A Market Report

January 2018

Bureau AWEX – New York

Edith Mayeux, Attaché économique et commercialPatrizia Venditti, Assistante commerciale

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Contents

INTRODUCTION.................................................................................................................................... 2

1. SIZE AND SHAPE OF THE U.S. MEDICAL DEVICES INDUSTRY ..................................... 3

2. KEY CHALLENGES FACED BY MANUFACTURERS.............................................................5

3. INDUSTRY TRENDS...................................................................................................................... 8

3.1 INCREASING R&D SPENDING...................................................................................8

3.2 TRANSPARENT FDA GUIDELINES...........................................................................8

3.3 PHYSICIAN-HOSPITAL CONSOLIDATION..............................................................8

3.4 GROWING DEMAND FOR DIGITAL HEALTHCARE..............................................9

3.5 VENTURE CAPITAL......................................................................................................9

3.6 NEW INNOVATIONS WILL DRIVE GROWTH........................................................10

3.7 PARTNERING & COLLABORATIONS......................................................................11

4. ZOOMIN IN ON SPECIALTIES................................................................................................ 11

4.1 ORTHOPEDICS.............................................................................................................11

4.2 CARDIOVASCULAR DEVICES..................................................................................14

4.3 MINIMALLY INVASIVE SURGICAL TECHNIQUES...............................................14

4.4 IN VITRO DIAGNOSTICS............................................................................................15

5. OUTLOOK OF THE U.S. MEDICAL DEVICE INDUSTRY................................................. 16

6. FDA REGULATIONS................................................................................................................... 17

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Introduction

U.S. medical device companies are highly regarded globally for their innovations and high-technology products; they play an important role in the delivery of many health care services. During the last decade, the United States medical device industry experienced unprecedented advancement in innovative and developed technologies, leading to the birth of new therapies and growth in overall healthcare industry.

Defined broadly, medical devices are items that are used for the “diagnosis, cure, mitigation, treatment or prevention of disease” and are not absorbed or metabolized by the body. The term applies to everything from common medical supplies such as latex gloves and syringes to advanced imaging equipment and implantable devices such as cardiac defibrillators.

The major U.S. medical device companies include: Baxter, Beckman Coulter, Becton Dickinson, Boston Scientific, GE Healthcare Technologies, Johnson & Johnson, Medtronic, St. Jude and Stryker Corporation, to name a few. In addition, the following medical device industry trade associations closely follow the industry: Advanced Medical Technology Association (AdvaMed), Dental Trade Alliance (DTA), Medical Device Manufacturers Association (MDMA), Medical Imaging Technology Association (MITA) and the International Association of Medical Equipment Remarketers & Servicers (IAMERS).

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1. Size and Shape of the U.S. Medical Devices Industry

The medical device industry in the US has witnessed steady growth for decades, and has become one of the most lucrative businesses in the country’s healthcare sector. Today, the US remains the world’s largest medical device market, and is expected to continue leading the global market in the future.

According to the latest figures from the US Department of Commerce, the US medical device industry was valued at US$147.7 billion in 2016, and is expected to achieve even greater growth over the next few years, reaching a projected US$173 billion by 2019. With the increase of the aging population, coupled with extended life expectancy and growing healthcare spending; sustainable demand for medical devices in both the domestic and global market is the expected result.

Apart from being the largest medical device producer in the global market – representing over 40% of the global medical device market, the US is also the world’s largest medical devices consumer, with annual imports surpassing US$55 billion. The US Department of Commerce reports that the US’ exports of medical devices in key product categories has exceeded $45 billion since 2015, and this figure has experienced approximately 1.5% annual growth over the recent years. However, the value of imported medical devices has also steadily increased over the past decade, causing a trade deficit.

Currently, there are over 6,500 medical device companies in the United States, mostly small and medium-sized enterprises (SMEs). Some of these leading medical device companies in the US include: Johnson & Johnson, Baxter, Beckman Coulter, Becton Dickinson, Boston Scientific, GE Healthcare Technologies, Medtronic, St. Jude and Stryker Corporation etc. More than 80% of medical device companies have fewer than 50 employees. Most of them are located throughout the country, but are mainly concentrated in regions known for other high-technology industries, such as microelectronics and biotechnology. The states with the highest number of medical device companies include California, Florida, New York, Pennsylvania, Michigan, Massachusetts, Illinois, Minnesota and Georgia. Other states with significant sector employment include Washington, Wisconsin, and Texas.

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Source: The Top Ten Medtech States

The United States is home to 141 accredited medical schools and approximately 400 major teaching hospitals and health systems, many of which rank among the best in the world. Many of these academic institutions collaborate with medical device companies to develop new medical technologies.For purposes of estimating the size and shape of the U.S. medical devices industry, the U.S. Census Bureau (Census) uses the North American Industry Classification System (NAICS) codes and they are the following:

- 325413 In-Vitro Diagnostic Substances Manufacturing

- 334510 Electro-medical and Electrotherapeutic Apparatus Manufacturing

- 334517 Irradiation Apparatus Manufacturing

- 339112 Surgical and Medical Instrument Manufacturing

- 339113 Surgical Appliances and Supplies Manufacturing

- 339114 Dental Equipment and Supplies Manufacturing

- 339115 Ophthalmic Goods Manufacturing

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• In-vitro diagnostic substances (NAICS 325413) account for about 17% of value of shipment (VOS) of total exports and includes chemical, biological or radioactive substances used for diagnostic tests performed in test tubes, petri dishes, machines and other diagnostic test-type devices.

