Presentation at the MTA\'s 2nd Annual World Congress (Speaks to economic impact of medical tourism on pharma/biotech and med equip/tech industries)

1. The Economic Impacts of Medical Tourism Trevor Gunn, Ph.D. Director, International Relations Medtronic, Inc. David G. Vequist IV, Ph.D. Founder/Director Center for Medical Tourism Research www.medicaltourismresearch.org

2. Agenda Medical Tourism Trends Impact on Medical Technology Impact on Pharmaceuticals/Biotechnology Pharmaceuticals/Biotechnology Definition Pharmaceuticals/Biotechnology Sales Trends Emerging Markets Textual Evidence of the Impact Additional Thoughts Summary and Conclusions

3. Medical Tourism Trends World’s Fastest Growing Industry? Recession Proof? Sub-Categories Beginning to Take Shape Health/Wellness Tourism (includes MedSpas, and MediSpas) Retirement Tourism Fertility Tourism, Death Tourism, etc. Intrastate/region Medical Tourism Politicians Beginning to Notice Understanding of Competence/Marketing is Beginning to Mature

4. Impact on Medical Technology Includes Medical Equipment and Implantables One of the U.S.’s Best Export Categories Estimated Impact May Be in the 1-3% Range (i.e., Sales Growth in Countries with a significant Medical Tourism Presence) Possible Additional Benefit of Up to $73 Million USD (Rough Estimate) Competence and Growing Market are Impacting Both Sales and Manufacturing in Country

5. Conversation With Dr. Gunn Dr. Gunn is Director- International Relations for Minneapolis-based Medtronic, the world’s largest independent medical technology company. Adjunct Professor at CERES/School of Foreign Service, Georgetown University. He received his B.A. from University of San Francisco. He received his Ph.D. in International Relations from the London School of Economics in 1992. He sits on the U.S. State Department’s Advisory Committee on International Economic Policy; is an official Trade Advisor to the Office of the US Trade Representative; and a board member of the Export Council and the US Department of Commerce’s District Export Council.

6. Impact on Pharmaceuticals/Biotechnology Pharmaceuticals/Biotechnology Definition Pharmaceuticals/Biotechnology Sales Trends Emerging Markets Textual Evidence of the Impact Additional Thoughts Summary & Conclusions

7. Pharmaceuticals/Biotechnology Definition The Pharmaceutical and Medicine Manufacturing industry falls under the NAICS code of 3254 which includes sub-codes of: 32541 Pharmaceutical and Medicine Manufacturing 325412 Pharmaceutical Preparation Manufacturing 325413 In-Vitro Diagnostic Substance Manufacturing 325414 Biological Product (except Diagnostic) Manufacturing Overall, this industry primarily comprises companies that are engaged in one or more of the following: manufacturing biological and medicinal products; processing (i.e., grading, grinding, and milling) botanical drugs and herbs; isolating active medicinal principals from botanical drugs and herbs; and manufacturing pharmaceutical products intended for internal and external consumption in such forms as ampoules, tablets, capsules, vials, ointments, powders, solutions, and suspensions.

8. Pharmaceuticals/Biotechnology Sales Trends The total US domestic drug sales were approximately $235.4 billion USD in 2007 and worldwide sales are estimated at around $568 billion USD (possibly rising to $800 billion by 2020). The biggest pharmaceutical companies have traditionally had good growth and profits (10.8% in revenues and 10.4% in profits- Fortune 2008). In addition, they are cash-rich (the top 20 companies have access to $ 7.5 billion in cash, equivalents and short-term investments) and relatively debt-free. They have had a good run for the past few decades and have good cash reserves (top 20 companies- the average net debt, as a percentage of capital employed is just 6%) should ride out the current recessionary trends.

9. Emerging Markets The growth of the pharmaceutical market in emerging markets is impressive (a 14.7% increase over the 2005-06 period) and substantially greater than found in the developed markets of the EU and US. Emerging markets offer access to sizeable patient populations and the added bonus of medical tourism patients from developed countries as well. There are still some significant barriers that continue to exist in these markets (such as IP protections as mentioned above) but the overall potential is definitely there.

