emerging industry trends and implications for medtech r&d · estimated infections per year 2...

MassMEDIC Conference—10 October 2008 | © 2008 PRTM Proprietary | 1CONFIDENTIAL

Emerging Industry Trends

and Implications for

MedTech R&D

MassMEDIC SEMINAR

10 October 2008


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Introduction


MedTech Industry Growth

MedTech industry has done extremely well in the past few years…

Double-digit revenue growth

High gross margins

EPS outperformed S&P 500

…and remains an attractive and growing industry

Demographic trends support continuing demand

Emerging markets provide further potential for growth

But there are signs of slower growth in the future

Lower revenue growth

Flat net incomes

Increasing competition

Growing pricing pressures

Increasing regulatory scrutiny


Four Industry Trends Present New Avenues for Growth

Technology Convergence

Demand for Efficient Health Care

Demand for Total Solutions

Globalization

1

2

3

4

Aligning R&D strategy with these industry trends will allow

MedTech companies to drive growth



Demand for Efficient

Health Care


Globalization


Trend #1: Technology Convergence

Traditionally, medical

devices have employed

fewer, and core

technologies

Mechanical, electrical,

materials

Application and

combination of newer

technologies is enabling

improved product offerings

1

Medical Devices

Pharma-ceutical

and Biologics

Wireless Technology

Information Technology

Optics and Sensors

Robotics

Nano-technology


$5,400$6,400

$11,500

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

2004 2005 2010$

in

mil

lio

ns

Demand for Combination Products

United States Europe Japan

Rest of World Worldwide

Growth in Convergent Technologies Is Driven by

Scientific and Economic Trends

Scientific research is generating new

technologies and cross-disciplinary

opportunities for medical devices

For example, tissue engineering,

microelectronics, biomaterials, drug-

delivery systems, drug-device

combinations

Demand from customers for more

effective treatments

Physicians, providers, payers, patients

Growing need to differentiate

products

To gain greater market share and better

reimbursement

Combination of technologies enables:

Improved functionality, efficacy, and

performance of products

Breakthrough innovation Source: BCC Research, Drug Device Combinations, June 2005

Drug-Device Combination Products

Market CAGR = 13.6%

1


Biologics and Device Combination:

Improving Spinal Fusion Surgery

Medtronic—INFUSE® Bone Graft

A collagen sponge (device) combined with human

bone protein (biologic) to treat Degenerative Disc

Disease

Eliminates the need for bone graft harvesting and

one of the surgeries in traditional spinal fusion

procedures

Feature

Traditional

Spinal Fusion

Surgery

Surgery with

Biologic Bone

Protein

Number of Surgeries 2 1

Surgery Time 2.5–3.5 hours 2–3 hours

Patient TraumaMultiple incisions,

severe pain

Reduced blood

loss, less pain

Hospital Stay 3–7 days 2–5 days

Patient Satisfaction Rate 60–70% 90%

1

INFUSE® and LT-CAGE® are registered trademarks of Medtronic Sofamor Danek


$0

$100

$200

$300

$400

$500

$600

20

02

20

03

20

04

20

05

20

06

20

07

Intuitive Surgical—Revenue ($ millions)

New Systems

Recurring Service

Convergence of Robotics and Surgical Devices:

Enhancing Surgeon Control and Precision

Intuitive Surgical—daVinci® Surgical

System

Allows surgeons to perform minimally invasive

surgery with robotic-assisted surgical

instruments and miniature cameras

Integrates 3-D HD endoscopy and state-of-

the-art robotic technology

Benefits to the surgeon

Improved dexterity and precision

Increased range of motion

Enhanced visualization

Improved access

Benefits to the patient

Reduced trauma and scarring

Reduced blood loss

Lower risk of infection

Faster recovery

850 installed sites, growing 25% annually

Source: 2007 Intuitive Surgical Annual Report

1

daVinci® Surgical System is a registered trademark of Intuitive Surgical, Inc.


