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Warren Granger

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  • Whereas biopharma innovation is typically represented in alinear “funnel chart”, medtech is illustrated in a cyclical and iterative processMedtech’s long-standing innovation model has included these characteristics:Short development times based on engineering: closer to the 18-month product development cycles of IT, than the decade-long one of bio / pharma – allowing it to move from the laboratory bench to the production shop quickerCollaborative and iterative innovation: innovation is done at bedside, not bench – physicians are a valuable source of feedback on product effectiveness and design; iterative improvements occur post-marketing with new generations of slightly improved products
  • Innovation cycle is under strain as it faces new challenges in the form of:Venture funding: Even though capital is constrained, funds are still available but the distribution has been skewed towards later stage investments; VCs are having to carry portfolio companies further – means less money for new investmentsR&D: Less access to capital to fund; process of obtaining market approval is becoming more challenging (new 510(k) restrictions expected); device taxExits through acquisition: Buyers now more risk averse and requiring companies to commercialize their operations, adding time and costs to exit; is inefficient use of scarce capitalIterative innovation with physicians: Some worry connection (and subsequent innovation) between company and doctors will be hurt by too much clarity – Sunshine Act in the USBusiness concerns – time to profitability and necessity of ongoing improvements remain an issue
  • But in order to capitalize on these opportunities, medtechs will also need new ways of doing business and executing transactions.The real opportunities may be to experiment through pilots and to partner – including with non-traditional players.As an industry who’s deal space has traditionally focused on M&As, medtechs would be smart to add strategic alliances to the mix, especially with non-traditional players
  • Offer service capabilities or forming JV’s with non-traditional players
  • A graphic that Microsoft created showing how the new health ecosystem could evolve and the key players in that transformation, whereby the application programming interface will play a central role in communicating data.An IT driven answer, but interesting in how the view to health care will change in the future
  • And as we all should know that during “change”, there are tremendous opportunities.
  • Transcript

    • 1. Pulse of the industryMedical technology report 2010
    • 2. Headlines
      The big picture
    • 3. Global medtech headlines
      • With revenues flat, medtechs focused on bottom line growth and preserving cash
      • 4. Healthcare reform, hospital consolidation, austerity measures & increased regulatory hurdles are increasing uncertainty and risk
      • 5. Fundraising up – propped up by a few large US debt offerings
      • 6. VC funding model under strain – longer runways, higher bar for exits, diluted returns, fewer investors and less capital available
      • 7. Transactions were down significantly as many strategic acquirers sat on sidelines
      • 8. Buyers sought maturity and required sellers to share risk
      • 9. Increased clarity on healthcare reform, healthy cash balances and affordable credit terms should increase M&A activity
    • A confluence of trends …
      US 510(k) reforms
      Comparative effectiveness research
      Consolidation of purchasing at hospitals
      Slowdown in product approvals
      Regulatory opaqueness
      IOM list
      Sunshine Act
      IPOs all but disappear
      M&A buyers want commercialized products
      Slower growth in mature markets
      Device tax in US
      has high burden
      for emerging companies
      Electronic health records adoption
      Lower P/E ratios
      Capital crunch
      Hospitals under strain
      Health care
      reform measures enacted
      Pricing pressures
      Regulatory reforms in many markets
      Rapid growth opportunities in emerging markets
      Safety concerns grab limelight
      Risk aversion
    • 10. … is creating three fundamental challenges
      US 510(k) reforms
      Comparative effectiveness research
      Sustaining innovation
      Delivering value
      and outcomes
      Fueling growth
      Consolidation of purchasing at hospitals
      Slowdown in product approvals
      Regulatory opaqueness
      IOM list
      Sunshine Act
      IPOs all but disappear
      M&A buyers want commercialized products
      Slower growth in mature markets
      Device tax in US
      has high burden
      for emerging companies
      Electronic health records adoption
      Lower P/E ratios
      Capital crunch
      Hospitals under strain
      Health care
      reform measures enacted
      Pricing pressures
      Regulatory reforms in many markets
      Rapid growth opportunities in emerging markets
      Safety concerns grab limelight
      Risk aversion
    • 11. 1. Sustaining innovation
    • 12. A unique innovation model for a unique industry
      Source: Ernst & Young
    • 13. Medtech’s long-standing “cycle of innovation” …
      Physicians
      Idea
      Coverage
      VCs
      Payors
      Idea
      Funding
      Commercialization
      Startup
      Big medtech
      R&D
      Acquisition
      Approved technology
      Source: Ernst & Young
    • 14. … now faces new challenges at every stage
      Physicians
      Idea
      CER
      VCs
      Payors
      Increased transparency requirements
      Capital crunch
      Pricing pressures
      Big medtech
      Startup
      Device tax,
      Regulatory hurdles
      Buying later
      Approved technology
      Source: Ernst & Young
    • 15. 2. Delivering value and outcomes
    • 16. Increased scrutiny is coming to medtech
      Hospitals consolidating purchasing decisions
      • Fewer medtech suppliers in each product category
      • 17. Demonstrating superiority to competition is critical
      Increased focus on comparative effectiveness and health outcomes
      Comparative effectiveness research
      • Medtech products clearly being targeted
      Possible changes to FDA clearance process
      • More products subject to PMA instead of 510(k)
      • 18. Higher bar to bring products to market
      Source: Ernst & Young
    • 19. No coincidence: the shift to health outcomes
      Managing patient outcomes
      Expanding access
      • Driving compliance
      • 20. Healthcare delivery
      • 21. Patient stratification
      • 22. Underserved markets
      • 23. Emerging markets
      • 24. Uninsured populations
      Healthoutcomes
      Meeting unmetmedical needs
      • Complex indications
      • 25. Underserved medical fields
    • The health outcomes ecosystem
      Balance of power shifts
      New entrants
      New drivers

