Medical Device Industry Overview

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INDUSTRY & MARKET SEGMENT OVERVIEW
The Medical Device (“MD”) industry is one of the largest and most stable industries in healthcare with a global market exceeding $140B in revenue. The US represents approximately 60% of that revenue, or $85B in revenue, with historical growth rates unimpacted by recessions of ~ 8%*. While significant, only 4 % of US healthcare costs can be attributed to devices (source: King & Donahoe, “Estimates of Medical Spending in the US). The US market produces half of the world’s medical devices and consumes 40% of the world’s output. Nine of the top ten medical device companies in the world are US-based, and 6,000 US manufacturers employ over 400,000 people in the US. It is also a concentrated industry; the seventeen largest companies account for around 65% of the total industry revenue (source: Frost & Sullivan, “2003 Industry Outlook for Medical Devices”). While the largest companies do command nearly two-thirds of total revenue, and employ many people, 80% employ fewer than 50 and 98% employ less than 500 employees. Innovation often comes from technology-based, single product, smaller companies. The initial segment target for the JI – the Neuorology segment – is a high growth but smaller segment. Exhibit A (see below) provides an overview of the US Device Market. As one can see from this Exhibit, device sales to the neurology segment are approximately US$3.1B (NB: these are 2008 sales; with historical growth rates 2013 sales would approach US$7.5B). While a small market relative to other segments, it is also the highest growth segment – at an estimated 20 % per year (see vertical axis on chart for growth rates). In fact, the four fastest growing segments are orthopedics, neurology, cardiology and cosmetic/aesthetics (three of these four are target segments of the JI’s lines of business). Several of these much larger market segments – including cardiology at $24.9B and Orthopedics/Spine at $17.0B – will ultimately be added to the focus of the JI, but the initial thrust will be on the Neurology segment, where the current UBNS staff has tremendous international credibility. In terms of market trends in the device industry, outsourcing is a key strategy for reducing product development cost from 10-30% from traditional in-house development. With product development time usually ranging from five to ten years, outsourcing also allows companies to partner with smaller companies who bring a product focus but lack/need distribution, which the larger companies can provide.

EXHIBIT A

Medical Device Industry M&A Trends
Over the past 25 years, , venture capital-funded device industry work has resulted in major innovations such as pacemakers, angioplasty, MRI, defillibrators, real time ultrasound, blood glucose monitoring and cardiac arrhythmia ablation. With the confluence of new biomaterials, advanced computing, nanotechnology, (microelectromechanical systems (“MEMS), all sorts of new product/device opportunities exist. Future potential is ripe in areas such as precise drug delivery, nano-neurostimulation, hypertension devices. According to the Medtech Report in May, 2011, consolidation has come to neurology segment of the US medical device industry, as larger, mainly public companies look for revenue growth. Stryker became market leader in 2010, buying Boston Scientific’s neurovascular business unit for $1.5B. Boston Scientific has been trying to deal with crippling debt it took on in its merger with Guidant (?) 5 years ago… and is now shedding non-core assets. Covidien entered the market buying Ev3 ($2.6B) in 2010, the second largest player in the neuroscience market. J&J/DePuy acquired Micrus Endovascular ($480M) in 2010 and Synthes in 2012 ($19.7B) to become largest orthopedics/neurology business in world. New product areas include embolic coils, inter-cranial stents, liquid embolics and thrombectomy devices. Major areas of disease focus include...
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