Wireless Technology in Medical Devices:

Improving Patient Care

NeuroLogica Corp—CereTom™ Mobile CT

Scanner

Portable scanner that enables high-quality CT

images without the need to transport patients to an

Imaging Center

Incorporates a wireless image transfer system,

which allows instantaneous review of images

Feature CereTom™ Mobile CT Scanner Benefits

Mobility Can be used in the operating room

Allows physicians to access

critical imaging immediately

following surgery

Patient Safety

Critically ill patients, often with IVs

or ventilators, do not have to be

moved

Uninterrupted patient monitoring

and reduced patient trauma

Staff UtilizationFrees up nursing staff required for

moving patients

Overall improved patient care

in the hospital

1

CereTom™ is a trademark of NeuroLogica Corporation


Key Considerations in Employing Convergent

Technologies

Multiple regulatory pathways

Regulatory uncertainty

Regulatory

Complexity

Development

Complexity

Management

Complexity

Need for new skills, processes, cultures, and capabilities

Need for open innovation, collaborative development, and

partner management

Navigating the intellectual property landscape

Complex requirements: products, packaging, manufacturing

Longer development cycles and higher costs

Complexity in testing and validation

Uncertainty associated with new technologies

Integration of diverse technologies

Unforeseen technology interactionsTechnical Complexity

Commercial

Complexity Complex reimbursement and pricing issues

More complicated sales and service infrastructure

1




Health Care


Globalization


Trend #2: Demand for Efficient Health Care

Health care is a dynamic,

complex industry facing huge

cost pressures

Growing health care costs are

driving the need for health

care efficiency improvements

U.S. health care spending

estimated to grow from $2.3 trillion

(16% of GDP) in 2007 to $4.2

trillion (20% of GDP) in 2016

2

Higher Health Care

Costs

Inefficient Care

Protocols

Longer Hospital

Stays

Medical Errors

Hospital Acquired Infections

Expensive Care

Settings

Dis-connected Information


Cost of Health Care Inefficiencies Is Astounding

Average cost of stay/day $4,800

Average length of stay x 5 days

Total hospitalizations/year x 40 million

Total hospitalization cost = $960 billion

Nationwide

hospitalization costs

approaching almost

a trillion dollars!

OR cost per minute $40

Average OR turnaround x 27 minutes

Total inpatient surgeries/year x 10 million

Total OR cost = $109 billion

Operating room

charges amount to

nearly $100 billion

Potential cost savings in reducing hospital stay by one day = $192 billion!

Potential cost savings in reducing surgery time by five minutes = $2 billion!

2


Cost of Health Care Inefficiencies Is Astounding

Estimated infections per year 2 million

Avg. additional cost to treat infections x 15,275

Annual expenditure to treat HAIs = $30.5 billion

Cost of Hospital

Acquired Infections

(HAI) estimated to

be $30 billion

Medical intervention

is the leading cause

of death in the U.S.!

More and more payers, including Medicare, will be denying HAI claims,

beginning 2008

Researchers estimate economic cost of deaths due to medical interventions

to be $282 billion

Continued

559,312

652,091

783,936

Cancer

Heart disease

Medical Intervention

Leading Causes of Death in the U.S.

2


Improving Care Delivery Efficiency through an

Advanced Hospital Bed

Stryker Medical—InTouch Critical Care Bed

A multi-function integrated system that combines

advanced technology, connectivity, intuitive operation, and

ergonomics to the benefit of both patients and caregivers

FeatureInTouch Critical

Care Bed Benefit

Central

Interface

Multi-function touch

screen interface

Collects, processes,

and displays data

centrally

Protocol

Reminders

Alarms for tasks

such as feeding,

patient turns, and

medication

Organizes and

promotes compliance

with patient care

Low Bed Height 16 inches from floor

Improves ease of

patient transfer to

wheelchair

Maneuverability Motorized wheelsIncreases ease of

transport

2


Decreasing Hospital Stays and Recovery Periods

through Minimally Invasive Surgeries

Zimmer—MIS 2-Incision Hip Replacement

Adapted surgical tools and techniques for hip replacement

using minimally invasive surgical procedures

FeatureTraditional Hip

Replacement

Zimmer MIS 2-

Incision Hip

Procedure

Incision 10–12 inches 2–3 inches

Tissue Trauma

More muscles and

tendons cut or

separated

Muscles and

tendons avoided

Hospital Stay 3–5 days 1–2 days

RehabilitationLonger, more

painfulFaster, less painful

Scarring Large Small

2


Enabling Efficient Home Health Care through

Remote Monitoring

Honeywell HomMed—Genesis DM

Web-enabled and customizable remote patient

monitoring device

FeatureHomMed—

Genesis DMBenefit

Vital Sign

Measurement

Measures heart rate,

blood pressure,

weight, pulse

oximetry, and blood

glucose

Enables daily, remote

detection of negative

outcomes

Connectivity Web-enabled

Downloads patient-

specific content,

updates, and prompts

User Interface Automated, simple Enhances usability

Display and

Buttons

Angled display and

large buttons

Aids in patient

compliance

DesignCompact and

lightweight (2 lbs)Increases portability

Angled display

with vivid

graphics to aid

patient

compliance

Compact

design,

portable,

lightweight

(2 lbs)