• Electro-medical equipment (NAICS 334510) represents the third largest subsector (14% of VOS) and accounts for a variety of powered devices, including pacemakers, patient-monitoring systems, MRI machines, diagnostic imaging equipment (including informatics equipment) and ultrasonic scanning devices.

• Irradiation apparatus (NAICS 334517); about 8 % of VOS, includes X-ray devices and other diagnostic imaging as well as computed tomography equipment (CT).

• Surgical and medical instruments (NAICS 339112) comprises the largest subgroup (about 29% of VOS) of the U.S. medical device industry. The category includes anesthesia apparatus, orthopedic instruments, optical diagnostic apparatus, blood transfusion devices, syringes, hypodermic needles and catheters.

• Surgical appliances and supplies (NAICS 339113) is the second largest U.S. medical device subsector with about 22% of the total measured by VOS. The category covers a wide range of products, including artificial joints and limbs, stents, orthopedic appliances, surgical dressings, disposable surgical drapes, hydrotherapy appliances, surgical kits, rubber medical and surgical gloves, and wheelchairs.

Dental equipment and supplies (NAIC 339114; 3% of VOS) consists of equipment, instruments and supplies used by dentists, dental hygienists and laboratories. Specific products include dental hand instruments, plaster, drills, amalgams, cements, sterilizers and dental chairs.

• Ophthalmic goods (NAIC 339115; 6% of VOS) includes eyeglass frames, lenses and related optical and magnification products.

2. Key Challenges Faced by Manufacturers

Manufacturers are faced with 3 major challenges when bringing a medical device to market. First, the traditional business model for many medical device companies is growing more difficult. Insurance providers, both private and public, are no longer relying solely on the opinions of medical experts or clinical trial data to make coverage decisions. They are increasingly looking at cost effectiveness as the key factor for payment. Determining how value is assessed and what evidence is needed to support a value claim will be a critical issue in the near term.

AdvaMed has attempted to address this challenge by developing their own Value Frameworks. These frameworks, one for medical devices and one for diagnostics, are designed to provide stakeholders across the healthcare spectrum with an approach to objectively determine the value of a medical technology or diagnostic test and the evidence needed to support its use. The frameworks provide a comprehensive approach for assessing value based on four key “value drivers”: clinical impact, non-clinical patient impact, care delivery revenue and cost impact, and patient/population impact. These frameworks encourage each stakeholder to view the value of medical technologies and diagnostic tests from a broad perspective. They are also intended to be a guide to the kinds of evidence that medtech developers should consider generating to demonstrate the benefit of a technology to other stakeholders. Medtech companies are willing to provide evidence to meet the needs of new payment models, but the type of evidence needs to be appropriate for the technology and the risks involved. The important thing is that

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the frameworks are not designed as “one-size-fits-all” formula. They are intended to be flexible, promoting the understanding that technologies will offer value in different ways under the frameworks’ value drivers.

This shift has introduced yet another hurdle for medical device companies in fields like orthopedic surgery and cardiovascular medicine, where reimbursement from insurance providers is the lifeblood of their business. In addition to conducting trials to demonstrate clinical benefit, many companies are now investing additional — often substantial — time and money into cost-effectiveness trials to demonstrate benefit to insurance providers.

While this may be useful in lowering the overall cost of delivering health care, it adds an additional burden on companies trying to bring innovative products to market. Although some device companies have positioned their products as consumer-focused, self-pay offerings, the majority are still heavily reliant on insurance providers saying “yes” to reimbursement.

Second, the longer timelines and additional payment hurdles have made it more difficult for early-stage medical device companies to attract investment. In 2016, according to Silicon Valley Bank, $8.1 billion was invested in biopharmaceutical companies, compared to $3.8 billion in medical device companies. For companies in the earliest stages of development, the difference was even more pronounced, with $2.3 billion plowed into biopharmaceuticals versus just $240 million into devices.

In what can often become a vicious feedback loop, the drop in early-stage investment in devices may also be due to fewer opportunities for investors to cash out. In 2016, there were 28 venture capital-backed biopharmaceutical initial public offerings, compared to just three in the device space. When health care investors couple growing hurdles to

device payment with limited access to public markets, it is no surprise that capital allocation is skewed toward biopharmaceuticals.

Third, many medical device entrepreneurs have watched with trepidation as the larger device companies have consolidated. These large companies play a multitude of roles in the device ecosystem. First, many have investment arms that provide startups with capital. Second, they can accelerate the growth of a mid-stage company through strategic partnerships. Finally, they can acquire later-stage companies, providing yet another means for early investors to cash out. More of these large companies means a healthier ecosystem. Medtronic’s acquisition of Covidien, Abbott’s merger with St. Jude, and Becton Dickinson’s acquisition of Bard do not bode well for early-stage medical device companies. As the pool of large

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companies shrinks, there may be fewer investments, partnerships, and acquisitions in the ecosystem, making it even more difficult for entrepreneurs to succeed.

