development of advanced solutions for remote health monitoring and diagnostic services.

Home-based care is likely to keep gaining momentum with the development of advanced solutions for remote health monitoring and diagnostic services.

With the increasing internet penetration and acceptance of digital healthcare, health tech companies are likely to be able to expand their reach to rural areas. Right policies, PPPs, and infrastructure development are expected to catalyze the health tech adoption in Africa. Companies that offer advanced technologies such as IoT-enabled integrated medical devices, AI chatbots, drones, wearable devices for remote patient monitoring, hospital automation systems, e-learning platforms for health workers, and predictive analytics for health monitoring are expected to emerge successfully in the coming years.

12/01/2023by EOS Intelligence EOS Intelligence 2 Comments

Can Tourism Be the Ticket to Turkey’s Economic Recovery?

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Tourism is one of the most dynamic and fastest-growing sectors in Turkey. The country is highly reliant on tourism for foreign exchange earnings. However, the COVID-19 outbreak and the Russia-Ukraine war have affected the country’s tourism industry and resulted in a decline in tourist visits. While the spike in energy and commodity costs due to war has widened the current account deficit gap, it has also made tourism cheaper in the country due to a significant decline in currency value. This has resulted in an unprecedented influx of tourists once the pandemic subsided. Furthermore, various initiatives have been taken by the government to boost tourism in hopes of reducing the current account deficit, bringing down inflation rates, and supporting economic growth.

Turkey is known for its vast historical sites in the major cities of Istanbul and Antalya, as well as the Aegean and Mediterranean Sea coasts. The tourism sector employs about 2.6 million people in the country. The sector also contributes significantly to new tourism-related business sources and foreign exchange earnings and, thus, plays a crucial role in the economic development of the country, especially in the post-COVID era. In 2021, it is estimated that Turkey generated about US$25 billion in revenue from the tourism sector.

The country’s dependence on tourism has increased significantly over the past few years. Turkey’s travel and tourism sector contribution to GDP increased to 11% in 2019 as compared with 4.7% in 2014. As per the United Nations World Tourism Organization (UNWTO), Turkey was the sixth-most visited country in the world in 2019. While the country’s rank came down to 15th in 2020 due to the COVID-19 outbreak, it jumped to fourth in 2021 in the post-COVID-19 recovery phase.

In addition to this, as per the 2022 Economic Impact Report (EIR) by the World Travel and Tourism Council, Turkey’s Travel and Tourism GDP is expected to increase by about 5.5% on an annual basis over the next decade (2022-2032) and create over 716,000 new jobs in the country. The projected growth rate in the country’s travel and tourism sector is more than double the projected growth rate of the overall economy, which is expected to be 2.5% during the same time period.

Challenges faced by the tourism sector over the years

While the tourism sector remains one of the best-performing sectors in Turkey, it has faced its own set of challenges over the past several years. Inflation has been rapidly rising in the country since 2016 due to factors such as low-interest rates, the energy crisis, an increase in commodity prices, and declining currency value. This has significantly affected domestic travelers and business owners in the tourism sector. Several terrorist attacks, particularly in the southeast part of the country and Istanbul and Ankara by the Kurdistan Workers’ Party (PKK) and ISIS, also severely affected tourist visits and economic growth in 2016.

Owing to the 2020 COVID-19 outbreak, spending on tourism by international visitors in Turkey declined by about US$20 billion, a 70% decline in comparison with 2019. This led to a decline in demand and unemployment in related sub-sectors, including airlines, travel agencies, hotels, and car rental companies, among others.

Stringent measures and trade restrictions resulted in a significant decline in air traffic and affected the aviation industry. For instance, the National carrier, Turkish Airlines, reported a net loss of about US$761 million in 2020.

The hospitality industry was also hit due to a fall in tourism in the country. Most hotels faced significant revenue loss during lockdown months. According to the Turkish Hotel Association (TUROB), the hotel occupancy rate in the first nine months of 2020 was just 35.4%, a decline of 47.8% from the same time period in the previous year. Moreover, revenue per available room declined by 52.5% to US$24.7 during the same period.

Can Tourism Be the Ticket to Turkey’s Economic Recovery? by EOS Intelligence

The 2022 war between Ukraine and Russia further affected the tourism sector growth in Turkey. Tourist visits from Russia and Ukraine used to account for a significant share of the total number of tourists visiting the country for holidays from Europe. Over 4.7 million Russians and 2 million Ukrainians visited Turkey for vacation in 2021. While 2.2 million Russians visited Turkey during January-July 2022, it is expected that the total number of tourists from Russia in 2022 will fall short of the 2021 figures due to prolonged war and the imposition of western sanctions and flight suspension. The number of tourists from Ukraine declined to 374,000 in the first seven months of 2022, in comparison with 1.1 million during the same period in 2021. The war also spiked Turkey’s inflation rate, which touched about 80% in August 2022.

While the Turkish government is trying to attract tourists from Russia by collaborating with Turkish aircraft to transport foreign guests amid war, it is not likely to recover tourist visits to pre-war levels.

Depreciating currency value boosts tourism in the country

The increase in the current account deficit due to rising energy and commodity costs in the backdrop of war in Ukraine has led to a massive currency value plunge for the Turkish Lira in 2022. Turkey is a net importer of oil and gas, and a spike in energy costs amid the Ukraine-Russia war has widened the current account deficit gap. As per the Turkish Central Bank data, the current account deficit increased to about US$32.4 billion in the first half of 2022. As of September 2022, the Turkish Lira declined to about TRY18.3 per US$1 compared with an average of TRY 8.9 per US$1 in September 2021 and is likely to decline further in 2023 with rising inflation rates due to interest rate cut.

A significant plunge in the currency value has made Turkey a more affordable destination for holidays in comparison with other European tourist destinations. The cost of stay, food, and travel has become significantly lower for foreigners. Adding to this, there has been a decline in COVID-19 cases across the globe, which has also provided the tourism sector a strong boost.

The number of foreign tourists visiting Turkey increased by 94% in 2021 (compared with 2020), reaching 24.7 million. It further witnessed a y-o-y increase of about 128% for the period of January-July 2022 to reach 23.3 million tourists during the period. The country’s revenue from tourism also witnessed a y-o-y increase of 190% in Q2 2022 to reach US$8.72 billion. In 2022, Germany accounted for the largest share of visitors, reaching 2.9 million from January to August. The number of tourists from Middle Eastern and European countries has also increased significantly in 2022. This has also resulted in an increase in share prices of Turkish Airlines. For instance, the share value of Turk Hava Yollari AO, also known as Turkish Airways, increased by about 147% between January and May 2022.

