The document discusses uncertainties in the structure of the U.S. medical device industry. It notes that the FDA's stance on approving new medical devices could lower barriers to entry or increase threats to new entrants. New innovations may fragment the industry as they increase choice and potentially lower prices. New endoscopic devices that do not integrate into existing platforms may reduce industry profits by increasing learning curves.

2. Uncertain Elements of Structure in the U.S. Medical Device Industry FDA’s stance on approval process of new medical devices, specifically for screening, early detection, diagnostics – double edged sword, might increase threat of new entrants or add significant barrier to new entrants depending on position New medical device innovations increase threat of entrants, which increases buyer power (more products to choose from, potentially lower prices) which might fragment industry New endoscopic medical devices for early cancer detection may not integrate into existing diagnostic/imaging platforms increases learning curve, reduces overall industry profitability

3. Component manufacturers (U.S. & foreign) Start-ups Cross over from manufacturers of non-endoscopic medical devices Electronics manufacturers Information technology Hospitals Group Purchasing Organizations Specialty clinics Outpatient surgery centers Medical equipment distributors Drug therapies Preventative healthcare Pathological study of samples Genetic screening Medical Device Industry Power to influence the entire industry Potential Entrants Buyers Substitutes Suppliers Industry Competitors Olympus, Pentax, Storz, Smith & Nephew, Resellers Sixth Force - Government Sixth Force FDA

4. Medical Device Industry Force Level Bargaining Power of Suppliers Low Bargaining Power of Buyers Medium Threat of Substitutes Medium Intensity of Rivalry Among Competitors Medium Threat of New Entrants Low Sixth Force – US Government, FDA High Industry Attractiveness: Attractive

5. Industry Situation Certainties of this Industry Competitors Endoscopic medical devices used in the healthcare industry are sold through medical device suppliers to certified medical professionals Buyers include hospitals, surgeons and specialists (GI, ENT, OB/GYN), outpatient surgery clinics, and imaging/diagnostic service providers The FDA determines what medical devices can enter the market (PMN 501(k) and PMA) Karl Storz Imaging Olympus Americas Pentax Medical Smith and Nephew Siemens Medical Imaging BD Ventures Tripath Imaging * Cambridge Research & Instrumentation , Inc. * Lucid Inc. * TeraRecon *

6. Economics and Demographics Cancer is detected more frequently than in the past due to medical innovations Significant increase in funding for research to cure, prevent, and detect cancer through government, NGOs and non-profits Healthcare private insurers, Medicare and Medicaid evaluating policy on reimbursement of medical diagnostic procedures (cancer screening and early detection) to reduce total cost of healthcare Medical devices for cancer screening, early detection and diagnosis create economies of scale and scope for medical device manufacturers AND healthcare industry Medical device industry trending towards early detection and diagnostics through nanotechnology, miniaturization, and in-vivo imaging combined with Information Technology (computation data sets) to yield real-time results

7. Driving Industry Structural Change Information technology impact – medical research data stored in databases, new IT innovations used with diagnostics, imaging (MRI, CT), simulation tools High costs everywhere - medical device R&D and FDA approval, medical malpractice, health insurance Buyers of the medical devices depend on accuracy, quality, and reliability of the equipment they procure Healthcare professionals that use endoscopic medical devices must be trained and certified to operate and use these systems

8. Uncertain Elements of Structure New Entrants – questions to ask… Will the FDA change stance on approval process of class II and III medical devices? Will medical device innovations fragment the industry? Will the perception of endoscopic diagnostic procedures continue to be viewed as invasive?

9. Uncertain Elements of Structure Buyer Power – questions to ask… Will buyers prefer certain medical device brands that already dominate the market? Will fiber optic technology be the perceived as enhanced means of collecting information versus ultrasound technology? Will healthcare insurance reimbursement changes increase buyer demand for screening and diagnostic medical devices/solutions? Will distribution be regulated through the government or a new healthcare institution?

