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


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“Due to the proposed direct industry taxes and cost containment measures of the Patient Protection and Affordable Care Act (PPACA), many industry observers had been looking to the midyear Supreme Court review of the bill and November elections as their best chances for repeal of certain measures,” noted Frost & Sullivan Industry Manager Venkat Rajan. “For many companies, a significant portion of 2012 board meetings involved mapping out strategies for various scenarios and contingencies due to the uncertainties in the industry. Now, with the outcomes in hand, the preparedness and successful execution of those game plans will be paramount to the long term outlook of many firms.”

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

  1. 1. Medical Technologies Industry ‘Moving Forward’ under Obama? Election Implications for the Sector Venkat Rajan, Industry Manager Advanced Medical Technologies December, 5th© 2012 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property ofFrost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.
  2. 2. Today’s Presenter Venkat Rajan Industry Manager -Advanced Medical Technologies Frost & Sullivan •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 2
  3. 3. Agenda• What Now• Tax Implications• PPACA Implementation• Challenges• Opportunities• Strategies 3
  4. 4. What Now •Republicans-House, Democrats- Senate & White House. Elections •Presidential Veto Power Maintain •Supreme Court AppointmentsStatus Quo •Leadership Status Quo: CMS, HHS, FDA •Medical Device Tax Repeal BillRemaining •Resistance at State LevelAvenues for •‘Fiscal Cliff’ Negotiations Recourse •Companies Move Forward with ‘Plan A’ Market •Increased M&A Activity Activity •Increased Cost Cutting Measures •Venture Investment Rebound •Changes in Sales Strategies 4
  5. 5. Medical Technology Market Dashboard (United States) Medical Procedure Number of Market Growth Technology Volumes Product Prices Public CAGR Market Revenue Growth Rate Companies$175 B 6.3 % 4% 254 (2012) (2013-2020) (2013-2020) (2013-2020) (2011) Average Average Average R&D VC Funding into Industry Gross Operating Expense as % Medical Devices M&A Activity Margins (TTM) Margins (TTM) of Sales and Equipment 50% 9% 8% $2.8B (2012) (2012) (2012) (2011) (2013-2020) 5
  6. 6. Medical Device Tax Burden Estimates Large Multi- IndustryConglomerate $ 75 B 35% 45% $270 MTier 1 Broad MedicalTechnology $9B 95% 70% $138 M Company Tier 2 Niche Medical Technology Company $ 2.5 B 98% 85% $48 MTier 3 Single Product/Technology $ 650 M 100% 90% $14 M FirmStart-Up Early Stage $ 50 M 100% 90% $1 M *Applies to Tax Eligible Devices 6
  7. 7. Medical Device Tax Implications Impact on Impact on Pricing Innovation •Passed to •Irrational to Take Customer? Tax From R&D •Reduced •Innovation Discounting Pipeline Remains •Premium Priced Strong Novel Therapies Cost Cutting Cost Cutting Impact on Measures MeasuresChain Supply •Layoffs •Contract •Outsourcing Manufacturers •Divestitures/ •Component Spin-offs Suppliers 7
  8. 8. PPACA Enactment Timeline- Key Provisions 2013 2014 2015-2018•Device Excise Tax •Expanded Medicaid •Increased Federal Match for Coverage CHIP•State Notification of HealthExchanges •Individual Health Coverage •Escalation of Individual Mandate Mandate Penalties•Medicare Tax Increase •Health Insurance Exchanges •Health Care Choice•Medicaid Increases for CompactsPreventative Services, •No Annual Limits onPrimary Care Coverage •Tax on High Cost Insurance Programs•Limits on Flexible Spending •Can Not Deny Coverage DueAccounts To Pre-existing Conditions•Sunshine Act Disclosures •Employer Penalties for Not Offering Coverage Benefits•Increased ItemizedDeductions for Medical •Fees on Health InsuranceExpenses Sector 8
  9. 9. Realities of the New Market Place Product and tactical sales strategies are being evaluated for Fail Fast quick return, resource limitations constrain a company’s ability to support lagging business models. U.S. from Currently one of few the markets where the U.S. has a Exporter to significant trade surplus with the rest of world, shifts seen in Importer of Med other industries could play out as low cost manufactured Tech products supplant products currently made in the United States. Purchase decisions are moving away from clinicians to hospital Deemphasize the based administrators for bulk low grade technologies and high Clinician end capital equipment, and more individual emphasis for implants and other patient centric products. As products increasingly become commoditized and the tax Deemphasize burden is placed on medical product sales, companies are Products increasingly looking to build revenue mix from service, software, enhanced support, and other offerings. 9
  10. 10. Alignment of Goals Critical to Healthy Ecosystem• Monetizing New • Reduced Services Reimbursement/Fees• Supporting R&D and • Shift away from Fee for Innovation Service Care• Evolving Business • Improve Workflow Models • Administrative Waste Medical Device Healthcare Manufacturers Providers Payors/ Patients Regulators• Patient • Health Exchanges Empowerment • Reducing• Quality of Life Unnecessary care• Aging in Place • Influencing Healthy Behavior 10
  11. 11. Opportunities in the New Market placeOptimizing Performance: Chronic Disease Management•EHRs Patient Empowerment•Medical Device Interoperability Child Care•Telehealth/Telemedicine Aging in Place•Unique Device Identifiers Infection Prevention•ICD 10 Error Reduction Preventative Health Big Data Analytics WellnessTranscatheter Valve Replacement Medical ImplantsRobotics Pain ManagementRenal Denervation Diagnostics and MonitoringNeurostimulation New Payment SchemesRegenerative TherapiesHome Care/ Portable Care Change Current Affordable Medical Treatment Paradigm Equipment 11
  12. 12. Next StepsDevelop Your Visionary and Innovative Skills Growth Partnership Service Share your growth thought leadership and ideas or join our GIL Global Community Join our GIL Community Newsletter Keep abreast of innovative growth opportunities 12
  13. 13. Your Feedback is Important to Us What would you like to see from Frost & Sullivan?Growth Forecasts?Competitive Structure?Emerging Trends?Strategic Recommendations?Other? Please inform us by “Rating” this presentation. 13
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  15. 15. For Additional InformationBritni Myers Daniel RupparCorporate Communications Director of ResearchHealthcare Healthcare210.477.8481 210.247.2428britni.myers@frost.com daniel.ruppar@frost.comAllison TuckerSales ManagerHealthcare210.348.2462Allison.tucker@frost.com 15