Top Medtech M&A Deals of 2016Announce Date Total Value (mil.) Target Name Acquirer Name4/8/2016 $30,108.18 St. Jude Medical Inc. Abbott Laboratories3/17/2016 $5,976.11 Toshiba Medical Systems Corp Canon Inc.9/15/2016 $5,038.50 Sirona Dental Systems Inc. Dentsply Sirona Inc.5/27/2016 $4,071.48 FEI Co Thermo Fisher Scientific Inc.9/6/2016 $3,896.58 Cepheid Danaher Corp2/1/2016 $2,775.00 Sage Products Inc. Stryker Corp6/4/2016 $1,868.04 Mindray Medical International Ltd Excelsior Union Ltd2/16/2016 $1,280.00 Physio-Control International Inc. Stryker Corp1/8/2016 $1,106.90 Affymetrix Inc. Thermo Fisher Scientific Inc.6/27/2016 $1,020.00 HeartWare International Inc. Medtronic PLC6/7/2016 $1,002.20 LDR Holding Corp Zimmer Biomet Holdings Inc.

Source: Bloomberg

There are also other challenges medical device companies need to consider: increasing cybersecurity threats, and potential reinstatement of the U.S. medical device tax.

Increasing cybersecurity threats

The 2017 worldwide WannaCry ransomware attack was a stark reminder that while smart devices provide significant benefits to patient care, their connectivity exposes manufacturers, healthcare providers and consumers to new, hard-to anticipate cyber threats. Identified security flaws in devices such as defibrillators, pacemakers and insulin pumps, for instance, make it possible – theoretically – for hackers to take control of these products and alter their function, a scenario that could result in serious patient harm. Although no devices have yet suffered this kind of malicious attack, the potential damage to patients – and companies’ reputations – means medtechs are spending more time and money monitoring potential threats. Regulators and policy makers are also increasingly focused on the issue as well. In May 2017, the US Department of Health and Human Services said health cybersecurity was in “critical condition.” The FDA, meanwhile, has called cybersecurity a “shared responsibility” and has released several guidance documents on the steps that medtechs can take to manage the cybersecurity vulnerabilities.

Potential reinstatement of the US Medical Device Excise Tax

The 2.3% Medical Device Tax (MDET) has faced widespread criticism and calls for repeal since its creation as part of the Affordable Care Act. As part of a legislative compromise in December 2015, the US Congress suspended the tax for two years. Unfortunately, the tax has been reinstated on January 1st, 2018. Medtech companies need therefore to make sure they are adequately preparedfor it.

Despite these challenges, all is not doom and gloom in the medical device industry. Some of these pressures have driven companies to take innovative, consumer-facing approaches that prioritize self-pay

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models over reimbursement. While the regulatory pathway in the United States remains long and capital intensive for novel devices, other large markets, including Europe, the Middle East, and South America, have comparatively faster approval pathways, and represent revenue-generating opportunities to mid-stage companies.

3. Industry Trends

3.1 Increasing R&D Spending

Medical devices have historically been viewed as having faster and lower-cost paths to market than their pharmacological counterparts: the average cost to develop high-risk, novel medical devices is estimated to be $94 million. After all, device engineers can leverage lower-cost animal models further into development than their pharmaceutical colleagues, the human clinical trials necessary for FDA approval are often smaller in scale, and, in some cases, expenses can be defrayed by revenue generated outside the United States in markets with faster regulatory pathways. Yet, despite these advantages, the FDA approved only 39 novel devices last year through its premarket approval process.

3.2 Transparent FDA Guidelines

In December 2016, U.S. Food and Drug Administration’s (FDA) Center for Devices and Radiological Health (CDRH) announced its priority list for medical device guidance documents for the fiscal year 2017. These documents provide transparency and insights to medical equipment and device industry regarding what the FDA is concerned about. Getting a clearer idea about the requirements will not only aid the companies in promoting innovation, but also protect them from stringent consequences of non-approval of any product.

3.3 Physician-Hospital Consolidation

Over the last couple of years, the Medicare program has encouraged physicians to join forces with hospitals to improve healthcare efficiency. However, this integration gives the consolidated market stronger power to dictate prices.

This trend is negatively affecting the medical devices industry. Individual physicians have more freedom to purchase medical equipment than when they are a part of a hospital. As hospital networks gain higher pricing power, the order size increases and customer base decreases for medical devices firms, further diminishing their margins.

With changing regulation scenario and changing employment dynamics, the basic struggle for the firms in this industry will be to safeguard their margins. Only companies with consistent margins and greater operational efficiency will gain a larger share of the pie.

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3.4 Growing demand for digital healthcare

The Medical Equipment and Devices Industry is at a point of transition of the innovation cycle and one of the key upcoming trend is the digital/virtual healthcare. Virtual reality (VR) is already a hot topic in the technology industry, but this innovation has fascinating possibilities in the medical field as well.Conducting operations through virtual reality, diagnosing chronic patients with this technology and even reducing stress among traumatic patients, are all possible now through this scientific technology. These VR devices are not only user-friendly, but also aid the physicians, doctors and surgeons to monitor complex procedures with ease. Increasing demand for VR devices will boost up the top-line performance of the industry.