10. Uncertain Elements of Structure Supplier Power – questions to ask… Will the supplier base be willing to acquire new skills for manufacture and assembly of new fiber optic technology in existing endoscopic medical devices already sold through narrow channels? Will US companies outsource or require custom in-house assembly/testing/validation to ensure accuracy and reliability? How will these medical devices by sold from supplier to any buyer or strictly specialized buyers?

11. Scenario Variables Most Important Variables Least Important Variables FDA policy stance medical device approval process (class II and III) Adoption of new technology into existing endoscopic medical devices Medical device packaging Compatibility/integration of new medical device technology into current screening/diagnostic solutions The perception of fiber optic endoscopic diagnostic procedures as being invasive The regulation from the government on distribution of medical device products Requirements for certification for use of fiber optic endoscopic diagnostic devices Patient demand of preventative medical devices

12. Causal Factors Determining Uncertainty Scenario Variable Causal Factors Demand shift caused by FDA change in medical device approval process Adoption rate of new technology into existing endoscopic medical devices Medical device packaging Compatibility of medical device technologies which can easily integrate into current user IT systems External: The threat of new entrants may be increased by FDA process change Internal: Limited number of product options External: Prices of medical devices may drop Internal: Cost of marketing preventative devices External: Main competitors dominate through brand recognition, reliability, accuracy Internal: Alliances, marketing and advertising costs External: integration with buyer IT systems Internal: R&D costs to develop platforms that can vertically integrate into current IT systems

13. Primary Activities that Determinants of Future Industry Structure Inbound Logistics Manufacturing of endoscopic medical devices inbound Production The FDA expedites approval of medical devices Outbound Logistics Suppliers increase Marketing and Sales Costs of brand awareness Early detection and diagnosis of cancer decreases latency and costs in the healthcare industry

14. Range of Assumptions Scenario Variable Range of Assumptions Demand shift caused by FDA change in medical device approval process Adoption rate of new technology into existing endoscopic diagnostic medical devices Medical device packaging (modular components, whole product solution) Compatibility of medical device technologies which can vertically integrate into current user IT systems Low Medium High Slow Fast Brand name modular components Brand name whole product solution High short term shift for new technology Proprietary software Open integrated software

15. Eliminate Implausible Scenarios Adoption rate of new technology in existing endoscopic medical devices Demand shift FDA change in medical device Low Medium High Slow Fast

16. Eliminate Implausible Scenarios Medical device packaging Demand shift FDA/Adoption Rate Low/ Slow Med/ Slow High/ Fast High/ Fast Brand name modular components Brand name whole product solution High short term shift for new technology

17. Consistency Brand name modular components Brand name whole product solution High short term shift for new technology Demand shift FDA/Adoption Rate Product Set Low/ Slow Med/ Slow High/ Fast High/ Fast 1 2 Proprietary software 3 4 5 Open Integrated software 6 7 8 Proprietary software 9 Open Integrated software 10

18. Analysis of Scenarios Scenario 7 Scenario 2 Future Industry Structure Structural Attractiveness Sources of Competitive Advantage

19. Competitive Behavior Scenario 7 FDA fast tracks, rapid demand, brand name whole product integrated solutions Scenario 2 FDA no change status quo Key Uncertainty in Competitive Behavior Alternative Competitive Behavior

20. Intermediate Strategy Scenario 9 Rapid entrance , potentially disruptive Future Industry Structure Structural Attractiveness Competitor Behavior Sources of Competitive Advantage Pentax Still attractive Entry barriers shift Rapid gains Race is on! Crush, kill, destroy Play nice Licensing Strategic alliances

21. Optimal Strategy Scenario 9 Rapid entrance potentially disruptive Scenario 7 FDA fast tracks, rapid demand, brand name, whole product, integrated solutions Scenario 2 FDA no change, status quo

22. Today vs. Future