Business case of investing

in TB diagnostics in India
Dr Ajay Bakshi
Ajay_Bakshi@mckinsey.com

Conference presentation
24th August, 2011

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Important note

This is a draft/preliminary analysis of the TB

diagnostics market in India. Further work is necessary
to complete the analysis, based on feedback received
during the conference.

Any use of this material without specific permission of

McKinsey & Company is strictly prohibited

McKinsey & Company | 1

Contents
Some interesting and relevant
1 mega-trends in India

2 TB diagnostics market in India

New TB diagnostic tests

3 technical specs

New TB diagnostic tests

4 commercial opportunity

McKinsey & Company | 2

5 factors will drive the pace of the health-care market evolution in India

1
Renewed
commitment by the
5 government to
Rising health
prevalence
of chronic
Growth in
diseases
household 2
incomes
Growth in
medical
4 infrastructure Increase
led by private in health
players insurance
coverage

3
McKinsey & Company | 3
 State health spend
1 Government of India has made a commitment to
Central non-
increase spending on health NRHM health spend
Annual government health spending1 NRHM3 spend (central)
USD Billion

CAGR
Percent
14.7
Government is
12.8 committed to
+20%
increase public
10.9 spending on
19 health from 0.9%
9.9 of GDP to 2-3%
8.7 of GDP by 2015
8.6
7.1
7.4 Money being
5.9 channeled
4.9 through the
1.7 25 NRHM; NUHM to
1.5 follow
1.1
0.8
0.7 3.1 20
2.0 2.4 2.7
1.5
2005-06 2006-07 2007-08 2008-09P 2009-2010

SOURCE: Annual report Ministry of Health and Family Welfare, 2007-08; NRHM progress review, 2008;
McKinsey & Company | 4
RBI report of state expenditures 2007-08; team analysis
 2 There is a strong correlation between GDP per capita and healthcare
expenditure per capita
Health-care expenditure and GDP per capita (2006)

USA

China Norway

India India is
expected to
move along
the curve as
its GDP
continues
Indonesia to grow

Ethiopia

SOURCE: Gapminder.com McKinsey & Company | 5

 3 Health insurance penetration is increasing rapidly driven by RSBY
scheme for BPL population
Coverage
Million
Components Key drivers 2006 2015
Traditional premium- Removal of regulatory hurdles 25-30 ~125
based health insurance Active market shaping by players
Entry of new competitors
Increasing consumer awareness
Social insurance/ Relaxation in income ceiling or enterprise 35-40 ~50
welfare funds criteria

Employer provided Employers shifting to premium-based 30-35 ~35

(sponsored benefits) coverage plans
Low growth in public sector employment

Community insurance Increased efforts of NGO/self-help groups 2-3 8-10

(self-funded)

Rashtriya Swasthya Provide protection to BPL households from 96-99 ~300

Bima Yojana (RSBY) financial liabilities arising out of health shocks

188-217 ~520

SOURCE: Secondary press search; IRDA; McKinsey analysis McKinsey & Company | 6
Contents
Some interesting and relevant
1 mega-trends in India

2 TB diagnostics market in India

New TB diagnostic tests

3 technical specs

New TB diagnostic tests

4 commercial opportunity

McKinsey & Company | 7

TB Burden in India is high, though mortality trends have improved
Estimated prevalence of TB (all forms) Total number of notified TB Cases (2010)
Hundred thousands Thousands
30 2,894

25 Incidence in
2010 ~2.9 million
20 (notified cases)
1,199 Smear Positive

15
Pulmonary
1995 2000 2005 2010

Estimated mortality of TB cases (all forms)

Per hundred thousand
697 Smear Negative
30

25 Extra
440 Estimated
Pulmonary
Number of MDR
20
DOTS started TB cases in
Retreatment 558 2008 ~99,000
15
1995 2000 2005 2010

SOURCE: www.who.int/tb/data; RNTCP TB India Report 2011; McKinsey analysis McKinsey & Company | 8
TB Diagnostics in India (1/2)
Description Evaluation
This diagnostic method involves microscopic Sensitivity
Sputum Smear examination of stained sputum smeared on a High infection: 86%
Microscopy glass slide Low infection: 35-70% (especially in
If the bacteria is present in sufficiently high case of HIV patients, children and
concentrations, it can be readily identified extra pulmonary TB)
Sample: Sputum Specificity: 97%
Duration: 2 hours
Number of Visits: 2-3
In this process, bacilli from the sputum is cultured Sensitivity
Cultures for a few weeks to detect TB. It requires only 10- High Infection: 100%
100 bacilli per ml as compared to 5,000/ml of Low Infection: 73%
sputum required in smear microscopy
Specificity: 99%
It takes a longer time than smear and is more Duration: 2-6 weeks
expensive to perform
Number of Visits: 2-3
Sample: Sputum

