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

in South Africa

Recommendations from an International Perspective

March 2014

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PREAMBLE

During 2012-2013 the SA Medical Research Council, together with the National Department of Science and Technology, put together a unique initiative entitled the Strategic Health Innovation Partnerships or SHIP (http://ship.mrc.ac.za). The mission of SHIP is to bring life-saving drugs, vaccines, diagnostics and medical devices to market by acting as a catalyst in the R&D of innovative interventions. This is conducted by identifying the R&D gaps and addressing these by establishing and funding multi-centred, inter-university consortia of expertise. The focus areas are relevant to South Africa’s burden of disease namely; HIV/AIDS, TB, malaria, non-communicable diseases and maternal and child health.

Simultaneously, engagements with PATH (www.path.org) has led to an agreement with the MRC regarding activities that would promote access to affordable and appropriate medical devices, diagnostics and vaccines in SA through R&D, technology transfer (own and third party) and local manufacture. PATH is closely networked with international health technology companies to facilitate favourable technology transfer and licensing opportunities as well as other supporting initiatives in developing countries. One such initiative relates to Medtronic Inc (www.medtronic.com) whereby, through their philanthropy initiative, Medtronic fellows are selected to provide their services and expertise for a limited duration in a developing country.

The report that follows is the result of an initiative between the SA MRC, PATH and Medtronic Philanthropy over a 3 week period during October and November 2013.

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EXECUTIVE SUMMARY

South Africa has a significant opportunity to improve healthcare, increase employment, and reduce the trade deficit through the development of the local medical device and diagnostics industry.

The country has a unique advantage in this endeavor due to its health technology innovation capability, geographical location, BRICS status, and nascent medical device and diagnostic expertise and success. South Africa faces tremendous challenges through disease burden, economic constraints and lack of skills availability. These challenges emphasize the potential value of developing the local medical device and diagnostic industry.

South Africa can develop its medical device and diagnostic industry if specific and aggressive actions are taken. Given the importance of governmental engagement in this process, success will be dependent upon strong disciplined political leadership. It is vital to the success of this initiative that this be driven from the ministerial level within government and it provides a pathway to the goals of the national development plan 2030.

To initiate this meaningful change, strategic alignment across key stakeholders is of primary importance as without this the task will be impossible. Critical impediments to the development of the local medical device and diagnostics industry need to be addressed. A robust local regulatory and quality system must be established and enforced. The public procurement system should give enhanced support to the local industry, and procurement must become transparent.

South Africa is well positioned to develop its local medical device industry but it will take strong leadership, alignment, decisive action and a commitment to stability and sustained growth in order to succeed. If the proposed initiatives are executed, the development of the local industry will follow and this will improve local healthcare, employment, trade balance and position the country as a gateway to Africa.

Key Recommendations: It is vital that the following be led from ministerial level of government:

• Obtain strategic alignment on core areas of strategic healthcare device and technology focus • Establish and enforce local regulatory & quality system • Develop transparent public procurement process

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INTRODUCTION

The goal of this project, commissioned by the South African Medical Research Council (MRC) and PATH, was to make recommendations on how to strengthen the local medical device and diagnostics (MDD) industry in South Africa. Over 35 in-depth interviews were completed over a ten day period in order to gain perspective on the local device environment and inform an analysis to identify the strengths, opportunities, gaps and barriers to growing the industry. The recommendations made aim to drive the local device and diagnostic industry, reduce the trade deficit, improve access to healthcare, and reduce unemployment through the development of local business opportunities through innovation.

The development of this report utilized a ‘human-centered’ design methodology (see appendix A) focusing on interviews and individual opinions rather than detailed analysis of policies and reports. The interviews provided personal perspectives on strengths and weaknesses of the environment and included a range of stakeholders across the landscape:

• Government departments • Parastatal agencies • Public Hospitals • Medical device companies • Point-of-care diagnostic test kit manufacturers • Universities • Research Institutions • Private Investment institutions • Other Medical Device Service Providers

This report makes recommendations that aim to strengthen the ecosystem for the local device and diagnostic industry. The recommended and tangible actions target the growth of the domestic device industry and the associated benefits occurring from local ownership, local supply and service support, employment growth, wealth building and export potential.

South Africa is uniquely positioned as a gateway to the rest of the continent for medical diagnostic devices and tests and interventions to service the specific needs of the entire African continent. This strategic position should be utilized to the full.

Success will however take a singular vision and a collaborative approach by government departments, academia, industry and entrepreneurs to achieve the goals outlined in this report. Any approach cannot be taken in isolation, but should leverage both domestic political will from the highest echelons of government and should also tap into current WHO and identified NGO regional initiatives related to technology transfer and manufacturing capacity building in under-resourced environments. Such WHO and NGO initiatives welcome in-country engagement and can enhance the opportunities for successful outcomes in the development and sustainability of a local medical device and diagnostic industry to service domestic and global healthcare markets.

