Medical Device Industry 2010 and Beyond…..

Venkat Rajan

Dec, 16th 2009

2

2009 Recession Rebound?

2000-2009 Medical Device Decade Retrospective

HC Reform: As it stands now

2010 Growth Sectors

Challenges Ahead

Decade Ahead 2010-2020

Trends

Focus Points

3

Recession Impacts Medical Device Market

2009 Recession

Imact

2009 Recession

Imact

Cap Ex Spending

Destocking/ Inventory

Management

HC Reform Looming Investment Spending

Internal Resources

Patient Volumes

4

Medical Device Industry Decade Retrospective 2000-2009

U.S. MedTech Industry Forecast

0

50

100

150

200

250

300

350

1990

2000

2010

2020

Rev

enu

e ($

Bil

lio

ns)

Major Technology Developments 2000-2009•Minimally Invasive Surgery Improves Treatment times, Recovery, Reduces Risk•Drug Device Hybrid Technologies•Microprocessors make devices faster, smarter, efficient. •Increased Specialization Expands Availability of Treatments.•National Health Expenditures Sky Rocket (~$2.5 Trillion in 2009) •Imaging- Detection Improvement Increase confidence•Robotics become Reality

?

CAGR: 7.18%

CAGR:6.49%

5

Health Care Reform Impact – Medical Device Tax

Medical Device Tax ProposalsMedical Device Tax Proposals

House Tax ProposalMedical Device Tax: 2.5 percent tax on the sale of any medical device product not sold directly to the public or to be used in further manufacturing of other products

Senate Tax ProposalMedical Device Tax: A fee of $2 billion to be paid for by the industry on an annual basis; the share of how much each company pays is to be determined by their overall share of FDA Class II and Class III product sales in the U.S. Excludes Class II devices retail less than $100. 0 percent of sales up to $5 million; 50 percent of sales over $5 million and up to $25 million; 100 percent of sales over $25 million. Lowered

from $4B.Amendment submitted Dec 14th:

Companies reporting less than $100 million in yearly revenues would be exempt from the tax. Companies reporting between $100 million and $150 million would pay an excise tax on 50 percent of their revenues; the rate for companies with more than $150 million in annual sales would be 100 percent. Make the excise tax tax-deductible. Move effective date to 2013

House Tax ProposalMedical Device Tax: 2.5 percent tax on the sale of any medical device product not sold directly to the public or to be used in further manufacturing of other products

Senate Tax ProposalMedical Device Tax: A fee of $2 billion to be paid for by the industry on an annual basis; the share of how much each company pays is to be determined by their overall share of FDA Class II and Class III product sales in the U.S. Excludes Class II devices retail less than $100. 0 percent of sales up to $5 million; 50 percent of sales over $5 million and up to $25 million; 100 percent of sales over $25 million. Lowered

from $4B.Amendment submitted Dec 14th:

Companies reporting less than $100 million in yearly revenues would be exempt from the tax. Companies reporting between $100 million and $150 million would pay an excise tax on 50 percent of their revenues; the rate for companies with more than $150 million in annual sales would be 100 percent. Make the excise tax tax-deductible. Move effective date to 2013

HC Reform Market OpportunityHC Reform Market Opportunity

• Expansion of Coverage• Reduce number of Uninsured Treatments• Safety Net in Economic Down Turn• Electronic HC Records• National Pricing Clarity• Wellness Care Products• Preventative Care Products/Technologies• Earlier Detection of Chronic Diseases

• Expansion of Coverage• Reduce number of Uninsured Treatments• Safety Net in Economic Down Turn• Electronic HC Records• National Pricing Clarity• Wellness Care Products• Preventative Care Products/Technologies• Earlier Detection of Chronic Diseases

Market ThreatsMarket Threats

• Reduced Capital for R&D spending• Marginal Benefit for Advanced Age Treatments• Pricing Pressures• Reimbursement Stagnation• Restrain M&A activity by larger companies• Raise Costs for Elective/ Semi-Elective

Treatments

• Reduced Capital for R&D spending• Marginal Benefit for Advanced Age Treatments• Pricing Pressures• Reimbursement Stagnation• Restrain M&A activity by larger companies• Raise Costs for Elective/ Semi-Elective