Serological Involves identification of antibodies which are Sensitivity (high only in case of smear
Antibody tests formed in response to the bacteria with the help positive)
(Rapid/ELISA) of an enzyme linked detection antibody and High infection: 76%
antigen Low infection: 59%
This process has lower specificity as the Specificity: 87%
antibodies react with environmental mycobacteria
Duration: 15 minutes - 1 hour
leading to false positives
Number of Visits: 1-2
Sample: Blood

SOURCE: WHO Diagnostics for Tuberculosis McKinsey & Company | 9

TB Diagnostics in India (2/2)
Description Evaluation
Radiographic method for detection of Sensitivity : High except in cases of
Chest x-rays tuberculosis patients infected by HIV
However many studies have shown that no Specificity: Non Specific
radiographic pattern is diagnostic of tuberculosis Duration: 1 hour
as many lung diseases have similar radiographic
pattern that can easily mimic tuberculosis
Number of Visits: 1

Involves injection of Tuberculin or Purified Protein Sensitivity: varies depending on the

Tuberculin skin Derivative (PPD) under the forearm skin population tested
test (TST)
In patients with prior TB infection it causes Specificity: varies depending on the
hypersensitivity and leads to skin thickening at population tested
injection site Duration: 48 hours
IGRA tests can be used following a positive TST Number of visits: 1
to support diagnosis of latent TB or as an
alternative to TST for screening health care
workers

Nucleic Acid Involves enzymatic amplification of bacterial Sensitivity

Amplification DNA, which is detected with an appropriate When smear positive: 95%
Test (RT PCR) reading system via a signal generating probe When smear negative: 60-70%
Sample: Sputum, Blood, Urine Specificity: 98-100%
Duration: 2.5-3.5 hours
Number of visits: 1

SOURCE: WHO - Diagnostics for Tuberculosis McKinsey & Company | 10

 PRELIMINARY ESTIMATES
Estimated volumes of TB diagnostics done in India Most common test

Public sector Private sector

Sputum ~7.5 million sputum microscopy tests Approximately 700,000 to 1,100,000
Smears conducted every year through RNTCP sputum smears are conducted every year

Cultures and ~10,000 tests (including liquid, solid Very few culture tests are conducted as
LPA cultures and LPA) conducted for MDR-TB the time taken to obtain results is very long
cases (also includes DST) ~ 8,000 to 18,000 tests

Serological Public Sector in India does not use the More than 1.5 million tests every year
(Rapid/ELISA) serological tests

Public Sector conducts about ~2.3-3.2 Approximately 450,000-670,000 Chest

Chest X- Rays million Chest X-Rays every year X-Rays are conducted every year for TB
diagnosis

Tuberculin Approximate 300 vials are used every year ~20,000 to 35,000 TSTs are conducted
skin test for 1 million people. Leading to ~360,000 every year in the private sector
tests every year

NAAT (RT PCR tests not conducted under RNTCP Very few PCRs are conducted since they
PCR) for active TB are very expensive tests and require high
level infrastructure ~1,000 to 1,500 tests

SOURCE: RNTCP TB India Report 2011; McKinsey analysis McKinsey & Company | 11
TB Diagnostics Spend analysis PRELIMINARY

Total spend on TB diagnostics (2010) Chest X-Ray ELISA

USD, Thousands Sputum Smears Other tests1
54,891

CXR Smear Cult. TST ELISA LPA NAAT

Public
32,236
Sector
7,200 27,000

Private 57
22,655 2,600 2,500 17,000 101
Sector 700

Total spend
1 Other Tests include Solid & Liquid Cultures, Tuberculin Skin Test, LPA and RT PCR

SOURCE: McKinsey analysis McKinsey & Company | 12

Contents
Some interesting and relevant
1 mega-trends in India

2 TB diagnostics market in India

New TB diagnostic tests

3 technical specs

New TB diagnostic tests

4 commercial opportunity

McKinsey & Company | 13

The world needs a new TB diagnostic test
In spite of many TB Diagnostics available in the market, TB remains worlds largest treatable
High TB Burden infectious cause of death, killing 5000 people everyday