10. Textual Evidence - Asia In India, the impact of the pharmaceutical industry is everywhere to be found. India has over 20,000 scientists engaged in the biotech sector, the highest number of FDA approvals worldwide outside of the US World-class facilities for manufacturing generics that comply with international harmonized standards such as Good Laboratory Practices (GLP), current Good Manufacturing Practice (cGMP), and Good Clinical Practices (GCP). Ernst & Young, has projected a robust growth for biotech, pharmaceutical and healthcare service sectors for the coming years- “the country was on the threshold of strong growth partially driven by the surge in medical tourism”. Other Asian countries like Thailand and Singapore and Malaysia are offering competition These countries were reportedly, altogether attracting 10 times more medical tourists from abroad than India. In Malaysia, Frost & Sullivan, reported that one of the key drivers that will boost their pharmaceutical industry is the country’s medical tourism. As more foreign patients will seek treatment here, and this will ultimately drive demand up for pharmaceutical products.

11. Textual Evidence – Middle East In the Middle East, it was reported that the kingdom of Jordon was also looking to boost medical tourism by developing innovative products through a burgeoning pharmaceutical industry. Jordan’s pharmaceutical industry is relatively small with a value of $160 million USD, but they have an advantage of being a supporter IP rights and the FTA. This has helped stimulate a vigorous environment for clinical trials in the country. This overall market could be increased if a Kuwaiti-Jordan consortium, in a $3 to 5 billion USD medical city near Amman that is focused on medical tourism, is completed by 2012. Abu Dhabi is trying to develop other areas of its economy to sustain its long-term growth (Abu Dhabi Economic Vision 2030). Oil and gas exports accounted for 74% of all Abu Dhabi’s revenues between 2000 and 2005 and they want to decrease the proportion of revenues derived from petrochemicals to about 50%. To achieve the diversification they want, the Government plans to focus on developing the pharmaceutical and medical tourism industries. Abu Dhabi has a goal of becoming a thriving research and development center by attracting investment, strengthening IP rights and formulating a drug-testing system.

12. Textual Evidence – Latin America In Latin America, US patients have been quietly going to Mexico for years to take advantage of cheaper prices. In 2005 Mexico's pharmaceutical market was valued at $7 billion, much bigger than India’s market, and was growing at 10% pace. An older report (1999) by the AEI found that prices in the US are on average about 72 percent higher than in Canada and almost 102 percent higher than in Mexico. In Mexico, for pharmaceutical products in the private sector have been increasing about 5% per year since 2002 and sales are expected to rise as medical tourism continues to grow. A 2007 AT Kearney report suggests Latin America will be a popular near-sourcing location. Brazil and Chile are mentioned as having strengths in pharmaceuticals and biopharma

13. Additional Thoughts Medical Tourism May Provide Pharmaceutical Companies from Developed Countries with Leverage in Intellectual Property (IP) Disputes with Foreign Countries (Williams and Seus, 2007) US Patent and Trademark Office (USPTO), some 1,000 names are filed in Class 5 (the international trademark classification for pharmaceuticals) According to the Economist (2005), as much as three-quarters of the value of publicly traded companies in America comes from intangible assets (such as patents on drug formulas) Countries that are counting on medical tourism to help drive economic growth will have more incentives to respect IP regulations in order to be able to offer well-known, name brand drugs to prospective medical tourists

14. Summary & Conclusions Medical tourism may impact the pharmaceutical industry in several ways: The amount of money spent on promotion (approximately 24.4% in 2004) versus R&D (13.4% for the same period) MT’s impact on pharmaceutical sales in terms of percentage of revenue and logistics will be significant Pricing, distribution, and IP rights which will become even more important as the market grows Increased pressure on the drug companies and countries to have safe, secure, logical, free-market options to manufacture and distribute pharmaceuticals as close as possible to these medical tourists (should continue to drive the investment in pharmaceutical manufacturing to these developing countries)

15. Thank you! Trevor Gunn, Ph.D. Director, International Relations Medtronic, Inc. David G. Vequist IV, Ph.D. Founder/Director Center for Medical Tourism Research www.medicaltourismresearch.org