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BACKGROUND OF THE SOUTH AFRICAN MEDICAL DEVICE INDUSTRY

South Africa benefits from a legacy of health technology innovation, such as that by Nobel Prize winner (1979) Allan Cormack for the theoretical work enabling the development of computerised tomography and by Dr. Christiaan Barnard’s first human to human heart transplant in 1967. It offers a continuing pipeline of excellent health science from academic research and has a developed distribution infrastructure, albeit based primarily on imported medical devices. However, the local device & diagnostics sector has not yet reached critical mass as a supplier to either South Africa’s public health system or as a contributor to the international market. This is in contrast with the local pharmaceutical industry which, with multinational engagement, local manufacturing and distribution, accounts for more than 70 percent of Sub-Saharan Africa’s annual pharmaceutical production. This growth is especially evident in competitively priced generic drugs including first-line anti-retroviral drugs (ARV’s).

South Africa has a bi-modal system of healthcare. The private and public health systems are disparate and function as stand-alone enterprises in terms of the target patient profiles; the breadth of medical services provided; goods and services procurement procedures; and strategic objectives. There are opportunities for the public health system to benefit from certain positive processes within the private system. From an infectious and non-communicable disease burden perspective, the South African public health market provides a wealth of commercial opportunities for locally produced medical diagnostic devices. However, the Department of Health currently relies heavily on imported devices and test kits in its service delivery due to the perceived lower cost of these imports. Furthermore, there are no incentives to procure locally manufactured medical devices and diagnostics tests, even though they are manufactured to global standards and, in most cases, exceed the quality of imported products that have open access to the South African market, with no reciprocal customs or other tariff barriers. Of all the local companies interviewed in this study we did not find one that relied on the South African public tender process for its underlying revenue stream.

South Africa’s Department of Health, Department of Science and Technology, Department of Trade and Industry and Department of Economic Development all have direct and overlapping vested interests in the success of this project; and all have a role to play in developing the local device industry.

Unique aspects of the local market include a developed distribution network to the African continent, a developed science research community, a continuing pipeline of world class research and potential intellectual property in the areas of infectious and non-communicable diseases, political stability, and an English speaking, emerging (BRICS) market.

STRATEGIC ALIGNMENT

The overarching observation of this report is that individual stakeholders are currently working independently and often in different, although not competitive, directions. These include governmental departments, universities and local device and diagnostic manufactures. Each of these participants can contribute to their individual objectives and vested interests through an aligned and coordinated

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approach to the development of local industry. This will require collaboration and coordination in order to be successful.

The most critical element in the alignment is between the government departments and this must be initiated and driven at the ministerial level of each department to ensure sufficient resources and effort are focused on the challenges ahead.

It is accepted that this alignment will be a logistical challenge to achieve and a process is proposed to work towards agreement, alignment, and commitment by the government departments:

The key deapartments are included in the process below but others such as Treasury, and Education should also be considered :

The development of this coordinated, prioritized, and aligned strategy will provide for:

• Quantification of the benefits to each of the individual departments. • Estimation of the combined impact on the South African society and economy which will assist

in driving focus on the area. • Communication of the government strategy to all industry stakeholders.

Recommendation 1: Obtain alignment of government departments on core areas of strategic healthcare technology and specifically medical devices and point-of-care diagnostics.

Figure 1: Process to develop governmental alignment

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Disparate interest groups and stakeholders across the sector were observed to have different priorities and strategies. In other geographies which have developed successful medical device industries, a clear statement of the country’s direction and strategy provided a focus for all industry stakeholders and resulted in superior results. Geographies that have successfully created a device industry have all identified individual strategies that fit with their unique situations.

Following the agreement on an aligned governmental strategy, is suggested that a medical device and diagnostic industry summit be held to provide a forum for all of the relevant parties to share their individual perspectives of the strategy and ultimately agree on a coordinated approach to strengthen the industry. The proposed government focused strategy should be presented before the Summit in order to obtain engagement, live feedback and comments during the event.

In addition to the government model review, the summit will provide a forum for discussion of other opportunities and recommendations included in this report and other assessments of the industry.

To optimize success of the industry enhancement initiative, there must be fundamental government policy commitment and individual and collective stakeholder commitment that the strategy remain stable and consistent and allowed to work for the mid to long term. This stability will aid in attracting investment from both within the country and internationally and allow companies to plan for the future.

Strong leadership and oversight will ensure that the required level of coordination across government departments is maintained while a governance structure would ensure aligning of the objectives in individual departments and for maintaining control of the process.