Since Turkey is highly reliant on tourism for its foreign exchange earnings, the significant boost in tourism is likely to help lower the widening current account deficit in the country. A low current account deficit is likely to increase the value of the Lira and, thus, bring down the inflation rate and support economic growth. However, further decline in interest rates by the Central Bank is resulting in an increase in the inflation rate, which reached 80.2% in September 2022. Therefore, while tourism can help soften the blow on the economy by reeling in foreign currency and earnings, it is unlikely that it will single-handedly help the economy recover from the ongoing crisis. That being said, the government is undertaking several efforts to capitalize on the growth in the tourism sector and provide a much-needed cushion to the economy as a whole.

Initiatives aimed at boosting tourism in the country

The Turkish government realizes the role tourism can play in uplifting the economy and has been undertaking several initiatives to boost the sector. For instance, in 2021, the government adopted a new promotion strategy, ‘Go Turkey’, to boost tourism. The ‘Go Turkey’ website encompasses the use of advanced technologies such as artificial intelligence and communication models. It follows over 100 media and social media outlets which cover news about the country. Additionally, it also analyses positive or negative content on Turkey and determines promotion priority based on this analysis. The aim is to focus on advanced public relations by integrating all 81 provinces under the system and promoting tourism together as a single voice.

A few other initiatives taken up to boost tourism in the country include additional domestic flight routes, medical tourism support, transportation infrastructure development, and several hotel investments. In August 2022, Turkish Airlines signed a deal with the Services Exporters’ Association (HİB) to help increase medical tourism in Turkey to meet the medical tourism industry’s export service revenue target aimed at US$5 billion in 2023.

About US$172 billion has also been invested in communication and transportation infrastructure during 2003-2021, and the government is planning to invest an additional US$198 billion by the end of 2053. Some of the key ongoing projects include The MBB – Gari – Mezitli Metro, The IBB – Kazlicesme – Sogutlucesme Metro Line, and the IMM – Ucyol-Buca Koop Light Rail, among others, aimed at boosting the transportation network in the country. Additionally, according to the Hotel Association of Turkey (TÜROB), new investments were planned in about 30 provinces in the first half of 2022. The new investment incentive includes applications for 11 five-star hotels, 18 four-star hotels, and 26 three-star hotels.

As of March 2022, TUI Group, a leading German travel and tourism company, together with its partners in Turkey, planned on expanding its holiday program and developing a winter program across destinations to attract more tourists as compared with pre-pandemic levels.

Additionally, in July 2022, Cengiz Construction, a leading construction company, started the construction of villas and hotels in Bodrum’s Cennet Bay together with Bulgari, a luxury hospitality company, with a significant increase in international visitors in the country.

Furthermore, travel companies and agencies are focusing on the adoption of digital platforms to promote tourism in the country as people are becoming more technology savvy and prefer online booking. It also helps attract travelers from different countries across the globe. Hotel booking through digital platforms increased to 81% in 2019, up from 73% in 2014, and is expected to increase further with rising penetration of smartphones and easy internet access. Turkey’s Tourism Development Agency (TGA) is likely to spend about US$100 million to promote tourism in over 120 countries through internet platforms and media in 2022.

EOS Perspective

Tourism contributes a significant amount to the Turkish GDP and is likely to help limit the consequences of increasing commodity and energy prices by reducing the widening current account deficit gap and easing the pressure on the economy. That being said, it is unlikely to help the country recover completely from its economic woes. Although the depreciating Lira has made Turkey a very affordable destination for holidays, people operating in tourism businesses are significantly affected by the high inflation levels as well. Hotels and resorts are facing high costs of employee wages, food supplies, and car rents, among others, which hurt their profits. Interest rates cut by the Central Bank are further increasing the inflation rate. In addition to this, the key tourist season, which is the summer season for Turkey, lasts for just a few months, and the sector’s revenue and profitability fall in the winter season. This makes it evident that the Turkish economy must base its recovery on a balanced mix of support across several sectors.

22/02/2022by EOS Intelligence EOS Intelligence No Comments

Diagnostics Gain Spotlight amid Coronavirus Outbreak

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It took 60 days for global COVID-19 infections to reach 100,000, but this figure doubled in the following 12-14 days, and the addition of next 100,000 cases took only 3 more days. Because of highly contagious nature of the novel coronavirus, testing became essential to keep the epidemic under control. As a result, there was a spike in global demand for coronavirus testing kits. As per McKinsey’s estimates, in May 2020, global demand for coronavirus testing was 14 million to 16 million per week, but less than 10 million tests were being conducted.

Industry was quick to respond to the rise in demand

The widespread outbreak of coronavirus required the manufacturers to develop and launch new testing kits in large volumes in a short duration of time. Diagnostics kit suppliers responded promptly to this spike in demand by developing new coronavirus testing kits. Roche Diagnostics, for instance, developed coronavirus test in about six weeks – such diagnostic tests generally take 18 months or more to reach regulatory review stage. In 2020, Roche developed a total of 15 solutions for coronavirus diagnosis.

Governments across the world eased up regulatory procedures for manufacturers in order to allow rapid development and commercialization of the coronavirus testing kits. This paved way for many companies to quickly launch new products to the market. For instance, a Korean firm, Seegene, developed coronavirus testing kit in two weeks and got approval from Korea Centers for Disease Control and Prevention (KCDC) in another two weeks’ time. Such approvals generally take more than six months in Korea.

Furthermore, standard regulatory process for approval of diagnostic kits in the USA typically take several months, but considering the public health emergency in the event of pandemic, the FDA issued emergency use authorizations to expedite the process of bringing coronavirus test kits to the market. Emergency use authorizations are like interim approvals provided on the basis of sufficient evidence to suggest a diagnostics test is effective and the benefits outweighs potential risks.

By the end of 2020, the FDA granted emergency use authorization to 225 diagnostic tests for coronavirus detection, including test kits developed by Abbott Laboratories, Roche, Cepheid, Clinomics, Princeton BioMeditech, UPenn, Inno Diagnostics, Ipsum Diagnostics, Co-Diagnostics, QIAGEN, DiaSorin, BioMérieux, and Humanigen.

Leading companies with adequate resources quickly ramped up their production capacity by multifold in line with the rising demand. For instance, a US-based firm, Thermo Fisher Scientific, increased the global production of coronavirus test kits from 50,000 per week in January 2020 to 10 million per week by June 2020. In 2020, Roche spent CHF 137 million (~US$149 million) to ramp up production capacity and supply chain for all COVID-19-related testing products.

Some companies also received government grants and private investment to scale up their production capacity. For instance, in July 2020, BD (Becton, Dickinson and Company) received a US$24 million investment from the US government to scale up production of coronavirus test kits by 50%, thereby, enabling the company to produce 12 million test kits per month by the end of February 2021.

The pandemic encouraged the shift towards decentralizing diagnostics

While the test kit manufacturers were trying to achieve round the clock production to meet the demand, they struggled with global supply chain disruptions which were also induced by the pandemic.