Partial

retest

button for

specific vital

sign

acquisition

Large tactile

buttons are

easy to feel,

easy to see

and easy to

use

2


Key R&D Considerations for Developing Products to

Improve Health Care Efficiency

Develop techniques for designing and manufacturing miniature

surgical tools and devices with tight tolerances

Develop minimally invasive and natural orifice surgical

procedures

Minimally Invasive

Surgery

Human-Centered

Design

Infection Prevention Design products that prevent or combat infections

Formulate devices with antimicrobials, disinfectants, and

anti-infectives like silver, copper, and steel

Focus on the user rather than the technology

Identify the context of use, workflows, and care settings

Design products that are user-friendly, error-proof, and efficient

Consider all the stakeholders—physicians, nurses, providers,

payers, pharmacists, patients

Recognize spoken and unspoken needs

Understand root causes of medical errors, HAIs

Understanding

Customer Needs

Telehealth and

Home Care

Design products that facilitate remote patient monitoring and

management and information portability

Incorporate features that accommodate end-users’ capabilities

and limitations

2




Health Care


Globalization


Trend #3: Demand for Total Solutions

Total Solution: System of health care interventions to provide integrative

patient care across all disease management stages

Multi-disciplinary combination of devices, systems, information technology, and health

care services

Demand for total solutions is a response to fragmented, duplicative and disconnected

health care

3

Prevention Screening Diagnostics Treatment Monitoring

Disease Management

Stretching

beyond Current

Focus


Total Solutions for Chronic Conditions

Conditions such as obesity, heart failure, asthma, and arthritis require early

intervention, multifaceted solutions, and continual monitoring to improve

patients’ lives and reduce overall health care spend

3

48% of the U.S. population has

one or more chronic

condition(s) … and this is

increasing!!!

83% of health care expenditure

is spent on treating people with

chronic conditions…

over $2 trillion

2/3 of our increase in health

care costs is due to increased

chronic diseaseSource: Partnerships for

Solutions (2004)

Nu

mb

er

of

Ch

ron

ic C

on

dit

ion

s

1

0

2

3

4

5+

% of health care spending


Integrated System for Proactive Diabetes Management

CGMS via

Glucose

Sensor

Insulin

PumpGlucose

Meter

Diabetes

Management

Software

Medtronic and LifeScan—Integrated

Diabetes Management System

Personalized reports help health care providers

discover trends and other lifestyle adjustments

to improve patients’ control over their diabetes

Product (Company) Function

CareLink Therapy Management Software (Medtronic)

Integrates information from all diabetes management tools

Displays integrated information as readable charts, graphs, and tables

OneTouch®

UltraLinkTM Meter (LifeScan)

Wirelessly transmits blood glucose data to Medtronic’s insulin pump

Eliminates data entry errors

MiniMed Paradigm Insulin Pump (Medtronic)

Precise, continuous, flexible insulin delivery

Guardian REAL-Time Continuous Glucose Monitoring System —CGMS (Medtronic)

Allows greater patient control Patient access to trend data Safety alarms

3


Integrated Solution for Acute Cardiac CarePhysio-Control—LIFENET STEMI Management

Solution

Combination of Web, broadband, and medical

technology to treat heart attack patients

Pre-hospital diagnosis of ST-Elevation Myocardial

Infarction (STEMI) is essential to reducing door-to-

balloon (D2B) time and saving patient lives

Hospital Based

Cardiac Care

Systems

In Motion on

Board Mobile

Gateway

LIFEPAK 12

Defibrillator/

Monitor

Product (Company) Benefits

Physio-Control’s LIFEPAK 12 Defibrillator (Physio-Control)

Leads wired to patient records patient data and transmits to On Mobile Gateway

In Motion On Board Mobile Gateway (Physio-Control)

Wirelessly transmits the diagnostic quality cardiac information to patient care team

Emergency Rooms, Cath Labs, Treatment Centers(Physio-Control)

Assess diagnostic data prior topatient arrival

Better organize resources Optimal triage and decisions

3


Key R&D Considerations for Providing Total Solutions

Health Care

Infrastructure

Marketing and

Licensing Strategy

Compliance Comply with HIPAA while sharing sensitive patient data

accurately, reliably, securely

Leverage and co-market products to develop total solutions

Increased business development emphasis

Focus on value creation by integrating products for disease

management, not just disease treatment

Often requires technologies and business models that are

beyond current core competencies

Multifaceted Product

Development

Global Markets

Provider IT systems and applications may require upgrading

Solutions that leverage and integrate with current infrastructure

Solutions need to take into account specific solution needs and

the surrounding health care environment for any given market

Key considerations include: reimbursement, clinician capability,

health care infrastructure, local practice

3




Health Care


Globalization


Trend #4: R&D Globalization

As companies expand across the globe to access the potential of new

markets, the footprints of their R&D activities have also become more

international or dispersed

Establishing R&D sites closer to or in emerging markets allows these

companies to:

Design/adapt products and price to meet regional needs

Lower product development costs and reduce time-to-market

Utilize lower-cost, but qualified, research and engineering talent pool

4

―China ranked first as the most attractive location to establish R&D

activities in the coming years as part of the globalization of R&D with

61.8%, followed by the U.S. with 41.2% and India with 29.4%”

—World Investment Report 2005


Growing Globalization of Product and Technology

Development

29%

31%

25%

22%

23%

18%

17%

12%

15%

11%

12%

10%

9%

11%

9%

9%

11%

16%

Final Assembly & Configuration

Manufacturing

Warehousing & Transportation

Return & Customer Service

Procurement

Supply Chain Planning

IT/Shared Services

Product development

Innovation & Technology Development

Globalized Functions 2008 and Increase by 2010—MDD Companies(Percent Managed Outside of the Home Country)

% already globalized (2008) % increase by 2010

39%

37%

39%

50%

43%

50%

50%

104%

92%

Source: “Operational Strategy Globalization in Life Sciences Companies”, PRTM Global Supply Chain Trends Survey, 2008

4


MedTech R&D Globalization Examples

Siemens Medical Park, Shanghai, China

―Center of gravity‖ for Siemens’ activity in Asia

with a capital investment of $40 million

Stryker Corporation, Gurgaon, India

R&D center to design prototypes of implants for

―the tastes and preferences of the local market―

J&J’s Surgical Care Group, India

R&D facility to ―develop market-appropriate

products that address unmet medical needs‖

Terumo Global R&D strategy

Strategic M&A in the U.S. to acquire new

technologies; clinical trials in E.U. for faster

release of new products; technology integration

in Japan

GE Health Care, China

Established MR Academy in Shanghai to train

physicians

Global Research Center in Shanghai

Technology Center in Beijing

0%

20%

40%

60%

80%

100%

19

75

19

80

19

85

19

90

19

95

20

00

20

04

Home country Western Europe

USA China

India Other

Source: “Innovation: Is Global the Way Forward?”, A joint study by Booz &

Company and INSEAD, 2006

Distribution of Global R&D Sites

The relative share of industry-wide

R&D sites by location has been

shifting towards China and India

4


R&D Globalization Drivers

Market Drivers of Growth

Aging population and growing middle-class and

awareness of world-class treatments

Emerging medical tourism market

Fulfilling local demand through imports

Increasing growth in supporting industries:

Talent and infrastructure development in

Electronics and IT

Increasing emphasis on IP protection laws

R&D Operational Strategy

R&D in support of local manufacturing and local

supplier development

Lower R&D costs with rates 70% less than U.S.

R&D close to Asia market to better understand

needs and often enable market access

(government policy)

Growing low-cost, but qualified, physician base

and research talent pool

Medical Device Markets > $1B

Market US$

in BillionsImports

U.S. 82.6 32%

Deve

lop

ed m

ark

ets

(2–7%

gro

wth

)

Japan 19.1 34%

Germany 12.4 76%

U.K. 9.1 24%

France 7.5 36%

Italy 6.5 70%

Canada 4.7 75%

Spain 4.1 75%

China 3.7 43% Em

erg

ing

mark

ets

(8–12%

gro

wth

)

Brazil 2.6 30%

Poland 1.9 80%

Russia 1.8 80%

India 1.5 65%

Czech Republic 1.3 66%

Norway 1.2 73%

Source: Medical device market reports, Espicom business

intelligence reports, 2007

4


Using Global R&D to Reduce Development Costs and

Time-to-Market

GE—Portable ECG Machine MAC-400

Developed in India by GE Wipro Medical

Technologies

Lightweight and portable Electrocardiogram

(ECG) machine suitable for mobile cardiology

labs that can access rural areas

Key cost savings came from simple

modifications of ready-made parts

– Adapted printers from India’s bus

terminal kiosks for machine’s printer

– Utilized commercially available

processing chips

GE’s payback period = 18 months

Typical MAC-400

Development Cost $5.4M $500K

Time 3.5 years 22 months

Weight 15 lbs 3 lbs

ECG Cost to Patient $25–$100 $1

4


Using Global R&D to Develop Market Appropriate

Products

J&J DePuy—PFC Sigma RP-F Knee

Product development undertaken by DePuy

Orthopaedics, India

Knee implant developed specifically for the

Indian market

Allows patients to perform activities like kneeling

down to pray or bending to cook

Part of J&J’s strategy to grow presence in

Indian orthopaedic market

Number of knee replacement surgeries in India is

expected to rise to 39,000 by 2009 from 25,000

procedures performed in 2007

4


Transforming Global R&D Operating Model at a

Multi-Billion Dollar MedTech Company

Thirteen R&D sites mostly

located in U.S. and E.U.