Recommendation 2: Hold a medical device development stakeholder summit

Figure 2: South African Medical Device Development Stakeholder Summit

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Following the development of the strategy for the sector the message must be effectively disseminated to all of the relevant stakeholders. This will facilitate the shared understanding of the areas of disease, technology and research focus.

In the medical device business community today, there is a lack of awareness of the financial support mechanisms that currently exist to support development of the industry. More directed communication by the DST and other departments and agencies with industry is needed and must include details of these available support mechanisms.

It is suggested that the overall implementation program be mapped out and communicated initially with subsequent progress/milestone being included.

The current lack of alignment is also hampering the existing innovation process resulting in innovations from academic institutions not progressing from research to product development and commercialization. A major contributing factor is the result of multiple, independent areas of research focus in the healthcare arena with insufficient commitment to the country’s healthcare or health technology priorities. A stated healthcare device and technology strategy will support the required adjustment. Research focused within the priority disease and technology areas will stand to benefit from substantially increased competitive funding sources made available from both within South Africa as well as from international donors. Alignment to a strategy defined in the summit will push academic researchers and business innovators to focus on projects meeting the strategic areas which will therefore have improved funding opportunities and ultimately result in translation into commercial products meeting the economic and health needs of the country. The newly created Strategic Health Innovation Partnerships (SHIP) of the MRC, as strongly supported by the DST, is a prime example of such strategic intent in the development of new and improved drugs, vaccines, medical devices and diagnostics for South Africa’s health need.

Incentives across the innovation pipeline are not aligned to maximize the market impact of research through to commercialization. Within the research organizations (primarily universities and even science councils) research is almost exclusively publication driven rather than also focusing on innovation and product R&D. Patenting, while given appropriate focus due to the Intellectual Property Rights from Publicly Financed Research and Development Act, No. 51 of 2008, is often pursued as end in itself (much

Recommendation 3: Ensure that the strategy remains stable over the long-term with strong leadership and oversight

Recommendation 4: Effectively communicate the aligned strategy and available government and para-statal financial support programmes

Recommendation 5: Use the healthcare and device strategy to provide focus along the health technology research and product development innovation pipelines

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like a publication) rather than as a means to protect and pursue commercial opportunity. IP is often filed too early in the process reducing its ability to protect value if and when the product is eventually brought to market. Researchers could be challenged to qualify the healthcare impact of their research results, beyond publication, in order to secure funding and the technology transfer offices within academic institutions should be strongly advocated and promoted at the university executive level. There are excellent examples of TTOs doing it right and their capacities and processes should be networked across the spectrum. While government (particularly the DST) has played a major role in stimulating research and innovation in South Africa the universities still lack committed innovation advocacy at the executive/vice-chancellor level and incentives that reward more than publications.

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Certain higher performing, privately owned, local companies demonstrated a history and a willingness to partner both locally and internationally. These partnerships have brought various benefits including but not limited to technology (IP); specialist technology expertise, management skills, access to global markets, and funding. This networking should be encouraged as it can be used to accelerate the execution of local initiatives in the healthcare space.

For prospective international partners, South Africa possesses geographic, linguistic, legal and economic advantages to be a gateway to Sub-Saharan Africa with access to regional and national markets. The opportunity to use these advantages to facilitate the growth of a national medical device and diagnostics development industry should also be capitalized on. A political decision will be required related to whether majority equity control remaining in the hands of a South African partner(s) or if the multi-inational be allowed to retain majority or total equity control. The African continent is one of the few remaining new market opportunities for international medical device and diagnostic manufacturing companies to enter. Many are hesitant because they do not understand the market dynamics. To date, it has been easier to sell FOB factory and let local importers develop the actual market. But the climate is changing as more African regional entities and/or countries begin to further their own vested interests in considering locally owned/locally operated medical device or diagnostic device manufacturing. Given a clearly defined and supported medical device strategy and government policy, a local partner with manufacturing expertise, existing distribution channels or access to such channels, as well as critical knowledge of ‘how to do business in South Africa and Africa’ in general, South Africa should be the country of choice.

Novel technology development and translation for South African health needs, in-licensing and partnering models should all be considered, especially given the specific idiosyncrasies of the South African marketplace for diagnostic devices (both point-of-care and other) and treatments for infectious and non-communicable diseases. A qualified reference point of success is the example of ‘socially responsible’ licensing for the development of a HIV vaccine by the local pharmaceutical industry.

Recommendation 6: Improved the advocacy and incentives at research institutions to optimize innovation outcomes and drive research through to the marketplace.