Coronavirus testing requires several components including specialized chemicals and laboratory testing equipment. Roche, for example, manufactures coronavirus tests in the USA but procures components of the test kit from different countries. One of the important components of test kits is reagent, a specialized liquid used for the identification of coronavirus. Roche produces these reagents mainly in Germany and few other production sites located across the world.

Further, the test kits are often compatible only with company’s own testing equipment and systems. For instance, the Roche cobas SARS-CoV-2 test kit runs on the cobas 6800 or 8800 systems. The cobas 8800 system includes approximately 23,000 components which are procured from different parts of the world. In addition to this, the production involves 101 sub-assemblies and accumulated assembly time of about 450 hours each. Final production of these instruments from Roche takes place in Switzerland.

Manufacturing of a coronavirus testing kit involves complex supply chain. Spread of coronavirus forced countries to implement extreme measures including lockdowns and trade restrictions which impacted the supply chain of test kit manufacturers. Producing all the testing components and equipment at one place is near to impossible. For instance, the production of reagents involves highly sophisticated and sensitive processes, and thus, setting up a new production site to manufacture reagents on a large scale would take several months. Setting up a new production site and streamlining the procurement for such testing equipment and systems would take several years. Hence, the diagnostics firms upped their R&D activities in an effort to develop tests that could be conducted without sophisticated laboratory systems and equipment.

Moreover, the high demand for testing compelled the diagnostics practices to evolve far beyond the traditional laboratory-based business model. The need for community testing during the pandemic that challenged the operational capabilities of hospitals and diagnostics labs dictated the importance of decentralizing diagnostics for improved patient care. This gave rise to increased demand for point-of-care testing.

The two most widely used diagnostic tests for coronavirus detection are Reverse Transcription Polymerase Chain Reaction (RT-PCR) and Antigen tests. RT-PCR test detect viral RNA in samples from the upper and lower respiratory tract, while antigen test is used to detect viral proteins in samples.

RT-PCR test is considered gold standard for coronavirus detection since the accuracy and reliability is high compared to Antigen test. However, RT-PCR test needs to be processed in a laboratory-setting and had turnaround time of several hours. Hence, there was a need for development of RT-PCR tests that could give faster results without the support of laboratory equipment.

On March 18, 2020, Abbott announced the launch of their first coronavirus test kit that was compatible with their system ‘m2000 RealTime’ which processed 470 tests in 24 hours and another ‘Alinity m’ system with capacity to run 1,080 tests in a 24-hour period. Since there was demand for more portable and fast testing solution, on March 30, 2020, Abbott launched a RT-PCR point-of-care test that ran on ID NOW system, which is the size of a small toaster. The test delivers results in 13 minutes or less. The test price is in the range of ~US$100.

Further, despite the limitations of accuracy and reliability, in some cases antigen test is preferred because there is no requirement of a lab specialist to conduct this test, thus making it less expensive, and the result is available in a few minutes. The industry saw an opportunity here and quickly developed rapid antigen tests that can be conducted at home without any assistance. For instance, in December 2020, the US FDA granted emergency use authorization to an Australia-based firm Ellume’s antigen test (priced at ~US$30) as first over-the-counter at-home diagnostic test for coronavirus detection. Soon after, Abbott also received emergency use authorization from FDA for its at-home rapid antigen test (priced at US$25) giving results in 15 minutes.

Other countries around the world also followed the suit by extending official authorization to the home-based tests for coronavirus detection. For instance, in February 2021, Germany’s Federal Institute for Drugs and Medical Devices (BfArM) granted special approval for the first time to antigen home-test kits developed by US-based Healgen Scientific as well as China-based firms Xiamen Boson Biotech and Hangzhou Laihe Biotech.

Coronavirus crisis accelerated innovation in the field of diagnostics

In a united fight against the pandemic, governments, private sector, as well as NGOs and philanthropists across the world stepped forward to raise funds to bolster R&D efforts in coronavirus diagnostics. As per data compiled by Policy Cures Research (an Australian firm engaged in global health R&D data collection and analysis), from January 2020 to September 2020, funds worth over US$800 million were committed for coronavirus diagnostics R&D. The firm also indicated that 450+ coronavirus diagnostics products were in R&D pipeline since January 2020 to December 2020.

With firms looking to capitalize on exponentially rising demand for coronavirus testing, the development of new diagnostics technologies beyond conventionally used tests (i.e., RT-PCR and antigen tests) picked up significantly.

For instance, in May 2020, the FDA granted an emergency use authorization to first ever CRISPR-based rapid test kit developed by Sherlock Biosciences. CRISPR, an acronym for Clustered Regularly Interspaced Short Palindromic Repeats, is a gene editing technology which allows to alter the DNA. Sherlock’s rapid test is a paper-strip test (like a pregnancy test) which can be conducted at point-of-care and does not require any additional equipment for processing of the test. The test works by programming a CRISPR enzyme to release a detectable signal in presence of genetic signature for coronavirus.

In March 2020, US-based Surgisphere launched a smartphone app using Artificial Intelligence algorithms to detect coronavirus infection. This app confirms diagnosis by integrating the findings of chest CT scan and laboratory tests with clinical symptoms and exposure history. Preliminary studies found that the tool can detect coronavirus infection with 95.5% accuracy.

Further, application of nanotechnology for diagnosis of coronavirus infection is also underway. Canada-based Sona Nanotech developed a rapid antigen test using gold nanoparticles. This is a strip test that can be conducted at point-of-care and gives result in 15 minutes. Research is in progress to develop wearable sensors using nanoparticles for detection of coronavirus. In January 2021, University of California San Diego received US$1.3 million from the National Institutes of Health to develop a test strip containing nanoparticle that change color in presence of coronavirus. This test strip can be attached on a mask and used to detect coronavirus in a user’s breath or saliva.

Innovation wave was not limited to development of different types of tests but also expanded to consumables. For instance, in March 2020, HP (a company manufacturing 3D printers) teamed up with Beth Israel Deaconess Medical Center (a teaching hospital of Harvard Medical School) to develop 3D printed nasopharyngeal swab (typically used to collect sample for coronavirus testing) and within 35 days the clinically validated swab was ready for use. By May 2020, these swabs were commercially available for the US market following the FDA approval. In June 2020, a Belgium-based 3D printing service provider, ZiggZagg, began to plan large-scale production of swabs on their fleet of HP 3D printers. By October 2020, the company had 3D-printed over 700,000 swabs for the Belgian market.

EOS Perspective

A market research firm, The Business Research Company, estimated that the global COVID-19 rapid test kits market was expected to reach a value of US$14.94 billion in 2020. Due to worldwide vaccination drive, the market is expected to decline at a rate of -54.9%, to reach US$1.37 billion in 2023.

Though the demand for coronavirus tests is expected to diminish eventually, it has supported rapid development of diagnostics infrastructure which will remain. In India, for example, only one laboratory was performing molecular assays for COVID-19 in January 2020. The COVID-19 pandemic has shifted that balance. By May 2020, some 600 Indian RT-PCR laboratories had been set up in an effort to help manage the pandemic, thousand-fold increasing testing capacity. The additional capacity will likely remain in place as the pandemic subsides, leaving the RT-PCR assay as the dominant method for diagnosing most viral infections in India in the future.