60 % people seeking health care go to either the health post level or peripheral health
Poor access to clinics, where adequate laboratory infrastructure to perform TB investigations often do not
fair diagnostics exist
Many people living in the rural areas also do not have access to fair diagnostics
All routine lab based TB tests available to date depend on respiratory specimens which are
Sputum as a highly susceptible to significant quality variability
specimen
Two most vulnerable populations to TB infection, children and people infected with HIV are
either unable to produce sputum or produce paucibacillary specimen respectively
Diagnostic methods such as smear microscopy has low sensitivity especially in cases of
Sensitivity and children, people infected with HIV and extra pulmonary TB
specificity
Tests such as ELISA have very low sensitivity and specificity as they are antibody based
which can be produced in response to other organisms as well
Diagnostic tests like bacterial culture have high sensitivity and specificity as compared to
Time to Results smear microscopy but the time to results is so long that the disease gets transmitted to other
people till it is diagnosed

High Tests such as PCR are highly sensitive and specific but their implementation requires high
infrastructure, level infrastructure laboratories which are very expensive and cant be made available in rural
training needs areas
These tests also require proper training of the staff which makes the test even more
expensive

SOURCE: Meeting Report Defining Specifications for a TB Point of Care Test, France McKinsey & Company | 14
Current understanding of an ideal TB diagnostic
Test specification Minimum required value
95% for smear positive, culture positive patients
Sensitivity
60-80% for smear negative, culture positive patients
95% compared to culture (for both adults and children)
Specificity
90% for culture negative probable TB (in children)

Training and Be easy to use for nurse or community health worker (even with minimal training)
controls Positive control in Test Kit

Time to results and 3 hours maximum, patients must receive the results the same day, desirable would be 15 minutes
readout Should be readable for 1 hour, should be a simple readout yes or no
Adults: Urine, oral, breath, venous blood
Specimen type
Children: Urine, oral, capillary blood (finger/heel prick)
Less than USD 10 per test after scale up
Cost to patients

Throughput and Throughput: 20 tests/ staff member / day

Power Requirement
Sample preparation
Instrumentation
Power Requirement: Should be able to run on battery
Maximum three steps should be involved
No need for pipetting and no time sensitive process should be involved
No maintenance costs, acceptable replacement costs
Works in tropical conditions, fits in backpack and is shock resistant

Storage and waste Shelf life 24 months including reagents, stable in high humidity and high temperatures
disposal Disposal: simple burning or sharps, no glass

SOURCE: Lemaire et al; Journal of International AIDS Society 2010 reporting on MSFs research on TB diagnostics McKinsey & Company | 15
Key features needed for new TB diagnostic tests in the Indian context

Critical factors for new test in India Potential approaches to get there
Sensitivity >90% Pathobiology
Specificity >90% Pathogen based approaches
Attack known biomarkers (e.g., rpoB
Time to result ~ up to 24 hours1 gene)
Nuclei acids based tests
Specimen type may be urine or blood Host responses
NOT sputum

Sample preparation less than 3 steps Instrumentation engineering

Instrumentation should work in tropical Disruptive approaches e.g.,

environment; fit in a back pack; dust and
Optical
shock resistant
Electronics
Power requirements should be able to work
on car battery back up
Materials technologies etc.
Cost to patient should be ~ Rs 600/- per test

1 As most people in India now have mobile phones, test results could be reported over phone and patients no longer need to wait in the lab for results

SOURCE: McKinsey analysis McKinsey & Company | 16

Contents
Some interesting and relevant
1 mega-trends in India

2 TB diagnostics market in India

New TB diagnostic tests

3 technical specs

New TB diagnostic tests

4 commercial opportunity

McKinsey & Company | 17

Market potential for the new TB diagnostic
Market value
Scenario Assumptions USD Million

Replace the ELISA Market completely at

Scenario A 20
a price of Rs. 600 per new test

Replace 50% of other tests in the private

Scenario B sector (mainly chest x-ray) at a price of 11
Rs. 600 per new test
Enter the public sector by replacing 50%
Scenario C of existing tests (mainly smear) at a price 37
of Rs. 300 per new test
Market expansion by providing easier
Scenario D access to new diagnostic test to 50% 7
of undetected TB Patients

Total Total value of all the scenarios 75

Additional upside
from global exports
~USD 42 million

SOURCE: McKinsey analysis McKinsey & Company | 18

Commercial approaches for capturing this opportunity

Key capabilities needed

Need to develop a go-to-market capability
Go your own including sales, distribution, collections, after
way sales service etc.

Partnership Need to identify the right commercial partner

with existing (e.g., a Pharma/device company with the
players sales and distribution capabilities), develop
the partnership and scale up commercially

Become familiar with government

Government procurement processes and participate in
focus tenders and other contracts

McKinsey & Company | 19