Recommendation 7: Establish partnerships, both national and international, across the medical device development industry

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The majority of local medical diagnostic and device companies interviewed have, in isolation, independently developed their manufacturing capacity and specific industry expertise. In other geographies where the device industry has seen substantially growth, co-location and the sharing of critical expertise has been utilized with dedicated medical device industrial parks being a specific example. There are many advantages to the co-location of similar organizations. Human resources and expertise can be shared across multiple companies; common requirements such as quality standards, large capital intensive facilities such as clean room facilities, sterilization and manufacturing capabilities all can be shared or coordinated. Such an initiative is underway in Cape Town, under the guidance of the Department of Science and Technology, and should be encouraged and in time expanded to one or more disparate geographic locations.

While the industry is currently diverse and dispersed, an aligned strategy will facilitate the concentration on a small number of similar technologies with similar technical and industrial requirements and needs and stimulate the development of specialist areas of knowledge that can be shared.

Besides supporting the existing local medical device manufacturing industry participants so as to compete and flourish on a level playing field, continuing to support the next generation of entrepreneurs through appropriate academic and technical training is critical. The next phase of nurturing the future for South Africa in this arena of medical devices and diagnostics is through a business incubator or Innovation Hub (Gauteng) model. The Innovation Hub is a facility managed and operated by the next generation of South African administrators, supporting and fostering the development of next generation technologies created by next generation South African entrepreneurs. The successes emanating from such incubator models need to be supported further down the commercialization pathway (eg through IDC and other funding) as the start-up companies move to full scale commercial manufacturing and distribution.

In addition to the overarching theme of strategic alignment, four critical areas that can influence success or failure of the initiative were identified. These include the Regulatory & Product Quality Assurance environment; Finance & Funding; the Public Sector Procurement Process; and Skills & Competencies. They are described in the sections that follow.

Recommendation 8: Capitalize on South Africa as a gateway to Africa and consider novel technology development and commercial partnership models

Recommendation 9: Encourage co-location of start-ups to facilitate resources, assets and knowledge sharing

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REGULATORY AND QUALITY ASSURANCE

Product Regulations for all classes of medical devices are an important control mechanism for the South African Government related to the prevention of substandard products entering the healthcare market place and thus indirectly protecting patients, physicians, manufacturers and government itself. Defining, implementing and enforcing a robust healthcare Regulatory Policy related to product registration will help create a predictable, operating framework that all participants in the healthcare space will be required to abide by. This will immediately facilitate the move towards a level playing field for all local device manufacturers and importers.

There will invariably be warnings of the need to increase product pricing to cover the regulatory registration process, particularly from importers representing unregistered products. Local manufacturers should welcome the move and most US, EU and Japanese medical device manufacturer products are already covered by international regulatory approvals.

In South Africa, only electro-mechanical devices are currently required to be registered (CE certification) and even this list, as acknowledged by the specific Department of Health authority, is incomplete. There is little enforcement, verification or validation of compliance. Hospitals and clinicians prefer CE marked devices as they reduce their medico-legal exposure and by obtaining CE certification on products enables South African companies’ access to global export market opportunities.

The Parliament of South Africa passed legislation in 2008 to create a new regulatory agency, the South African Health Products Regulatory Agency (SAHPRA) and the transition from the nomenclature of medicines control council (MCC) to SAHPRA is recognized as being inclusive of the medical devices and diagnostics industry. After five years of study, this agency is not yet active and regulations have not been formalized or issued. From a positive view, pushing for the conclusion of this study and transitioning to an all-encompassing regulatory agency provides an immediate opportunity to engage with all appropriate stakeholders in the finalization of the regulatory standards for inclusion in the agenda for the recommended summit.

Other countries have successfully introduced regulatory control without ‘reinventing the wheel’ by adopting well recognized and established international certification models as their regulatory requirement. European CE Mark, US FDA and the Australian hybrid Therapeutic Goods Administration (TGA) are a few of the internationally recognized certification/registration programmes that could be utilized with minor adaptation. Capacity building support from any of these regulatory agency domiciled countries could be requested. It is unknown if the current five year study by the Medical Control Council-SAHPRA includes such a review with adoption recommendations. If not, it should.

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Few Sub-Saharan African countries have an established and enforced regulatory framework. Such a framework, established in South Africa, will be a building block for the country to solidify its position as the continent’s leader in healthcare delivery processes. This can only enhance the perception and reputation of South Africa as a gateway to rest of the continent.

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Local device and diagnostic manufacturers all spend significant time and financial expense to obtain CE registration from European certified bodies. Currently, they must cover transportation and accommodation costs to fly representatives from these notifying bodies to South Africa for facility and product inspection. CE Mark requires annual ISO 13485 auditing. There is limited local capacity for auditing facilities for this ISO certification and the SABS certification has no recognized value outside of South Africa.

There are only a handful of South African nationals with knowledge and expertise in the area of ISO certifications and regulatory systems. As such, resources are scarce and global donor opportunities to support such a capacity building process for the medical device industry should be requested.