Furthermore, with surge in demand for the coronavirus testing, the provision of diagnostic services expanded beyond the purview of hospitals and laboratories. Mobile testing facilities and drive-through testing sites propped up with development of point-of-care diagnostics. For instance, Walgreens, one of the largest pharmacy chains in the USA, offer coronavirus drive-thru testing at 6,000+ locations across the country. Further, there is high-demand for home-based testing.

Diagnostics firms riding high on the COVID-19 gains have been actively scouting opportunities to strengthen their positioning in the market and prepare for the post-pandemic world. High demand for COVID-19 test kits boosted the revenues of diagnostic companies, with Roche, Thermo Fisher, PerkinElmer, Hologic, and DiaSorin among the companies benefiting. With strong balance sheet, these companies went on with M&A flurry to advance their diagnostic portfolio and other core business verticals.

As the virus originated in China, the country was better prepared and first to develop relevant detection mechanisms. By the time the virus spread to the other parts of the world, Chinese companies were ready to export detection kits globally. Coronavirus outbreak helped China to penetrate major markets such as EU and the USA in which the indigenous diagnostics companies traditionally had a stronger hold. China was a net importer of diagnostic reagents and test kits in 2019. But in 2020, after the outbreak of coronavirus, China ramped up its production capacity of diagnostic reagents and test kits, and as a result its export growth increased by more than 500% and the country became a net exporter of diagnostic reagents and test kits by the end of 2020.

This indicates that the outbreak of the pandemic has shifted the market dynamics on many fronts. As the pandemic slowly subsides, some of these shifts might partially revert, however, the way testing is performed is likely to remain.

31/01/2022by EOS Intelligence EOS Intelligence No Comments

Cloud Kitchens on the Surge as Consumers Choose to Order-in

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For food delivery, e-commerce was an option before COVID-19, but as the pandemic unfolded, it became the preferred way to take customers’ orders. Restaurants were shut down for indoor dining, so customers turned to cloud kitchens to order and enjoy restaurant-like food without having to step out. The ease of having high-quality food delivered right at the footstep has instigated people, now more than ever, to order in. The pandemic has accelerated the cloud kitchen business, causing a paradigm change. Customer- and technology-driven cloud kitchens reflect a business model that will be adopted, sooner than later, unanimously by players in the food and restaurant service space.

The global cloud kitchen market was valued at close to US$ 52 billion in 2020, with the APAC region accounting for more than 60% of the global market share. Rising disposable income and increased use of smartphones have been driving the increase in online food delivery services (on which cloud kitchens depend), but it was not until the pandemic entered the scene that cloud kitchens really gained traction as restaurants and other eateries closed down.

COVID-19 accelerated the ascent of cloud kitchens as people used food delivery services much more frequently than before the pandemic. The growth was further favored by the trivial need for dine-in space due to social restrictions.

Everyone wants a piece of cloud kitchen on their menu

While China, India, and Japan are the key markets driving the growth of the cloud kitchen market in the region, the market in other countries is also witnessing significant growth rates. For instance, JustKitchen, a Taiwan-based cloud kitchen operator established in March 2020, has 14 “Spokes” (smaller kitchens for final meal preparation and packaging) and one “Hub” (larger commercial kitchen where earlier stage food preparation takes place) across the country. The company further plans to expand both domestically (by having 35 Spokes and two Hubs in Taiwan by the end of 2021) and internationally – it opened its first overseas kitchen in Hong Kong in June 2021 and plans to expand further in Singapore, the Philippines, and the USA. Another player, GrabKitchen, owned by Singapore-based online-to-offline (O2O) mobile platform Grab, which opened its first cloud kitchen in Indonesia (in 2018), now has operations in Thailand, Vietnam, Singapore, Myanmar, and the Philippines.

Restaurant chains are the primary adopters of the cloud kitchen concept. The pandemic has made India-based QSR chain Bercos realize that it is important to include deliveries as part of the business plan, because of which it is planning to launch three new cloud kitchen brands in the western and southern parts of India. Another Indian multi-brand cloud kitchen player, TTSF Cloud One, looks at opening 150 cloud kitchens by 2022. They aim to invest between US$ 3.3 million to US$ 4 million in the project through a combination of owned cloud kitchens, retail stores as well as franchised stores, and franchised cloud kitchens.

Owing to corporate strategy and global restructuring, the Philippines-based fast-food restaurant chain Jollibee Foods announced (in May 2020) that it would spend US$ 139.4 million on building its cloud kitchen network.

Global food chains are also partnering with local players to increase their outreach in the cloud kitchen ecosystem – in 2020, Wendy’s, a US-based fast food restaurant chain, entered into a joint venture with Rebel Foods, an Indian online restaurant company, to open up 250 cloud kitchens across India. This is a strategic move for Wendy’s as the company will get immediate access to scale rapidly across the country because of Rebel Foods’ existing network of cloud kitchens. Furthermore, Rebel Foods recently announced that the company plans to add another 250-300 locations to its repertoire across Southeast Asia, West Asia, and the UK via partnerships.

With the cloud kitchen concept growing at an astronomical rate, players, especially in nascent markets, are also looking to scale up rapidly. CloudEats, a Philippine-based cloud kitchen, plans to expand its reach further within the country (it currently has five cloud kitchens domestically) and other countries with the highest online food delivery penetration across Southeast Asia. Bangladesh-based cloud kitchen and digital food court player Kludio launched Kitchen-as-a-service to help restaurateurs, home cooks, and virtual brands expand with no upfront investment, and FoodPanda Bangladesh, in July 2020, announced that it would be launching 30 new cloud kitchens (in a period of 6 months) across the country.

Cherry-picked business model served on a silver platter (well, almost)

Cloud kitchens present a sea of prospects for both food and restaurant industry players as well as other adjoining sectors. They represent the potential of a tech-enabled business model for the restaurant and food delivery industry, where operational jobs in the kitchen will be handled by robots and deliveries made by drones. Another opportunity is for restaurants that would like to expand their geographical reach but are incapable of opening another dine-in place. With a cloud kitchen in place, they can access new markets via delivery only. Restauranteurs can further use it to their advantage by experimenting with new food items with relatively no investment and low risk. Last but not least, the mid and large-sized restaurant chains, which thrived on the dine-in concept (before the pandemic), will be quick to jump and adapt (some players have already ventured into this space) the cloud kitchen model to capitalize on the growing food delivery business. Furthermore, new players entering the restaurant and food business can take this as an opportunity to pan the layout of their premises in a way that space is efficiently optimized to adjust both the restaurant layout as well as the delivery service.