However, there are few risks associated with this technological advancement. Firstly, there is an increased risk of cybersecurity breaches and malware, which puts the safety of private medical information into question.

Another factor is that many patients do not feel that virtual appointments and online visit justifies the same payment or insurance that they would be willing to pay for an in-person visit. This is a huge issue considering that physicians and other health providers are already struggling with decreased reimbursement rates.

Finally, there is a strong concern regarding the patient safety and effectiveness of some of the procedures done using VR technology.

3.5 Venture Capital

The medtech industry continues to be an industry of “haves” and “have nots,” especially in terms of access to capital. In both the US and Europe, the number of public medtechs with less than two years of cash continues to swell. Meanwhile, the market for initial public offerings wasn’t exactly robust. Excluding ConvaTec’s massive debut, medtech IPO financing in 2016-2017 was much more like the pre-boom years of 2009-12 than the recent 2013-15 heyday. While it is still possible for medtechs to go public, general investor participation now requires strong management teams and products that are not only on the market but demonstrating revenue growth. That’s a difficult bar to clear. It remains to be seen whether these investors will lower their expectations, thereby creating an opportunity for IPOs to reach the heights achieved in recent years.

The uneven capital distribution also played out on the private side. Privately-held medtechs raised nearly $8 billion in venture capital in 2016-17, a new record and an important catalyst for future innovation. However, more than 25% of that total went to just three medtechs: Grail; Guardant Health; and Verily Life Sciences, the life sciences-and-health-focused Alphabet subsidiary. Moving forward, if the public markets grow even tougher and US and European venture capitalists (VCs) become more conservative in their bets, many more early-stage medtechs may be competing to access the same pool of capital.

Top 15 U.S. VC Investors in Medical Devices and Diagnostics

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Investor Sum of Deals ($M)

Year Founded

Domain Associates $921.15 1985Versant Ventures $804.34 1999New Enterprise Associates $792.50 1977Kleiner Perkins Caufield & Buyers $685.15 1972OrbiMed $680.15 1989Johnson & Johnson Innovation - JJDC $647.46 1973Venrock $630.18 1969Morgenthaler $561.93 1968Deerfield Management $527.53 1994Arboretum Ventures $519.85 2002De Novo Ventures $491.97 2000Aisling Capital $478.35 2000SV Health Investors $429.87 1993Novo $429.64 1999InterWest Partners $419.10 1979

Source: Pitchbook

3.6 New innovations will drive growth

In 2016, the US Food & Drug Administration approved 39 new class III medical devices via its pre-market approval (PMA) pathway. As of July 31st, 2017, there were 26 PMA approvals, putting the industry on track to nearly rival the approval numbers last achieved in 2004. The uptick in approvals that began in 2015 suggests that medtechs are beginning to adapt to higher regulatory and reimbursement thresholds and are investing proactively in safety and efficacy studies to better demonstrate the utility of their devices. Recently approved medtech products already tackle some of today’s most difficult health care challenges. For instance, closed-loop systems automatically deliver insulin based on continuous monitoring of blood sugar, and new devices use catheters to repair or replace defective heart valves, limiting the need for invasive open-heart surgeries. Meantime, robotic systems are changing how surgical procedures are performed, improving the operating experience for both physicians and patients.

3.7 Partnering & collaborations

In 2016-17, signs of the medtech industry’s growing interest in collaborations with tech and digital players continued despite little direct evidence that these alliances have generated additional medtech revenue. In the diabetes space, for instance, Medtronic has partnered with IBM Watson, Qualcom and Glooko to create an integrated diabetes management program that allows patients to track their blood sugar levels and automatically receive appropriate therapeutic doses of insulin. Verily Life Sciences has formed important joint ventures with Johnson & Johnson, Sanofi and GlaxoSmithKline in the areas of digital surgery (VerbSurgical), diabetes management (Onduo) and bioelectronic treatments (Galvani). In the future, medtechs may look to create holistic care platforms that evolve from a disease-or technology-specific focus to managing complicated patients across the care cycle. Such platform of care could assist providers and payers with one of their most pressing issues: the efficient delivery of high-quality, high-touch care across populations with multiple co-morbidities. As populations around the globe age, the need for such consumer-focused platforms is only growing more acute. By 2050, the world’s population over 65 is expected to triple, and the costs of treating chronic diseases will reach an estimated $47 trillion.

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If structured correctly, these emerging platforms will enhance the patient experience and create new revenue opportunities for medtech. For instance, by linking big data capabilities with new knowledge from precision medicine, it will be possible to create precision health offerings that promote preventive interventions before the symptoms of the disease manifest themselves. The goal is to use digital tools and smart devices to nudge individuals with the right piece of information, cue or intervention at the exact right moment in time to maintain health. Such responsive platforms will not only be valuable to individual patient consumers; but also to providers and health systems that are reimbursed according to value and quality of care they deliver.

4. Zooming in on specialties

Medical devices come in many different subsectors and specialties. This section zooms in on the most prevalent.