It is expensive for companies to undertake product compliance testing. There are no accredited specialized testing facilities in SA that are required for products to conform to medical device regulatory requirements. Products are often sent to Europe or the US for evaluation. Physical and human resources, such as those from CSIR, could be adapted to contribute to the solution.

Recommendation 10: Leverage existing international certifications as regulatory requirement. Use international standards and definitions and risk classifications for medical devices. Create a simple easy-to-use method of licensing low risk devices.

Recommendation 11: Develop and implement comprehensive regulatory enforcement strategies. Include recommendations for a strategy to ensure hospital owners have a training, education, and maintenance plan to support enforcement within their facilities and purchasing departments.

Recommendation 12: Host a stakeholder summit (SAPHRA) to critically evaluate regulatory models from other countries. Outputs of this summit should include: definition of a regulatory strategy, plans for adoption of a framework and timelines for implementation and enforcement strategies.

Recommendation 13: Support harmonization of local and international ISO certification and provide government supported financial incentives for local companies to this end.

Recommendation 14: Support the development of a local quality system capability through training and education. This should be led by an industry organization (SAMED).

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FINANCE & FUNDING Finance and funding are essential considerations to help stimulate growth of the South African medical device and diagnostics industry. From a public funding perspective, the Department of Science and Technology (DST), the Department of Trade and Industry (DTI) and their associated funding agencies have played a significant role so far. However, processes are generally lengthy and bureaucratic and a refresh needs be implemented and promoted to both industry and academic researchers who develop technologies relating to the country’s disease burden.

With few exceptions, the companies that have been most effective in commercializing their technologies have found alternative funding sources and have avoided the effort and time required to secure government funding. It is hoped that, as the public funding agencies develop more efficient and streamlined funding mechanisms and processes, this problem will diminish. Access to private finance from within South Africa, outside of family and friends is difficult for small start-up or young entrepreneurs. While there are limited numbers of venture capital (VC) entities in South Africa, they generally invest in government initiated nation building programmes where the risk is mitigated to a large degree and the short term return on investment potential is greater.

The market opportunities for locally produced medical devices and diagnostics is also limited by the existing tender process;, there are no incentives by the public health service for locally produced medical devices or diagnostics to build a business case upon.

South African healthcare spend is approximately R240 billion. As the country drives its economy forward and seeks to address its socio-economic challenges, the increasing demand for healthcare spend on services will be significant.

The compounding impact that inadequate healthcare can have on the economy needs to be considered. Decisions will be most effectively made by doing so in a holistic manner considering all related costs, rather than just department of health spending. Considerations should recognize the negative impact of lost work and reduced productivity as well as the positive impact of employment in the medical device industry and supporting sectors.

Local technologies, which have the potential to reduce overall healthcare system costs but come with an increased up front, have been dismissed because of the short term focus on healthcare budgets. Many of the lower cost import substitutes come without regulatory and quality control, uncertain product efficacy and limited maintenance support. The cost of healthcare on health policy decision-making must be re-evaluated, together with the economic implications, in the context of the increasing political importance of financial sustainability.

Recommendation 15: Develop accredited local product testing capabilities together with the required training support.

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New, locally developed technology and medical devices should be assessed against the economic impact of its introduction or expansion 5 years into the future. Investments that provide indirect or general economic benefit but require direct healthcare increased spending must be considered. If confidence is high on the economic benefit, mechanisms should be implemented to motivate institutions to invest in the technological solution. South Africa’s graduate schools of Business can undertake this economic modeling work, as part of an initiative to train the next generation of public health administrators.

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Funding across the innovation pipeline has not been aligned or consistent. It is anticipated that the re-alignment underway within major organizations such as the Technology Innovation Agency (TIA) and the Medical Research Council with its SHIP Programme will help to overcome this barrier. Funding and incentives can be a powerful motivator to focus technology and service development in the healthcare priority areas identified by the Department of Health.

As mentioned above there is an absence of VC or Private Equity in South Africa for investing into the local medical device industry. This is not unexpected and reflects the development phase of the industry and the country in general. The industry is not, for the most part, vibrant enough to attract investment beyond family and friends or government funding agencies. The development of a VC community will follow the growth of a stable and more predictable local device development industry. This reinforces the need for government funding to support the progressive phases of research, innovation and product

Recommendation 16: Create an easily accessible and well promoted information resource that describes the types of government funding available for each stage of the research, development and innovation pipeline. Funding agencies must work to raise their public profiles in the appropriate academic and industry circles and eliminate barriers for applicants.