But it is not all smooth sailing. With a large number of cloud kitchens sprouting, the competition will be fierce in the coming years. Furthermore, with only so many food delivery platforms to support the already crowded cloud kitchen market, they are easily exploited by food aggregators. Not only do aggregators charge a high commission (ranging between 25% and 40%), the ratings for cloud kitchens on these portals (for a cloud kitchen) play a massive role in influencing other customers and affect the brand value.

EOS Perspective

Unlike restaurants, a cloud kitchen offers no dine-in facility and relies solely on online orders. The delivery-only model has its limitations, especially when it comes to customer experience. And a slowdown in dine-in style is indicative that restaurants are moving forward and looking to enter this space. Therefore, a hybrid model where cloud kitchen and dine-in concepts integrate is most likely to rise in the future.

The restaurant industry is recovering from the coronavirus crisis and adjusting to the fact that a pandemic could shake the entire foundation of the sector which was once based on dining in. But now, with more and more people ordering in, the burgeoning cloud kitchen space represents a sprouting new business model. In the near future, smaller brands are most likely to embrace a cloud kitchen network model, whereas the hybrid business model (combining physical stores and cloud kitchens) will work best for the larger and established brands. For instance, in July 2020, Thailand’s fast-food restaurant chain, Central Restaurants Group (CRG), which currently operates 1,100 fast-food outlets nationally, announced that it would open 100 cloud kitchens across the country in the next five years to strengthen its food delivery business. Moreover, as social distancing becomes the norm (wherein restaurants are forced to maintain sizable distances between tables) and preference for eating out reduces, the dine-in spaces across restaurants are also likely to shrink.

In the long term, the concept of cloud kitchen seems practical and a plausible winner, however, its success hinges entirely on the growth of the food delivery market. Before the pandemic, in 2017, APAC led the global online food delivery market with a share of 52.1% and market revenue of US$ 34.31 (the region was anticipated to contribute a revenue of US$ 91.0 billion and a share of 56.2% by 2023). Post-pandemic, these figures have multiplied and present a space that exudes growth potential. For instance, in Southeast Asia, the food delivery market grew 183% from 2019 to 2020 (in terms of gross merchandise value) owing to changing consumer behavior (towards how they consume food) and the ease of ordering due to digitalization. Moreover, the growth in the food delivery sector is expected to continue.

Food aggregators have been active in the cloud kitchen space even before the pandemic hit. Their value proposition of acting both as a supplier (wherein it allows independent cloud kitchen players to use its platform while charging them on a revenue-sharing model) and operator of the platform puts them in an interesting position, where they have control, to a certain extent, of business functions of other players. Food aggregators may likely dominate this space in the long run.

The metrics of the food and restaurant service industry have changed as businesses evolve continuously. With concepts such as cloud kitchen, the sector has become consolidated, wherein multiple establishments work under a single roof. In a nutshell, cloud kitchens are here to stay as they display substantial growth potential, provided players revisit their business strategies and rethink the right hybrid business model (such as merging with a large brand to expand into cloud kitchen space, among others) in order to thrive.

16/09/2021by EOS Intelligence EOS Intelligence No Comments

Indian Pharma Needs to Reinforce Supply Chain Capabilities

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COVID-19 has emphasized the importance of a strong healthcare and pharmaceutical ecosystem for India. The constant demand for drugs and the expectation to deliver them in time put a lot of pressure on pharma supply chains, highlighting several challenges and shortcomings. At the same time, the Indian pharma sector seems to have benefited from the situation as well, as the pandemic unlocked new avenues of growth. To seize new opportunities, the Indian pharma sector should now focus on increasing manufacturing capacity, investing in R&D capabilities, developing world-class infrastructure, and strengthening its supply chain network.

Challenging times for the Indian pharma sector

With the coronavirus wreaking havoc, the Indian pharmaceutical sector was shaken, and the pandemic inflicted several challenges on the industry.

The key challenge faced by pharmaceutical companies has been the shortage of key raw materials for manufacturing drugs. India imports 60% of APIs (Active Pharmaceutical Ingredients) and DIs (Drug Intermediates), and nearly 70% of this demand is met by Chinese companies (as of July 2020). This reliance on importing cheaper raw materials from countries such as China is a result of a lack of tax incentives, the high cost of utilities, and low import duties in India.

India’s dependence on China has affected the supply of essential APIs. The recent pandemic has magnified this problem, and in order to meet the increasing demand, Indian pharma manufacturers need to strengthen their supply chain strategies by working with multiple API suppliers, both domestic as well as international.

Another concern has been the increased raw materials and logistics costs. Between January and June 2020, the production costs at the Chinese suppliers increased due to the implementation of safety and hygiene measures thus increasing the overall cost of APIs and other materials imported by India by an average of 25%. Logistics prices also went up during the same period, with the cost of shipping a container from China to India increasing to an average of US$ 1,250, up from US$ 750. Additionally, air freight charges also went up from US$ 2/kg to US$ 5-6/kg.

Furthermore, restrictions on movement of products and other goods also posed a problem for pharma supply chain. Even though the sector was exempted from these restrictions, delays in the delivery of drugs were registered. These delays have been largely contributed to by the complexity of various processes and their elements (from raw material procurement to procuring casing and other packaging material – all of which come from different locations to the final assembly point, and their delivery can be exposed to delays at each stage). While logistics companies tried to make product deliveries on time, they were restrained by limited workforce and movement restrictions (that required clearance at every step).

Moreover, due to panic buying, scarcity of OTC and generic drugs was also observed.

Government’s push to make India self-reliant

The government has undertaken steps to strengthen the pharma sector and announced several schemes and policies to boost domestic pharma manufacturing.

To reduce import dependence on APIs and boost domestic manufacturing, the government approved a US$ 971.6 million (INR 69.4 billion) Production Linked Incentive (PLI) Scheme in March 2020 to promote domestic manufacturing of APIs and KSMs (Key Starting Materials)/DIs. Under the scheme, financial incentives ranging from 5% to 20% of incremental sales will be given to selected manufacturers of 41 critical bulk drugs (of the identified 53 APIs for which the country is heavily dependent on imports). This includes aid for fermentation-based products from FY2023–2024 to FY2028–2029 and for chemical-synthesis-based products from FY2022–2023 to FY2027–2028. It is expected that the scheme will result in incremental sales of US$ 649.6 million (INR 464 billion) and generate a large number of employment opportunities.

Moreover, in November 2020, a new PLI Scheme (referred to as PLI 2.0) for the promotion of domestic manufacturing of pharmaceutical products was announced, wherein US$ 210 million (INR 150 billion) were allotted for pharma goods manufacturers based on their Global Manufacturing Revenue (GMR). Financial incentives ranging from 3% to 10% of incremental sales will be given to manufacturers (classified under Group A – having GMR of pharmaceutical goods of at least US$ 700 million (INR 50 billion), Group B – having GMR between US$ 70 million (INR 5 billion) and US$ 700 million (INR 50 billion), and Group C – having GMR less than US$ 70 million (INR 5 billion). The objective of the scheme is to promote production of high-value products, increase the value addition in exports, and improve the availability of a wider range of affordable medicines for local consumers. The initiative is likely to create 100,000 (20,000 direct and 80,000 indirect) jobs while generating total incremental sales of US$ 41,160 million (INR 2,940 billion) and total incremental exports of US$ 27,440 million (INR 1,960 billion) during six years from FY2022-2023 to FY2027-2028.