Treatments

6

Comparative Effectiveness Research- It’s Coming

Out of Clinical Setting Management of Patients with Emotional Disorders

Non-Clinical Interventions to Encourage Wellness

Literacy Sensitive Disease Management

Strategies for Prenatal Care for Populations prone to birth defects

Strategies for Preventing Unintended Pregnancies

Treatment Strategies for Attention Deficit Hyperactivity Disorder in Children

Genetic and Biomarker Testing for Cancer and Other Diseases

Channels to Prevent Dental Carries in Children

Imaging Technologies (PET, MRI, CT) in cancer detection, diagnosis

Management Strategies for ductal carcinoma in situ

Strategies to Prevent Obesity, Hypertension, Diabetes, Heart Disease in at-risk Populations

School based Programs to Prevent/Reduce Childhood Obesity

Pharmacological and non-Pharmacological Treatments for behavioral disorders in Alzheimer's and other Dementia Patients

Alternative Detection and Management Strategies for Dementia

Treatment strategies for lower back pain

Management Strategies for Prostate Cancer (Surgery, Radiation)

Strategies for reducing healthcare associated infections

Screening, Treatment, Prevention of MRSA

Biologics used to treat Inflammatory Diseases (Crohn's, ulcers, arthritis)

Comprehensive Care Programs (medical home, chronic disease management)

Comparative Effectiveness Information (Dissemination & Translation)

Upper endoscopy utilization for gastroesophageal reflux disease

Primary Prevention over Clinical Methods (Excersize, Balance training)

Hearing Loss Technologies

Atrial Fibrillation Treatment (Catheter Ablation, Surgery, Pharma)

IOM Top 25 Priorities for Comparative Effectiveness Research:

Out of Clinical Setting Management of Patients with Emotional Disorders

Non-Clinical Interventions to Encourage Wellness

Literacy Sensitive Disease Management

Strategies for Prenatal Care for Populations prone to birth defects

Strategies for Preventing Unintended Pregnancies

Treatment Strategies for Attention Deficit Hyperactivity Disorder in Children

Genetic and Biomarker Testing for Cancer and Other Diseases

Channels to Prevent Dental Carries in Children

Imaging Technologies (PET, MRI, CT) in cancer detection, diagnosis

Management Strategies for ductal carcinoma in situ

Strategies to Prevent Obesity, Hypertension, Diabetes, Heart Disease in at-risk Populations

School based Programs to Prevent/Reduce Childhood Obesity

Pharmacological and non-Pharmacological Treatments for behavioral disorders in Alzheimer's and other Dementia Patients

Alternative Detection and Management Strategies for Dementia

Treatment strategies for lower back pain

Management Strategies for Prostate Cancer (Surgery, Radiation)

Strategies for reducing healthcare associated infections

Screening, Treatment, Prevention of MRSA

Biologics used to treat Inflammatory Diseases (Crohn's, ulcers, arthritis)

Comprehensive Care Programs (medical home, chronic disease management)

Comparative Effectiveness Information (Dissemination & Translation)

Upper endoscopy utilization for gastroesophageal reflux disease

Primary Prevention over Clinical Methods (Excersize, Balance training)

Hearing Loss Technologies

Atrial Fibrillation Treatment (Catheter Ablation, Surgery, Pharma)

IOM Top 25 Priorities for Comparative Effectiveness Research:

Comparative Effectiveness ResearchComparative Effectiveness Research

• $1.1 B ($400M NIH, $300M AHRQ, $400M HHH)

• Impact Treatment Decision Making Criteria• Faster Dissemination of Information• Identify Ideal Patient Profiles• Influence Adoption of New Technologies• Stamdardization

• $1.1 B ($400M NIH, $300M AHRQ, $400M HHH)

• Impact Treatment Decision Making Criteria• Faster Dissemination of Information• Identify Ideal Patient Profiles• Influence Adoption of New Technologies• Stamdardization

Theory vs. ApplicationTheory vs. Application

• Implementation?• Weight of Information?• Compared against Internal Evluation Boards?• How are parameters being defined?• How are funds allocated?• Sources of Information?

• Implementation?• Weight of Information?• Compared against Internal Evluation Boards?• How are parameters being defined?• How are funds allocated?• Sources of Information?