Recommendation 17:

Consider healthcare spend holistically to include lost productivity and lost revenue in taxes. Perform a health technology assessment when new technologies and investment levels are considered and evaluated utilizing existing health technology assessment methodologies across relevant segments of the MDD industry

Recommendation 18: Align government funding and incentives to the strategy created at the medical device development stakeholder summit. Both funding and strategy must be reviewed on a regular basis to ensure continued alignment.

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development that will culminate in locally manufactured, commercial products contributing to the local economy and the public healthcare services in South Africa.

Due to the unique disease burdens in South Africa the device and diagnostic commercialization pathway is different to that in developed markets where commercial companies are the ultimate customer of the innovation process. In South Africa, the major customer is the government, via a public sector tender process, international agencies and international donor organization.

NATIONAL PUBLIC TENDER PROCUREMENT PROCESS

The public tender process is, for the most part, executed at the regional level while a limited number of commodities are purchased at the national level. The procurement process includes a Broad Based Black Economic Empowerment BBBEE incentive. This incentive has been misappropriated in many instances, to the detriment of the public health service. Many existing local companies without BBBEE qualification highlighted the difficulties that they faced in competing in this system and collectively called for a transparent system and a level playing field. ‘Tenderpreneurs’ was a term that we heard on numerous occasions.

The dispersion of the majority of the tenders to regional purchasing does not capitalize on the centralized buying power of the state and misses an opportunity to drive volume based price reductions from suppliers. Other countries have implemented a more centralized procurement system with a combination of administrative and clinical input. Clinical choice must be considered as a tender would not be awarded to a single party and therefore facilitate a limited degree of choice. This approach has delivered significant benefits in other countries.

In many instances, the quality of devices and diagnostics entering the public tender process, and therefore the public health system are technically substandard and carry no regulatory approval qualification.

Recommendation 19: Monitor the VC market for organic development and consider stimulation mechanisms if it does not emerge

Recommendation 20: Those commercializing device and diagnostics must be aware of their ultimate customer. The local device industry should seek methods to encourage the leveraging of grant aid funding

Recommendation 21: Increase transparency in the public tender process

Recommendation 22: Perform national tenders where possible.

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An internationally compliant regulatory system is fundamental for the growth of the local medical device and diagnostic industry and cannot be underestimated.

Maintenance of capital equipment has been highlighted as a challenge where organizations win tenders for supply of equipment but are subsequently unable to provide ongoing technically support and maintenance. There is little qualification within the tender process of service and maintenance capacities and capabilities of companies submitting tenders.

A move to large scale, centralized, tendering can often result in a reduction in the level of clinical technical expertise of the decision makers, with the potential for incorrect and sub-optimal purchases. While this may be a small issue with commoditized products, it becomes more significant as the complexity of the devices increase.

Appropriate specification of devices and diagnostics within the tender is also a challenge. In certain cases, tenders have been written such that only one product and therefore one supplier could meet the tender specifications.

Many countries have established incentives or restrictions to support their local medical device and diagnostic industry.

Country Incentives & Restrictions used to support local industries

Brazil Regulatory restrictions, Procurement preferences

Russia Procurement preferences

China Financial incentives and Procurement preferences

India Procurement preferences

Ireland Tax incentives and financial benefits

Israel Innovation funding and tax incentives

Switzerland Tax incentives

Recommendation 23: Require local regulatory approval that is internationally harmonized for all devices under the tender process

Recommendation 24: Evaluate tendering companies for their ability to provide ongoing service and maintenance support and built this into tendering process and subsequent contractual obligations.

Recommendation 25: Form administrative and clinical tender committees with increasing levels of clinical input as the device complexity increases and utilize generic functional specifications within an inclusive tender process.

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Locally manufactured devices and diagnostics struggle to compete in the South Africa public tender system. Government provides research and/or development funding to local companies and yet these companies are not given preferential treatment in the tender processes and/or, are locked out based on product specifications and/or pricing. This is counter-intuitive. The contribution of local medical device and diagnostic manufacturing companies to the local economy should be taken into consideration when selecting device suppliers.

A transparent, fair public procurement system, that supports locally manufactured medical devices and diagnostics will support both the local and international perception of South Africa as a good place to conduct business on the Continent.

SKILLS & COMPETENCIES There is a lack of critical skills and expertise required to drive the development of the medical device and diagnostics industry in South Africa. While there are some highly capable individuals, the overall quantity and depth of experience needs to be improved. This is a circular challenge since the scale and critical mass of the industry is fundamental to the development and sustainability of this resource. This situation provides an opportunity for the government to have a unique impact on the industry.

The most critical need is the development of experts with international regulatory and quality assurance skills that both the industry and government can call upon, without having to contract the same from Europe or the US. Government Agencies cannot confidently set regulatory standards if their administrators do not understand them.