Another scheme, named Promotion of Bulk Drug Parks, was announced by the government in March 2020 to attain self-reliance. Under the plan, funds worth US$ 420 million (INR 30 billion) were allotted for setting up three bulk drug parks between 2020 and 2025. This initiative aims at reducing the manufacturing cost as well as the dependency on importing bulk drugs from other countries. Financial assistance will be given to selected bulk drug parks to the extent of 70% of the project cost of common infrastructure facilities (for north-eastern regions and states in the mountainous areas, the assistance will be 90%). The aid per bulk Drug Park will be limited to US$ 140 million (INR 10 billion).

Furthermore, to end reliance on China, Indian pharma companies are also taking steps to strengthen their operations and manufacturing capabilities with regard to pharmaceutical ingredients. For instance, Cipla Ltd. (Mumbai-based pharmaceutical company) launched the “API re-imagination” program in 2020 to expand its manufacturing capacity by using government incentive schemes.

The announcement of the above schemes is a show of intent by the government towards building a self-sufficient pharma sector in India. It will be interesting to see how much pharma players stand to gain from these potentially game-changing initiatives. However, only time will tell if these policies are good enough for the industry stakeholders or will these schemes not be plentiful enough to truly help the manufacturers.

Investment in API and intermediaries’ sub-sectors on the rise

Since the outbreak of COVID-19, Indian pharmaceutical companies (that deal particularly with the manufacturing of APIs, vaccine-related products, and bulk pharma chemicals) have been attracting huge investment from private equity firms. This is happening mainly because of two reasons. Firstly, the occurrence of the second wave of COVID-19 in India has increased the demand for medicines (including demand for self-care, nutritional, and preventive pharma products to boost immunity), and secondly, pharma companies across North America and Europe are shifting their manufacturing sites from China to India (to reduce dependency on a single source). Indian companies received an investment worth US$ 1.5 billion from private equity firms during FY2020-2021 (since the coronavirus outbreak), and the investment is expected to reach US$ 3-4 billion in FY2021-2022.

Some of the major deals that happened in this space included Carlyle Group (US-based private equity firm) buying a 20% stake in Piramal Pharma (Mumbai-based pharma company) for US$ 490 million in June 2020 and a 74% stake in SeQuent Scientific (India-based pharmaceutical company) for US$ 210 million in May 2020. Further, KKR & Co. (US-based global investment company) purchased a 54% controlling stake in J.B. Chemicals & Pharmaceuticals Ltd. (Mumbai-based pharmaceutical company) for nearly US$ 410 million in July 2020. Another example is Advent International (US-based private equity firm) acquiring stakes in RA Chem Pharma (Hyderabad-based pharmaceutical company) for US$ 128 million in July 2020.

From a capital perspective, COVID-19 acted as an investment accelerant that will keep the market open for opportunistic deals for many years to come. In the current scenario, investment firms are re-evaluating the pharma landscape and looking to invest in innovative ideas and products that help them grow. It is highly likely that in the coming months if the right opportunity strikes, the investment firms will not be deterred from going ahead with novel deal structures. This could include arrangements such as both parties sharing equal risk and rewards, a for-profit partnership wherein the investor specifically focuses on enhancing the digital-marketing capabilities of the pharma company (rather than sticking to just acquiring a certain share or merging with an existing company) and being open to taking more risk if needed.

Partnerships expected to increase

The pandemic has led pharma companies to rethink their operational and business strategies. For long-term sustainability, players analyze their market position, partnering with other industry stakeholders for better market penetration and value creation for their customers.

In November 2020, Indian Immunologicals Ltd. (Hyderabad-based vaccine company) announced that the company would invest US$ 10.5 million (INR 0.75 billion) in a new viral antigen manufacturing plant based in Telangana that would cater to the need for vaccines for diseases such as dengue, zika, varicella, and COVID-19 (in April 2021, the company announced a research collaboration agreement with the Griffith University, Australia to develop a vaccine for the coronavirus).

Furthermore, Jubilant Life Sciences Ltd. (Noida-based pharma company) entered into a non-exclusive licensing agreement with Gilead Sciences (a US-based biopharmaceutical company), granting it the right to register, manufacture, and sell Remdesivir (Gilead Sciences’ drug currently used as a potential therapy for COVID-19) in India (along with other 126 countries).

In February 2021, to scale up the biopharma ecosystem, the state government of Telangana partnered with Cytiva (earlier GE Healthcare Life Sciences) to open a new Fast Trak lab in Hyderabad. This facility will enable the biopharma companies in the region to improve and increase production efficiency, reduce operational costs, and make products available in the market quicker.

Future ripe for new opportunities

The pandemic has opened a stream of opportunities for India’s pharma sector which are expected to drive the growth of the sector in the long term.

China’s supply disruption and increased raw material costs have forced global pharma companies to reduce dependence on China. As an alternative, the companies either set up new API manufacturing plants (which is time-consuming) or turn to existing European or US drug manufacturers to help them meet their requirements. However, both options are capitally draining, and there is a need to find a cost-efficient solution. This presents a huge opportunity for the Indian API sector, which is also a key earnings growth driver for pharma manufacturers.

India is among the leading global producers of cost-effective generic medicines. Now, there is a need to diversify the product offerings by focusing on complex generics and biosimilars. With the guidance of the United States Food & Drug Administration (USFDA) in identifying the most appropriate methodology for developing complex generic drugs, Indian pharma companies such as Dr. Reddy’s, Zydus, Glenmark, Aurobindo, Torrent, Lupin, Cipla, Sun, and Cadila are working on their product pipeline of complex generics. Currently, the space has limited competition and offers higher margins (in comparison to generic drugs), thus presenting a lucrative opportunity for Indian players to explore and grow.

Similarly, biosimilars (referred to as similar biologics in India) are another area where Indian companies have not been faring too well in international markets, mainly due to the non-alignment of Indian regulatory guidelines with the guidelines in other markets (mainly in Europe and the USA). The government had already revised the guidelines of similar biologics (done in 2016, which provided an efficient regulatory pathway for manufacturing processes assuring safety and efficacy with quality as per cGMP (Current Good Manufacturing Practice regulations enforced by the FDA)) and introduced industry-institute initiatives (such as ‘National Bio-Pharma Mission’, launched in 2017 to accelerate biopharmaceutical development, including biosimilars, among others) to improve the situation. But now, with the intensified need for improved healthcare systems and more effective medicines, COVID-19 has presented Indian companies with an opportunity to shape their biosimilar landscape.