      New opportunities created


      New approaches needed

      Source: Ernst & Young
    • 37. The potential is tremendous
      New
      technologies
      Health care
      Boosting health outcomes
      +

      Medtech’s “sweet spot”
      Source: Ernst & Young
    • 38. Success will require partnering with non-traditional players
      IT
      e-health
      Health outcomes ecosystem
      Traditional deal environment
      Co 1
      Bio tech
      Tele com
      Alliance
      Med tech
      PE
      Payor
      Acquisition
      JV
      Acquisition
      Pilot
      JV
      Provider
      Payor
      Pilot
      JV
      Med tech
      Govt
      Partnership
      Co 7
      Med
      tech
      Co 3
      Acquisition
      Acquisition
      Partnership
      IT
      Med tech
      Alliance
      JV
      Partnership
      Payor
      Alliance
      Acquisition
      Alliance
      IT
      Social media
      VC
      Co 5
      Commercial/business model risk
      Tech & market adoption
      M&A risks:
      M&A
      competencies:
      Simultaneous co-creation of value with partners, experimentation, decision making under uncertainty
      Analysis, valuation,
      post-merger integration
    • 39. Examples are already emerging
      Lifescan (J&J)
      Bayer Diabetes Care
      GE / Intel
      Glucometer for children with diabetes that connects to Nintendo gaming systems
      Formed new company that will focus on telehealth and independent living
      iPhone app for uploading and sharing glucometer data.
      Medtronic
      Stryker/Capsule
      Cellular accessory sends information from implanted cardiac devices to clinics
      Connecting patient data from smart beds to hospital electronic medical records (EMRs)
      Source: Ernst & Young, company press releases
    • 40. The health outcomes ecosystem
      IT
      Providers
      Informationcompanies
      Physicians
      Socialmedia
      CROs
      Health records
      Academia
      Medical
      technology
      Patients
      Pharma
      Telecom
      Biotech
      Med device
      Governments
      Food
      Consumer
      electronics
      Insurers
      Retailers
    • 41. 3. Fueling growth
    • 42. Growth from diversification:product diversification
      Emphasis on
      health outcomes
      Source: Ernst & Young
    • 43. Growth from diversification:geographic diversification
      “Whittle-down” innovation
      Mature-market product
      Emerging-market product
      • Latest technology and features
      • 44. Fewer features
      • 45. Efficacy at attractive price point
      “Trickle-up” innovation
      Source: Ernst & Young
    • 46. Growth from diversification:offer diversification
      1
      • Reduce inventory holding/management costs across supply chain, sharing gains with hospitals and payers
      • 47. Customer needs addressed: Just in time supply, reduced total cost of care, supply chain visibility
      Sharing supply chain benefits
      2
      • Support hospitals and ASCs in improving the efficiency of their procedures in the OR and beyond
      • 48. Customer needs addressed: Increased number of procedures / revenue, decreasing total cost of care
      Efficient clinical operations
      3
      • Collaborate with practitioners to develop an end-to-end solution for the care of patients, emphasizing prevention, quality patient outcomes (documented with data), and recovery
      • 49. Customer needs addressed: Focus on outcomes, right device for right patient, holistic care solutions
      Leading with outcomes
      4
      • Lead the industry in taking an active approach to managing spending in conjunction with hospitals and payers
      • 50. Customer needs addressed: Improved alignment with payers, cost savings, working capital benefit, total cost of care
      Managing device benefits
      5
      Partnering for shared market success
      • Develop go-to-market campaigns in partnership with hospitals
      • 51. Customer needs addressed: Share of voice/ market awareness
      Source: Ernst & Young
    • 52. Outlook: rules of the road
      A buyer’s market
    • 53. Rules of the road
    • 54. Potential healthcare ecosystem of the future …
    • 55. Finalthought…
      If you don’t like change ...
      you’re going to like
      irrelevance even less.”
      - General Eric Shinseki, Chief of Staff, US Army
    • 56. Thank you
      Stay tuned:
      ey.com/medtech

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