There is a lack of middle management with significant device and diagnostics commercialization experience. Successful local companies have, in general, developed internal expertise through partnerships or international/multinational collaborations, whether it be inward IP licensing, manufacturing or distribution.

There is also a lack of sophisticated medical device product development knowledge. There are some initiatives to close this knowledge gap including innovation hubs, entrepreneurial courses, consulting by experts and informal collaboration. However, this is not considered sufficient.

Recommendation 26: Award preferential points to locally manufactured medical devices and diagnostics that meet tender and regulatory requirements. A percentage of tender purchases could be earmarked for locally manufactured products that are priced within an agreed percentage of the lowest qualifying tender.

Recommendation 27: Regulatory and quality assurance training should be made available through either industry associations or dedicated university offerings.

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A robust device industry requires broad based technical capability. In well-established and functioning hubs in other countries, this includes an effective subcontractor and vendor network. This network is lacking in South Africa. Successful companies have found alternative solutions to this issue such as international outsourcing or developing the specific internal capabilities for critical areas. Development of a robust supporting industry of vendors and subcontractors is essential. This will grow as the industry grows.

While unskilled manufacturing labor is readily available, semi-skilled and skilled labor is at a premium. One the one-hand, clinical and healthcare service staff training is available; but there is insufficient skilled staff, such as hospital engineers, in the public sector to service both equipment and facilities. The private sector attracts such qualified labor and middle management by offering higher salaries and better employment conditions.

Finally, there is a lack of clinicians in the public healthcare sector and a critical shortage of experienced clinical specialists. Healthcare staffing shortages are attributed to poor compensation, challenging working environment, availability of resources and concern about clinicians’ ability to effectively treat patients given these limited resources.

Recommendation 28: Actively encourage collaboration with existing local knowledge area experts and facilitate commercial partnerships with multinational organizations to build the local skills base

Recommendation 29: As part of the strategic alignment process, key supply chains should be identified and networked; and, specific incentives developed to build local vendor and subcontractor capability.

Recommendation 30: Compensation, incentives and the working environment of clinical staff in the public healthcare segment should be reviewed and efforts committed toward improvement

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CONCLUSION

South Africa is a unique country with specific challenges related to disease burden, economic constraints and skills availability. In contradiction to these challenges, due to its geographical location and tradition of innovation, the country has the opportunity to develop its emerging medical device and diagnostics industry if specific, deliberate, steps are taken. The development of a local device industry will positively impact the nation in multiple ways through; improved healthcare, increased employment and improved balance of trade.

In order to achieve the potential of the local device and diagnostics industry, strategic alignment across the stakeholders is required. The proposed summit provides an avenue through which this alignment can be ensured.

Specific attention should be paid to the implementation of the local regulatory and quality systems. Existing finance and funding opportunities should be focused on the development of the local device and diagnostics industry supporting the aligned strategy and a transparent public procurement system will pull these products through the innovation pipeline into the market. The specialist skills and expertise required to develop these products and support the broader industry should be promoted.

South Africa is well positioned to develop its local device and diagnostics industry. As a member of the select BRICS group of countries, South Africa will benefit from increased economic growth through increased trade and investments. South Africa’s geographical location, English language and relative political stability provide an opportunity for international organizations as a ‘Gateway to Africa’.

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APPENDIX A: PROJECT METHODOLOGY

The development of this project involved the application of a human-centered design approach (www.hcdconnect.org). Human-centered design is a process that has been used for decades to create new solutions to design challenges. The process helps people hear the needs of the people and communities they’re designing for, create innovative approaches to meet these needs, and deliver solutions that work in specific cultural and economic contexts. This process is based around three key phases: Hear, Create & Deliver.

Over the course of the project the focus moves from the specific (interviews and observations), to the abstract (themes and insights), finally converging in the specific opportunities & recommendations. This process is represented in the diagram below.

The Human-Centered Design Toolkit was designed specifically for people, nonprofits, and social enterprises that work with low-income communities throughout the world. This project utilized a selection of these tools to understand the landscape, gain insights and develop proposals. It should be noted that this ‘human centered’ methodology relies on individual’s experience as an input rather than detailed document based research and therefore may not take into account all available previous work in the area, it does however present a collective personal perspective on the industry.

Figure: The human-centred design development arc

Figure: Human centred design toolkit

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Interviews Key stakeholders were identified across the MDD landscape including representatives from government, para-statal, academia and companies (see appendix). A team was established to complete the analysis portion of the project. Over a two week period a series of 1-2hr, in-depth interviews were scheduled with each of the participants, at various locations across the Western Cape & Gauteng, in order to elicit their individual perspectives. The team was split into two sub teams to enable covering all of the relevant appointments. Notes were recorded by hand.