4.1 Orthopedics

U.S. orthopedic devices market was valued at over USD 20 billion in 2016 and is anticipated to witness significant growth over the coming years. Rising prevalence of osteoporosis, osteoarthritis, and musculoskeletal disorders, growing geriatric population, adoption of advanced technologies and presence of sophisticated healthcare infrastructure should boost orthopedic devices industry growth.

Main Subsectors in orthopedics Joint Recon Company Market Share and Ranking ($Millions)

Joint reconstruction - A stable U.S. and strengthened ex-U.S. market plus new product launches returned the joint reconstruction segment to growth in 2016. Declining hip and flat knee sales were the primary factors underlying 2015’s performance. According to Orthoworld’s Orthopaedic Industry Annual Report for the year 2016, joint reconstruction sales came in at $17.5 billion, a $608.7 million or 3.6% increase over 2015.

    Rank 

         Who 

      Revenue 

      1          Zimmer Biomet $5,012.5      2          Stryker $3,408.1      3          Depuy Synthes $3,359.0      4          Smith & Newphew $1609.8      5          Aesculap $401.0

Joint reconstruction remains a priority segment for the industry’s largest players—DePuy Synthes, Zimmer Biomet, Stryker, Smith & Nephew and now, with the acquisition of Responsive Orthopedics,

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Medtronic as well. As is illustrated in the pie to the above, the top five players in joint reconstruction hold 79% of the market share.

Moving forward, the trends in joint reconstruction remain similar to previous years, with surgical assistance technologies, e.g. robotics and navigation, remaining a focus in hip and knee product launches, and total shoulder and ankle replacements driving the extremities recon market.

Spinal implants - spine market grew to meet Orthoworld’s projections of 2% in 2016, reaching $8.8 billion (excludes biologics). Spine continues to be a slower-growing market, yet one with high activity.

Orthoworld’s estimates show that Spine Company Market Share and Ranking ($Millions)Medtronic and Depuy Synthes, the two largest players, posted flat and declining

sales in 2016, respectively. The two companies lost market share for a second year, while NuVasive jumped Stryker to take the third position in the segment.

While Medtronic and DePuy Synthes have projected turnarounds for their spine businesses, other leading companies in the segment seek to take share through acquisitions and new product launches. NuVasive, Stryker, Globus Medical and Zimmer Biomet, companies three through six in segment ranking, closed spine-related acquisitions in 2016.

Spine has been a ripe arena for M&A, collaboration and funding activity in recent years, making the segment attractive for small companies seeking to enter and potentially exit the market. Market share is expected to continue to shift in this segment and will remain attractive for smaller companies that are able to develop innovative and differentiated technologies.

Trauma - The trauma market surpassed $6.6 billion in 2016. Four of the eight largest trauma players – DePuy Synthes, Zimmer Biomet, Smith & Nephew and Orthofix – posted losses in 2015. All returned to growth in 2016 except Smith & Nephew, which continues to face emerging market challenges. Revenue for the top five companies in this segment is depicted below.

Trauma Company Market Share and Ranking ($Millions)

    

Rank 

         Who 

      Revenue

  

        1          Medtronic $2,429.0          2          DePuy Synthes $1,600.0          3          NuVasive $804.1          4          Stryker $712.5          5          Globus $537.7          6          Zimmer Biomet $338.6  

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DePuy Synthes continues to dominate the trauma market, with 37% market share. In 2016, the company acquired BioMedical Enterprises in order to boost its small bone portfolio. DePuy was far from the only company focused on small bone enhancements in 2016. Foot and ankle remained a high-output segment for companies, with at least 11 companies making regulatory or product launch announcements in this area.

Arthroscopy/Soft Tissue Repair - The arthroscopy/soft tissue market surpassed $5.0 billion in 2016 with growth of 5.6%, more than 1% greater than our projections. Arthrex remains the segment leader, with more than 30% market share. The company’s growth is partially attributable to its breadth of arthroscopy/soft tissue products. In 2016, for instance, the company promoted arthroscope

sets for hip procedures, biceps systems, shavers AR/ST Market Share and Ranking ($Millions)and synergy resection products for extremity surgeries.

Segment growth also continues to come from the diversified market leaders—specifically Stryker and Zimmer Biomet, which outperformed the market rate in 2016. Arthroscopy/soft tissue is expected to be an attractive market for companies that already have strong joint reconstruction portfolios, due to the ability to proactively treat patients who may experience joint wear and seek a quick return to active lifestyles. Stryker and Zimmer Biomet are prime examples. The companies were the only two that made acquisitions in this space in 2016, as they sought to expand their knee and extremity portfolios.

4.2 Cardiovascular Devices

 

 

 

     Rank 

         Who 

      Revenue

  

        1          Depuy Synthes $2,460.3          2          Stryker $1,265.6          3          Zimmer Biomet $536.3          4          Smith & Newphew $422.8          5          Wright Medical $267.1

 

 

 

 

 

Rank 

         

Who 

 

   

Revenue 

 

        1          Arthrex $1,540.0          2          Smith & Nephew $1,218.0          3          DePuy Synthes $656.7          4          Stryker $461.5          5          ConMed $370.5          6          Zimmer Biomet $124.2  

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North America accounts for the largest cardiovascular devices market followed by Europe. This is due to increased awareness about various heart diseases, developed economies and increased overweight or obese people in the region. In addition, high disposable incomes and favorable reimbursement policies are also supporting the growth of cardiovascular devices market in the region. The U.S., followed by Canada, is the largest market for cardiovascular devices in North America.