India holds a strong position as a key destination for outsourcing research activities. While it has been a preferred location for global pharma companies to set up R&D plants for a number of years now, becoming an outsourcing hub for pharma research is another growth area that is yet to be explored to its full potential.

EOS Perspective

Currently, the Indian pharma industry is at an interesting crossroads wherein the industry responded to the unprecedented situation with agility and persistence. The pandemic presented several opportunities and challenges for the industry and unsurprisingly, had a positive impact on the sector. The pandemic acted as a catalyst for change and investment for the pharma sector, which also responded to the challenges by adjusting to the new normal that furthered new opportunities.

In the past few months, COVID-19 has led the government to reassess the country’s pharmaceutical manufacturing capabilities and led them to take steps to make India self-sufficient. As an immediate measure, the country has been reviewing its business policies (for the ease of doing business and to attract more investment) and pharma companies recalibrating their business models, and some success has been achieved. The government should also be mindful that, in the long run, success will only be achieved when industry stakeholders are presented with a business environment (in the form of incentives, tax subsidies, low rates of interest on bank loans, utilities such as electricity and water at discounted rates, and transparent business policies, etc.) that is conducive for growth.

Moving forward, the Indian pharma companies need to be adaptive and flexible. While the sector has been resilient to the effects of the coronavirus pandemic, companies need to focus on risk management as well. Moreover, with continuous capital flowing into the sector, there is an opportunity for firms to not just broaden their scope of innovation but also to invest in critical therapeutic areas.

To emerge as a winner post-pandemic, the Indian pharma industry needs to focus on its strengths and propel full steam in the direction of opportunities presented by COVID-19.

*All currency conversions as on 20^th May, 2021, 1 INR = 0.014 US$

05/08/2021by EOS Intelligence EOS Intelligence No Comments

Industry Game for Diversifying Monetization Pathways

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Currently, gaming industry is believed to be bigger than any other popular entertainment mediums such as films and music. IDC estimated that global gaming revenue reached US$180 billion in 2020. Another research firm, Newzoo, indicated that global gaming industry generated US$159.3 billion in revenue in 2020. On the other hand, the global film industry surpassed US$100 billion in revenue for the first time in 2019 according to the Motion Picture Association. And, as per MIDiA Research (a firm specializing in digital content research), global recorded music industry generated US$23 billion in 2020.

Gaming industry has been on a continuous growth trajectory

Gaming industry has enjoyed a steady growth in the past few years with increasing its reach by each year. As per Newzoo’s analysis, the number of gamers increased from 2 billion in 2015 to 2.7 billion in 2020, indicating annual growth rate of over 6%.

Games are generally played through mobile devices, personal computers, or gaming consoles. In 2020, 2.5 billion were playing games on mobile devices (including games played via smartphones and tablets), 1.3 billion on personal computers, and 0.8 billion using consoles. Mobile gaming was the largest revenue segment in 2020, accounting for nearly half of the total gaming industry revenue, followed by gaming on consoles and PC which represented 28% and 23% of the market share, respectively. These estimates are from Newzoo Global Games Market Report 2020 which was based on a survey of 62,500 people from 30 countries (representing more than 90% of the global games industry revenue) conducted between February and March 2020.

Gaming on smartphones generated US$63.6 billion in annual revenue in 2020, recording 13.3% growth over previous year. Increasing number of smartphone users and improving internet connectivity are driving growth in this category. Gaming on tablets generated US$13.7 billion, indicating a moderate growth of 2.7% over previous year.

Mobile gaming has seen unprecedented growth due to coronavirus outbreak. According to Sensor Tower, a research firm providing insights on mobile app ecosystem, global downloads of mobile games from Google Play and iOS App Store totaled 28.5 billion in the first half of 2020, an increase by 42.5% as compared with the same period in 2019.

Newzoo’s analysis concluded that console gaming generated US$45.2 billion in 2020, representing 6.8% growth compared with 2019. While there was an increased demand for gaming consoles amidst coronavirus outbreak as more people turned to games due to stay-at-home restrictions, the manufacturing and distribution of gaming console providers were affected because of global supply chain disruptions, and as a result, the increase in demand for gaming consoles could not be met. For instance, Sony sold 118,085 PlayStation 5 consoles within four days of its launch in November 2020, but this figure was approximately one-third of the volume of PlayStation 4 sold over its launch weekend in November 2013. PlayStation 5 consoles were in high demand and were sold out within minutes after being made available in retail outlets. In October 2020, Sony’s Chief Financial Officer indicated that the company was not in capacity to fulfil pre-orders for PlayStation 5 consoles because of supply chain bottlenecks created by coronavirus outbreak.

PC games, including browser-based as well as downloaded versions, clocked US$36.9 billion in annual revenues in 2020, representing 4.8% year-on-year growth. Though PC games market is not declining, it shows the smallest growth compared with other categories, mainly because there is more deflection towards mobile gaming which is comparatively more convenient and less expensive.

Further, the number of gamers worldwide is expected to cross over 3 billion mark in 2023 contributing nearly US$200 billion in annual revenue for the global gaming industry.

Gaming Market Breakdown by Region

Asia Pacific

North America

Other Regions

Asia Pacific represents the largest gaming market with a total of US$84.3 billion in annual revenues in 2020.

China, Japan, and Korea are among the top five revenue generating countries worldwide. In 2020, China’s gaming industry raked in about US$41 million in annual revenues, while gaming industry in Japan and Korea recorded annual revenue of US$18.7 million and US$6.6 million, respectively.

North America represents the second largest gaming market which generated about US$45 million in annual revenue in 2020.

The USA, the second largest gaming market worldwide by revenue, accounted for majority of the share of the North America gaming market, with about US$37 million in annual revenues in 2020.

Europe was the third largest gaming market with revenue of US$32.9 billion for 2020, followed by Latin America in the fourth place, with revenue of US$6.8 billion.

MENA represented the smallest region in terms of revenue with US$6.2 billion.

With rising popularity and wider reach, gaming industry looks to unravel multiple monetization strategies

Historically, gaming used to be an entertainment medium for a niche segment, mainly gaming enthusiasts and children or teenagers. At the time, ‘game-as-a-product’ was a go-to monetization strategy for most game developers, where gamers paid one time to purchase the physical or digital copy of the game.

Today, however, gaming attracts a much wider audience, enticing people from every age group. Business strategy has also evolved from upfront-based revenue model to ongoing-based revenue model where game developers seek monetization avenues from various transactions during the lifetime of a game. For instance, retail sales of Ubisoft (a French gaming company) were 98% of total sales revenues in 2010, and in 2019, this was less than one-third of the total revenue. Gaming companies today are increasingly looking to diversify their monetization avenues beyond upfront retail sales.