Storytelling Following each interview a storytelling session was completed where individual notes, key observations and insights were shared across the team and recorded on individual post-its. This process ensures the translation of individual observations into shared knowledge while also bringing in the individual perspectives, from real people and their experiences rather than trying to summarize available reports.

Frameworks Where applicable, existing frameworks were identified and documented visually. This aided in contextualizing the existing linkages and process flows.

Insights Insights are revelations (both expected and unexpected) that bring clarity and understanding to the numerous inputs obtained during the research and storytelling phase. These insights transform groups of individual observations into overarching themes or truths and provide deeper insight into the overall project.

Themes As the data is grouped and sorted it is affinitized or grouped around themes that emerge. These themes may be areas of alignment or contradiction but result from the identification of patterns within the input.

Model Development As understanding of the higher level system increases, models emerge which explain or communicate the operation of the system. These are investigated with the aim of developing a single model to explain the key bodies and interactions.

Proposal Ultimately the objective of this project is to make concrete recommendations as to how the objective can be met. The final part of the project is to define, document and communicate these key findings and recommendations.

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APPENDIX B: INTERVIEW LISTING Government & Parastatal Organizations:

Organization Name Representative(s) Website Department of Science and Technology

Glaudina Loots dst.gov.za

Technology Innovation Agency Dr. Tim Newman, , tia.org.za National Health Laboratory System

Profs Rajiv Erasmus, Professor and Head Department of Clinical Pathology, Tygerburg Hospital University

nhls.ac.za

Department of Health (DOH) Leon du Toit doh.gov.gov.za Industrial Development Corporation

Paul Johl idc.co.za

German Agency for International Cooperation

Baro Appel giz.de

The Presidency Dr Nono Simelela, Advisor to the Deputy President on HIV, AIDS, and TB

thepresidency.gov.za

Council for Scientific and Industrial Research

Dr. Liesbeth Botha csir.co.za

The Innovation Hub Dr. Boitumelo Semete theinnovationhub.com USAID Paul Mahanna SouthAfrica.usaid.gov

Industry Associations: GSMA Craig Friderichs gsma.com SAMED Tanya Vogt samed.org.za SALDA Greg Northfield salda.org.za

Manufacturing and Commercial Companies: TitaMed Kevin Katz titamed.co.za Medical Diagnostech Ashley Uys & Dr Eric Woods medi-tech.co.za Sinapi BioMedical Chris de Villiers sinapi.co.za Life Assay Louis Roux lifeassay.com Respisense Hans Pietersen respisense.com Disa Vascular Jean McKenzie disavascular.com GeoAxon Kevin Mansfield, Dr Dirk Koekemoor, Andre ten Napel geoAxon.com CapeRay Dr. Kit Vaughan caperay.com Electro Spyres Medical Peter Spyres electrospyres.com Technilamp Kerr Walker & Hylton Cowie technilamp.co.za Southern Implants Dr Milan de Villiers southernimplants.com Respitek Anton Coetzee mHealth Rita Van Rooyen SepSci Greg Northfield sepsci.co.za MD2M Prof Cornie Scheffer md2m.co.za

Universities and Research Institutions: Bertha Center for Social Innovation

Drs. Lindi v Niekerk & Sam Surka, gsb.uct.ac.za

Stellenbosch University Prof. Cornie Scheffer, sun.ac.za University of Cape Town Dr. Andrew Bailey& Piet Barnard bme.uct.ac.za Tshwane University of Technology Dr Baset Khalaf & Gift Mphefu tut.ac.za University of Witwatersrand Prof. Helen Rees wrhi.ac.za

Non-Governmental Organizations: Kheth’Impilo Dr. Ashraf Grimwood, CEO Khethimpilo.org

Other: Kensani Indepenent consultant

Greg Starke Fadl Hendricks

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LIST OF ABBREVIATIONS BBBEE Broad Based Black Economic Empowerment

BRICS Brazil, Russia, India, China, South Africa

CSIR Council for Scientific and Industrial Research

DOH Department of Health

DST Department of Science and Technology

DTI Department of Trade and Industry

EU European Union

FOB Free on Board

IDC Industrial Development Corporation

IP Intellectual Property

ISO International Organization for Standardization

MCC Medicines Control Council

MDD Medical Device Development

MRC Medical Research Council

NGO Non-Governmental Organization

PATH Program for Appropriate Technology in Health

R&D Research and Development

SABS South African Bureau of Standards

SAHPRA South African Health Products Regulatory Agency

SAMED South African Medical Device Industry Association

SHIP Strategic Health Innovation Partnerships

TGA Therapeutic Goods Administration

TIA Technology Innovation Agency

TTO Technology Transfer Office

US United States

US FDA United States Food and Drug Administration

VC Venture Capital

WHO World Health Organization