According to "Cardiac Medical Devices Market in the US 2016-2020" report issued by Research and Markets, the cardiac medical devices market in the US is expected to grow at a CAGR of 1.82% during the period 2016-2020. The market is divided into the following segments based on product type: Cardiac rhythm management (CRM) devices Cardiac assist devices Heart valve

Vendors are increasingly involving in mergers and acquisitions as a business strategy to expand their operation and market share. Acquisitions of small companies by large vendors help large players increase their product portfolio.

According to the report, the market is growing due to the increased sales of cardiac rhythm management (CRM) devices. Increasing incidence and prevalence of cardiac disorders such as bradycardia, ventricular fibrillation, and tachycardia can lead to sudden cardiac arrest. To treat these patients, CRM devices are implanted that can boost the growth of the market.

Further, the report states that high cost associated with cardiac devices is hindering the growth of the market.

Major Competitors

Boston Scientific LivaNova Medtronic St. Jude Medical

4.3 Minimally Invasive Surgical Techniques

All laparoscopic surgeries + hearing aids etc. + robotic surgery

Minimally Invasive Surgery (MIS) is one of the largest trends in surgical healthcare. They have been applied to most of the surgical specialties (including cardiothoracic, orthopedic, urological, vascular and neurological procedures). Today minimally invasive procedures are undergoing a transformation by becoming smaller, automated, more precise instruments.

Major Competitors

Medtronic

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Ethicon Conmed Aesculap B Braun BD Boston Scientific Edwards Cooper Surgical Hitachi Medical Toshiba Medical Synovis Micro PFM Medical KLS Martin Delacroix-Chevalier Mercian Life Systems Medical Boss Instruments ASSI

4.4 In Vitro Diagnostics

According to Millennium Research Group (MRG), the global authority on medical technology market intelligence, the introduction of the Patient Protection and Affordable Care Act (PPACA) in 2014 will significantly affect the United States in vitro diagnostics (IVD) market landscape which is expected to grow nearly $8.6 billion by 2017 in the United States. Most notably, the implementation of this Act will increase the percentage of people covered by insurance, which will drive test volumes, especially as the US population ages and the demand for IVD increases.

The PPACA will also lead to increased centralization of IVD testing as more laboratories, hospitals and care facilities consolidate as a result of the health care reform. Although the rise of centralized labs will leave manufacturers with fewer potential sites for capital sales, these facilities will see high testing volumes and ultimately have the resources to purchase a broader array of diagnostic tests.

High testing volumes at centralized sites will mean that these labs will look for vendors that can offer a broad range of instrumentation and automation equipment.

"As the trend of centralization continues, these high-throughput laboratories will look to purchase from large, cross-segment vendors that can equip them with a full array of instrumentation," said MRG Analyst Mickel Phung. "The labs will prefer to purchase all of their equipment from one vendor to improve workflow logistics and reduce costs."

As a result, the majority of market share is held by a few key multi-segment players, including Siemens Healthcare, Roche and Abbott Laboratories. Large multinational companies will likely continue to dominate the market through 2017—especially those players with a finger in molecular diagnostics technologies. This market segment will grow rapidly through 2017, cannibalizing sales from more mature segments such as immunoassay and microbiology testing.

Major Competitors

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Share of IVD Worldwide Sales 2016Rank Company % Share

1 Roche Diagnostics 19%2 Abbott Diagnostics 10%3 Danaher 10%4 Siemens 8%5 Sysmex 4%6 BioMerieux 3%7 OCD 3%8 Johnson & Johnson 3%9 Becton Dickinson 3%10 Alere 3%

Source: roche.com

5. Outlook of the U.S. Medical Device Industry

The future of the medical device industry in the US is expected to remain highly competitive in the global market, supported by key drivers that the medical device industry relies on, including growth in: Microelectronics, instrumentation, biotechnology, and software development. Moreover, the International Trade Administration also points out that the global demand for medical devices is being driven by increasing expenditures and initiatives in health care, including the building of new hospitals and clinics, establishment of public health insurance, and greater emphasis on improving the health of the general population. Under these circumstances, the future growth of the medical device industry in the US is projected to be stronger.

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6. FDA Regulations

The basic regulatory requirements that manufacturers of medical devices distributed in the U.S. must comply with are:

Establishment Registration - Manufacturers (both domestic and foreign) and initial distributors (importers) of medical devices must register their establishments with the FDA. All establishment registrations must be submitted electronically unless a waiver has been granted by FDA. All registration information must be verified annually between October 1st and December 31st of each year. In addition to registration, foreign manufacturers must also designate a U.S. Agent. Beginning October 1, 2007, most establishments are required to pay an establishment registration fee. Please find below the schedule of annual registration user fees for fiscal years 2017 through 2018:

Year FY 2017 FY 2018

Fee $3,382 $4,624

More information about FDA establishment registration can be found at: http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/Overview/default.htm#reg.

