Will the Medical Technologies Industry “Move Forward” under Obama?

Medical Technologies Industry ‘Moving Medical Technologies Industry ‘Moving Forward’ under Obama?Forward’ under Obama?

Election Implications for the SectorElection Implications for the Sector

Venkat Rajan, Industry Manager

Advanced Medical Technologies

December, 5th

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Today’s Presenter

Venkat Rajan

Industry Manager -Advanced Medical Technologies

Frost & Sullivan

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•Oversees analyst team charged with tracking the advanced medical

technologies industry, spanning medical devices, medical imaging, and

patient monitoring.

•Provide market intelligence solutions to help clients across the supply

chain spectrum to identify market opportunities and develop strategies

tailored to their business goals.

•8 + years of market intelligence gathering and custom consulting

experience

Agenda

• What Now

• Tax Implications

• PPACA Implementation

• Challenges

• Opportunities

• Strategies

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• Strategies

What Now

Elections Maintain

Status Quo

•Republicans-House, Democrats- Senate & White House.•Presidential Veto Power •Supreme Court Appointments•Leadership Status Quo: CMS, HHS, FDA

Remaining •Medical Device Tax Repeal Bill•Resistance at State Level

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Remaining Avenues for

Recourse

•Resistance at State Level•‘Fiscal Cliff’ Negotiations

Market Activity

•Changes in Sales Strategies

•Companies Move Forward with ‘Plan A’•Increased M&A Activity•Increased Cost Cutting Measures •Venture Investment Rebound•Changes in Sales Strategies

Medical Technology Market Dashboard (United States)

Market Growth CAGR

6.3 %

Medical Technology

Market Revenue

$175 B

(2012)

Procedure Volumes Growth Rate

4%

(2013-2020)

Product PricesNumber of Public Companies

254

(2013-2020) (2013-2020) (2011)

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Average Operating Margins (TTM)

9%

(2012)

VC Funding into Medical Devices and Equipment

$2.8B

(2011)

Average Industry Gross Margins (TTM)

50%

Average R&D Expense as % of Sales

8%

(2012)

M&A Activity

(2013-2020)(2012)

Medical Device Tax Burden Estimates

$ 75 B 35% 45% $270 MLarge Multi-Industry

Conglomerate

Tier 1 Broad Medical

Technology Company

Tier 2 Niche

$ 9 B 95% 70% $138 M

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*Applies to Tax Eligible Devices

Tier 2 Niche Medical

Technology Company

Tier 3 Single Product/Technology

Firm

Start-Up Early Stage

$ 2.5 B 98% 85% $48 M

$ 650 M 100% 90% $14 M

$ 50 M 100% 90% $1 M

Medical Device Tax Implications

Impact on Innovation

•Irrational to Take Tax From R&D

•Innovation Pipeline Remains Strong

Impact on Pricing

•Passed to Customer?

•Reduced Discounting

•Premium Priced Novel Therapies

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Novel Therapies

Cost Cutting Measures

•Layoffs

•Outsourcing

•Divestitures/ Spin-offs

Cost Cutting Measures

Impact on Supply Chain

•Contract Manufacturers

•Component Suppliers

2013

PPACA Enactment Timeline- Key Provisions

•Increased Federal Match for CHIP

•Escalation of Individual Mandate Penalties

•Health Care Choice Compacts

•Tax on High Cost Insurance

•Expanded Medicaid Coverage

•Individual Health Coverage Mandate

•Health Insurance Exchanges

•No Annual Limits on Coverage

•Device Excise Tax

•State Notification of Health Exchanges

•Medicare Tax Increase

•Medicaid Increases for Preventative Services, Primary Care

2014 2015-2018

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•Tax on High Cost Insurance Programs

Coverage

•Can Not Deny Coverage Due To Pre-existing Conditions

•Employer Penalties for Not Offering Coverage Benefits

•Fees on Health Insurance Sector

Primary Care

•Limits on Flexible Spending Accounts

•Sunshine Act Disclosures

•Increased Itemized Deductions for Medical Expenses

Realities of the New Market Place

Fail Fast

Product and tactical sales strategies are being evaluated for quick return, resource limitations constrain a company’s ability to support lagging business models.

U.S. from Exporter to

Importer of Med Tech

Currently one of few the markets where the U.S. has a significant trade surplus with the rest of world, shifts seen in other industries could play out as low cost manufactured products supplant products currently made in the United States.

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Tech products supplant products currently made in the United States.

Deemphasize the Clinician

Deemphasize Products

Purchase decisions are moving away from clinicians to hospital based administrators for bulk low grade technologies and high end capital equipment, and more individual emphasis for implants and other patient centric products.

As products increasingly become commoditized and the tax burden is placed on medical product sales, companies are increasingly looking to build revenue mix from service, software, enhanced support, and other offerings.

Alignment of Goals Critical to Healthy Ecosystem

• Reduced Reimbursement/Fees

• Shift away from Fee for Service Care

• Improve Workflow• Administrative Waste

• Monetizing New Services

• Supporting R&D and Innovation

• Evolving Business Models

Medical Device Manufacturers

Healthcare Providers

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• Health Exchanges• Reducing

Unnecessary care• Influencing Healthy

Behavior

• Patient Empowerment

• Quality of Life• Aging in Place

Payors/ Regulators

Patients

Opportunities in the New Market place

Optimizing Performance:•EHRs•Medical Device Interoperability•Telehealth/Telemedicine•Unique Device Identifiers•ICD 10

Big Data Analytics

Chronic Disease ManagementPatient EmpowermentChild CareAging in PlaceInfection PreventionError Reduction

Preventative HealthWellness

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Transcatheter Valve ReplacementRoboticsRenal DenervationNeurostimulationRegenerative TherapiesHome Care/ Portable Care

Change Current Treatment Paradigm

Medical ImplantsPain ManagementDiagnostics and MonitoringNew Payment Schemes

Affordable MedicalEquipment

Next Steps

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For Additional Information

Britni Myers

Corporate Communications

Healthcare

210.477.8481britni.myers@frost.com

Daniel Ruppar

Director of Research

Healthcare

210.247.2428daniel.ruppar@frost.com

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Sales Manager

Healthcare

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Allison.tucker@frost.com