7

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

$0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20

Revenue ($ Billions)

Fore

cast

ed C

AG

R %

(201

0-20

16)

Aesthetic Surgery

Anesthesia

Audiology

Cardiovascular

Diabetes Supplies

Disinfection &SterilizationEndoscopy

Gynocology

Hospital Supplies

Infusion systems

Mobility Aids

Neurology

Ophthalmic Surgery

Orthopedics

Respiratory

Radiotherapy

Renal

Surgery

Urology

Vision Care

Wound Care

U.S. Medical Device Industry Market Sectors, 2009

Cardiology

Orthopedics

Neurology/Neurovascular

Aesthetic Surgery

8

2007

Cardiology

2008

2009

2010

2011

0

The Cardio market which has been slumping, but should get a boost in 2010 and beyond due to stabalizing of DES and ICD markets, and growth in AFib and Heart Valve Markets.

Growth Opportunities in Top Segments/Sectors

Woundcare 0

The Woundcare market is one that is mature and stable. Pricing pressures due to reprocessing, GPO’s, reimbursement, destocking have all restrained the market. New preventative technologies that reduce risk of adverse events represent targeted segments for growth. Could receive a boost from Comparative Effectiveness Research (CER).

Despite slowed growth from double digit rates due to factors including patient volumes, regulatory scrutiny, and pricing pressures; new product developments that improve patient comfort, surgical procedure times, and patient demographics should fuel continued growth.

Orthopedics 0

Source: Frost & Sullivan.

Surgery 0

The transition to MIS will likely lead to cannibalization of certain market segments. Patient demographic trends and improved image guidance, robotics, and minimally invasive endoscopic tools should support moderate growth.

9

Short Term Medium Term

Imp

act

Ma

rke

t D

riv

ers

Ma

rke

t R

es

tra

ints

Imp

act

Long Term

Development of Patient Safety Technologies

Continued Transition to Minimally Invasive

Technologies

Inventory Management

Regulatory Control

Cap Ex Spending

Low

High

Low

High

Market Drivers and Restraints, 2010 to 2019

Source: Frost & Sullivan.

Pricing Pressures

More Treatments Move out of

Traditional Care Settings

Reimbursement Declines

Comparative Effectiveness

Research

Expansion of Insurance Coverage

Pay for Performance

HC Reform Taxes and Cuts

Expansion of New Patient Segments

Cost of Raw Materials and Manufacturing

10

Macro Economic Trends to Watch for the Next Decade

Patient Care PathwaysPatient Care Pathways

Tiered Care FacilitiesTiered Care Facilities

Provider ShortagesAutomation of Care

Provider ShortagesAutomation of Care

Technology DependenceTechnology Dependence

Automation of CareAutomation of Care

UrbanizationUrbanization

Resource Scarcity/ Cost of GoodsResource Scarcity/ Cost of Goods

Sources : Frost & Sullivan

11

Technologies to Impact the Next Generation of Medical Devices

Artificial IntelligenceArtificial Intelligence

Antimicrobial MaterialsAntimicrobial Materials

TelemedicineTelemedicine

Tissue EngineeringTissue Engineering

Bioadsorbable/ BioerodibleBioadsorbable/ Bioerodible

Structural MaterialsStructural Materials

NanotechnologyNanotechnology

Sources : Frost & Sullivan

12

Start with the need, not with the technologyStart with the need, not with the technology

Products for the MassesProducts for the Masses

Social Networks and Online Communitiesto Exchange Ideas

Social Networks and Online Communitiesto Exchange Ideas

Know when to foldKnow when to fold

Looking beyond your core customer baseLooking beyond your core customer base

AppleApple

TataTata

FacebookFacebook

PolaroidPolaroid

NintendoNintendo

Business Models Permeating Healthcare…

13

For Additional Information

For Additional Information

Venkat RajanIndustry ManagerMedical Devices210.247.2427Venkat.Rajan@frost.com

Carol SklossDirector of Sales Healthcare & Life Sciences210-247-3810Carol.Skloss@frost.com

Monali Patel ShastryDirectorHealthcare Research210-348-1000mpatel@frost.com

14

Global Perspective

• 1,700 staff across every major market worldwide

• Over 10,000 clients worldwide from emerging to global 1000 companies