countries with one low

cost country site

13% of R&D headcount in LCC

Minimal outsourcing of R&D <3%

Business units with significant differences in growth, market maturity, and

innovation needs making it difficult to balance and plan resourcing,

technology, and expertise

Company wants to reduce R&D budgets while introducing more new

products

Company wants to lower manufacturing costs by moving most

manufacturing to outsource partner with LCC assets

PRTM CASE STUDY

4


A New R&D Operating ModelHCC BU 1–4 R&D

Product line management, innovation, and

complex design

Shared Asia Design Center

Support all BUs in product support and

design

Asia specific products and

commercialization

Functional resource pools that can ―flex‖ to

support variable demand across BUs—

increased utilization and productivity

NPD Outsource Partners

1–2 core partners

SW and HWR and test

China/India presence

MFG Outsource Partners

1–2 core partners

MFG and local supplier management

Product support R&D

Shared Asia

Design

Center

BU 1

R&DNPD

Outsource

Partner(s)

MFG

Outsource

Partner(s)

BU 2

R&D

BU 3

R&D

BU 4

R&D

Fixed R&D Capacity—HCC

Shared R&D Capacity —LCC

Outsource R&D Capacity—

LCC/HCC Variable Flexibility

Rebalancing Flexibility

Minimal Flexibility

4


Key ChallengesChoosing what should be in-house, outsourced, offshored Core competencies and competitive advantage

I.P. protection

Optimization of supply chain (materials, manufacturing, distribution)

Building capabilities and experience in a fast yet thoughtful manner

Changing structure and shifting work without delaying/changing product plans and

without affecting quality

Significant operational changes in managing R&D across company-owned sites and

across outsource partners

Product development process and regulatory compliance

Partner relationship management and partner management

Collaborative planning and priorities

Program team management and resourcing

Product Support Product Support

Product Design

Product Support

Product Design

Product Commercialization

Product Support

Product Design

Product Commercialization

Global Innovation

4


Key R&D Considerations for Engaging in Global R&D

Take advantage of lower wage and benefits costs Tax incentives Increased travel

Compliance and I.P.

Protection

Alignment of R&D with manufacturing and distribution footprint Local supplier qualification and engagement in design

Significant differences in feature expectations Local R&D often not trained in voice of the customer, marketing,

or other business acumen Requires increased investment in local VOC and market research

Local Market

Offerings and Pricing

R&D Costs and

Incentives

Multi-Site

Development

Practices

Need to ensure local and global regulatory compliance Careful positioning and control of I.P., particularly in China Patient data privacy laws (i.e., China)

Supply-Chain

Network

Leadership and

Talent

Requires strong leadership, which can be hard to find Basic science and engineering can be plentiful Business and Innovation skills can be lacking

Enhanced collaborative development practices (portfolio management, stage-gate, and project management)

Culture and style awareness and management Communications and supporting technology

4


Conclusion


Future of Medical Devices

Medical device companies can create value by increasing the paths to

existing and emerging markets by:

Enhancing operational effectiveness

Forge partnerships spanning resources and supply chain worldwide

Addressing changing disease portfolio

New technology designs that require knowledge of other engineering principles

Transforming the concept of administration of treatment

Patient centric strategies that will allow for effective treatment and quicker recovery

Providing low-cost solutions to treat chronic diseases

Customized and easy to use at-home and self-care products for the aging baby boomers

Revolutionizing medical monitoring

Networked technology to facilitate quicker data exchange and reduce medical errors

The future generation of effective medical device companies will bethose that leverage emerging trends to create a

portfolio of immediate and long-term opportunities


Thank You

Tim J. DurstDirector

T +1 847.430.9017

M+1 262.366.7346

[email protected]

9399 West Higgins Road

Roasemont, IL 60018

U.S.A.

www.prtm.com

Sharad RastogiDirector

T +1 781.434.1273

M+1 617.803.9373

[email protected]

1050 Winter Street

Waltham, MA 02451

U.S.A.

www.prtm.com

emerging industry trends and implications for medtech r&d · estimated infections per year 2...

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