The most widely used monetization strategies nowadays include:

In-game purchases

In-game purchases refer to virtual items such as new features, functionality, upgrades, aesthetic elements, or content that gamers can buy to enhance their gaming experience. Newzoo estimated that in-game purchases accounted for nearly three-fourth of the global gaming revenue in 2020.

While in-game purchase seems to be a good monetization strategy, it also involves high cost to acquire paying users. Based on analysis of 992 apps between September 2018 and August 2019, Liftoff (a mobile app marketing firm) found that game developers spend an average of US$86.61 to acquire a user who will make in-app purchase. Moreover, the median average revenue per paying user for free-to-play games was estimated at US$6. However, there was high variance in the amount spent by the gamers and a small set of gamers, who were grossly engaged in games, expectedly spent US$35 to US$70 per day, thus creating high returns for the game developers.

In-game ads

In-game ads is a widely used monetization strategy, especially for free-to-play games. According to a report released in June 2020 by Omdia (a UK-based technology research firm), worldwide game developers earned revenue of US$42.3 billion in 2019 through in-game ads. Based on analysis of top 1,000 games by downloads by App Annie (app analytics company), 89% of them used in-game ads as one of the revenue streams.

As per a 2019 survey of 284 game developers conducted by deltaDNA (a consultancy firm for gaming industry), 94% of the free-to-play mobile games carried in-game ads. Rewarded ads are most popular: 82% of game developers in the deltaDNA survey indicated that they deployed rewarded video ads, compared to interstitial video ads (57%) and banners (34%).

As per the same survey, 30% of game developers showed more than five ads per gaming session. While in-game ads seem like a lucrative monetization opportunity, there is also a risk of affecting gaming experience and thus loosing gamers’ interest. deltaDNA survey suggested that display of too many ads might result in gamer churn (30%), affect gamers’ playing experience (27%), and scare off potential gamers that might be willing to spend on in-game purchases (16%). Hence, game developers need to strike a balance and control the frequency of ads.

Subscription

Witnessing the success of subscription streaming service such as Netflix and Hulu, many game developers have started exploring subscription-based model generating regular revenue stream.

Console gaming companies have been diving into the subscription model for a few years now, for instance, Sony’s PlayStation Now offers on-demand streaming of PlayStation games for a monthly subscription of US$9.99 in the USA. Some of the leading mobile and PC game developers also offer subscription service, for example, Uplay Plus by Ubisoft and EA Play by Electronic Art (creators of world-renowned FIFA game). Subscription-based model is more suitable for large gaming companies who have multiple games under their umbrella, thus offering a wide selection range to the gamers.

Based on a survey of 13,000 people in 17 countries between May 2020 and June 2020, Simon-Kucher (a global consultancy firm) suggested that over one in three gamers opted for at least one gaming subscription. Moreover, hardcore gamers who typically dedicated more than 20 hours per week on gaming would spend US$19 to US$40 per month on gaming subscription service, and casual gamers who played fewer than five hours per week were willing to shell out US$10 to US$30 for monthly subscription.

Gaming industry ecosystem is expanding with advent of new services

As gaming is more and more perceived as mainstream entertainment, there is an increased effort to capitalize on the industry’s wider reach, thus giving birth to eSports and games streaming services. Moreover, with increased demand from gamers to reduce reliance on hardware and access their favorite games anytime anywhere, advancement of cloud gaming service is encouraged.

eSports

eSports includes games played in highly organized competitive environment. As per estimates of Valuates Reports, an India-based research firm, the global eSports market was valued at US$692 million in 2019 and it is expected to reach US$1.9 billion by 2026.

eSports demand cross-industry collaboration including key players such as eSports organizations, tournament operators, digital broadcasters, etc. eSports offer monetization opportunities through advertising and sponsorships, media rights, ticket sales, merchandise sales, as well as in-game purchases.

Game streaming services

Game streaming services allow live broadcasting of gaming sessions by players. Game streaming services have been welcomed by the community of gamers as a medium to learn, connect, and get entertained.

Gaming video content was valued at US$9.3 billion with a viewership of 1.2 billion in 2020. The content may include pre-recorded or live gaming sessions by individuals as well as live broadcasting of eSports events. Game streaming service segment has particularly seen high involvement from Tech giants. Amazon’s Twitch and Google’s YouTube Gaming are the top two players in this space with annual revenue of US$1.54 billion and US$1.46 billion, respectively, in 2019.

Cloud gaming services

Newzoo projects cloud gaming to grow from US$585 million in 2020 to US$4.8 billion in 2023. Cloud gaming ecosystem typically includes game developers, cloud gaming platforms, as well as content service providers. Google launched its cloud gaming platform ‘Stadia’ in November 2019. For a monthly subscription fee of US$10, Stadia offers access to 152 games. Microsoft launched cloud gaming platform xCloud for its Xbox user base in September 2020. China-based gaming giants Tencent and Netease started beta testing of their cloud gaming platforms in 2019.

A Deloitte survey of over 2,000 US customers conducted between December 2019 and May 2020 indicated that 23% of gaming respondents were multiplatform players, playing games via all three mediums, i.e. mobile, console, and PC. Cloud gaming services could offer good value proposition for these gamers which look for seamless play between platforms.

EOS Perspective

As mobile gaming started to gain more traction, there is an increasing demand for casual games which target mass audience. As per analysis of top 1,000 games by downloads in 2019, casual games accounted for 82% of all game downloads, and remainder were hardcore games. Casual games are for on-the-go fun, which requires less time and low skillset, while hardcore games demand high commitment from the gamers who willfully spend comparatively more time and money on gaming.

Usually, casual game developers prefer ad-supported business model. Since these games require low skills, attracting masses, they are likely to generate more revenue through in-game ads than in-game purchases. As the level of skill set required goes up, a hybrid monetization model is preferred. Beyond that, the main monetization method is in-game purchases, especially for role-playing and strategy games which demand gamer’s higher engagement.

The role of gaming is evolving from a medium of entertainment to a social engagement platform. Games such as PUBG enables social interaction and networking as it allows to connect with different players and chat with people in the game. As per Sensor Tower, PUBG was the highest-grossing mobile game globally in 2020, earning US$2.6 billion in annual revenues. Rising popularity of such games shows how the gaming culture is transforming and pushing game developers to design games allowing players to socialize within the virtual environment.

‘Cross-play’ is another interesting trend which is likely to be the way forward for gaming industry. In September 2018, Fortnite became the first game to allow cross-play between mobile, PC, and all major consoles (Microsoft XBOX, Nintendo Switch, and Sony PlayStation). Between March 2020 and June 2020 more than 60% of Fortnite players paired up with a player from another platform to cross-play. The average monthly revenue-per-user who cross-played Fortnite was 365% higher than non-cross-players.

Multiplayer gaming is becoming a cultural phenomenon, and thus, the industry needs to focus on offering easy on-demand access and development of platform agnostic games.

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