Most establishments that are required to register with the FDA are also required to list the devices that are made there and the activities that are performed on those devices.

Establishments required to list their devices include:

o manufacturers,o contract manufacturers that commercially distribute the device,o contract sterilizers that commercially distribute the device,o repackagers and relabelers,o specification developers,o reprocessors single-use devices,o remanufacturero manufacturers of accessories and components sold directly to the end usero U.S. manufacturers of "export only" devices

Classification of Medical Devices - FDA classifies medical devices based on the risks associated with the device. Devices are classified into one of three categories—Class I, Class II, and Class III.

Class I Devices: include commodity products such as stethoscopes, scalpels, and other commodity products that pose relatively little patient risk. Makers of these products need only register their establishment, conform to Good Manufacturing Practices (GMP) and notify the FDA at least 90 days before they start marketing the devices. GMP's are standards set by the FDA for ensuring manufacturing quality. More information about GMP requirements can be found at: http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/PostmarketRequirements/QualitySystemsRegulations/default.htm.

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Class II Devices: include devices that present a moderate degree of risk to the patient. Examples include x-ray machines, endoscopes, and surgical lasers. Manufacturers have to provide the FDA with some evidence of safety and efficacy and meet certain performance standards. In addition, they are responsible for post-market surveillance and maintenance of patient registries.

Class III Devices: these are sophisticated products that present significant risk to patients and must go through extensive clinical trials before undergoing FDA reviews. Included in this category are life supporting devices, such as implantable cardiac pacemakers, angioplasty catheters, stents, and similar devices that prevent potentially dangerous medical conditions such as heart attacks and cardiac arrhythmias.

Premarket Notifications - Premarket notifications are also known as 510(K). This is a more commonly used filing and applies to devices that are Substantially Equivalent (SE) toapproved products already on the market. Many Class I devices are exempt from the 510(K) process, although other regulations apply. A list of exempt devices is located at: http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpcd/315.cfm.

Once the device is determined to be SE, it can then be marketed in the U.S. The SE determination is usually made within 90 days and is made based on the information submitted by the submitter.

In many cases, descriptive data and a labeling review are sufficient, though some devices may require further clinical studies to support a 510(K). Before marketing a device, each submitter must receive an order, in the form of a letter, from FDA which finds the device to be substantially equivalent and states that the device can be marketed in the U.S. This order "clears" the device for commercial distribution. The submitter may market the device immediately after 510(K) clearance is granted.

Premarket Approval - Premarket approval (PMA) apply to most Class III devices due to the level of risk. PMA is the most stringent type of device marketing application required by FDA. The applicant must receive FDA approval of its PMA application prior to marketing the device. PMA approval is based on a determination by FDA that the PMA contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s). An approved PMA is, in effect, a private license granting the applicant (or owner) permission to market the device. The PMA owner, however, can authorize use of its data by another.

FDA regulations provide 180 days to review the PMA and make a determination. In reality, the review time is normally longer. Before approving or denying a PMA, the appropriate FDA advisory committee may review the PMA at a public meeting and provide FDA with the committee's recommendation on whether FDA should approve the submission. After FDA notifies the applicant that the PMA has been approved or denied, a notice is published on the Internet (1) announcing the data on which the decision is based, and (2) providing interested persons an opportunity to petition FDA within 30 days for reconsideration of the decision.

On October 26, 2002 the Medical Device User Fee and Modernization Act of 2002 was signed into law. This law authorizes FDA to charge a fee for medical device product reviews. These fees apply to Premarket Approvals (PMAs), Product Development Protocols (PDPs), Biologics Licensing Applications (BLAs for certain medical devices reviewed by FDA's Center for Biologics Evaluation and Research), certain supplements, and Premarket Notification 510(k)s.

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The fee must be paid for the above listed applications, unless the applicant is eligible for a waiver or exemption. Small businesses may qualify for a reduced fee. Payment must be received on or before the time the application is submitted. If the applicant has not paid all fees owed, FDA will consider the application incomplete and will not accept it for filing.

The Fees for Fiscal Year 2018 (October 1, 2017 through September 30, 2018) are as follows:

FY18 User Fees (in U.S. Dollars)Application Type Standard Fee Small Business Fee†

510(k)‡ $10,566 $2,642513(g) $4,195 $2,098De Novo classification $93,229 $23,307PMA, PDP, PMR, BLA $310,764 $77,691panel-track supplement $233,073 $58,268180-day supplement $46,615 $11,654real-time supplement $21,753 $5,438BLA efficacy supplement $310,764 $77,691PMA annual report $10,877 $2,71930-day notice $4,972 $2,486† For small businesses with an approved SBD.

‡ Note: all types of 510(k)s (Traditional, Abbreviated, and Special) are subject to the user fee. However, there is no user fee for 510(k)s submitted to the FDA on behalf of an FDA-accredited third-party reviewer.

Small businesses with an approved SBD with gross receipts or sales of $30 million or less are eligible to have the fee waived on their first PMA, PDP, PMR, or BLA.

Annual Establishment Registration Fee: $4,624

There are no waivers or reductions for small establishments, businesses, or groups – all establishments must pay the establishment registration fee.

Source: www.fda.gov

Labeling - Labeling regulations pertaining to medical devices are found in the following Parts of Title 21 of the Code of Federal Regulations (CFR):

General Device Labeling Requirements (21 CFR Part 801)

The general labeling requirements for medical devices are contained in 21 CFR Part 801. These regulations specify the minimum requirements for all devices.

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Name and Place of Business (21 CFR 801.1)

o The label of a device shall contain the name and place of business of manufacturer, packer, or distributor including the street address, city, state, and zip code.

o If the firm's street address is in the local telephone directory, the street address can be omitted.

o If the firm listed on the label is not the manufacturer, the firm information must be qualified by an appropriate statement such as, "Manufactured for..." or "Distributed by...."

Intended Use 21 CFR 801.4

o If a packer, distributor, or seller intends a device for uses other than those intended by the person from whom he received the device, these parties must furnish adequate labeling in accordance with the new intended use.

o If a manufacturer knows or has information indicating that this device is to be used for conditions or purposes other than which it was intended, he is required to provide adequate labeling in accordance with such other uses. (An example of this might be a manufacturer of dental X-ray equipment who is routinely selling his product to podiatrists.)

Adequate Directions 21 CFR 801.5

o "Adequate directions for use" means directions under which the layman can use a device safely and for the purposes intended. This includes:

Statements of all purposes for which and conditions under which the device can be used;

Quantity of dose for each use and usual quantities for persons of different ages and physical conditions;

Frequency of administration;

Duration of application;

Time of administration in relation to other factors;

Route or method of application; and

Any preparation necessary for use.

Information on exemptions from adequate directions for use requirement.

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False or Misleading Statements 21 CFR 801.6

o A device is misbranded if it makes a false or misleading statement with respect to another device, drug, food, or cosmetic.

Prominence of Statements 21 CFR 801.15

o A word, statement or other required information may lack the required prominence and conspicuousness for the following reasons:

If it fails to appear on the part or panel that is displayed under customary conditions of purchase;

If the package contains sufficient space and the required information fails to appear on two or more panels, each of which is designed to render it to be displayed under customary conditions of purchase;

Failure to extend required labeling over package space provided;

Lack of sufficient label space for required labeling due to placement of non-required labeling of the package; or

Smallness or style of type, insufficient contrast between labeling and package background, designs which obscure labeling, or overcrowding of labeling which renders it unreadable.

Exemptions

o Exemptions may be granted in those instances where device labeling lacks sufficient space for required labeling provided that:

Existing label space is not taken up by including non-required information or by giving prominence to a portion of the required labeling; andExisting label space is not used for any representations in a foreign language.All labeling shall be in English with the exception of products distributed solely within Puerto Rico or a U.S. territory where the predominant language is other than English. In these instances the predominant language may be substituted for English.

If any representation on the device label or labeling appears in a foreign language, then all required labeling shall also appear in that foreign language.

In Vitro Diagnostic Products (21 CFR Part 809)

The label for IVD's must state the following information, except in cases where it is not applicable. In addition, all information must appear on the outside container or wrapper, or be easily legible through the outside container or wrapper. If the presence of any label information will interfere with the test, the information may appear on the outside wrapper or container instead of the label. If the immediate

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containers are too small, or otherwise unable to bear labels with sufficient space, then the required labeling as listed below annotated with an asterisk (*) may appear on the outer container labeling only.

Label requirements for the immediate container:

o The established and proprietary names of the product, e.g., cholestrolometers;

* o The intended use or uses, e.g., pregnancy detection, diabetes screening, etc.;

* o A statement of warnings or precautions for users listed in 16 CFR part 1500(hazardous substances) and any other warnings appropriate to user hazards, and astatement "For In Vitro Diagnostic Use";

o Name and place of business of the manufacturer, packer, or distributor;

o Lot or control number traceable to the production history- Multiple unit products must have traceability of the individual units;- Instrument lot numbers must allow for traceability of subassemblies; and- A multiple unit product that requires use of its components as a system should

have the same lot number, or other suitable uniform identification, on all units.

For Reagents :

o Established (common or usual) name;

o Quantity, proportion, or concentration of all active ingredients: e.&., mg., weightper unit volume, mg./dl etc., and for reagents derived from biological materials the source and measure of its activity, e.g., bovine, I.U., etc.;

o Storage instructions, i.e., temperature, humidity, etc.;

o Instructions for manipulation of products requiring mixing or reconstitution;

o Means to assure that the product meets appropriate standards of purity, quality, etc., at the time of use, including one or more of the following:1. expiration date (date beyond which the product is not to be used);

* 2. statement of any visual indication of alteration;* 3. instructions for a simple check to assure product usefulness;* 4. The net quantity of contents.

Label requirements for inserts and outer packaging:

Labeling must contain in one place the following information in the format and order listed below, except where information is not applicable, or as specified in a standard for a particular product class. If the device is a reagent intended as a replacement in a diagnostic system, labeling may be limited to that information necessary to adequately identify the reagent and to describe its use in the system. If the device is a multiple purpose instrument used for diagnostic purposes, and not committed to specific diagnostic procedures or systems, labeling can be restricted to those points annotated by an asterisk (*).

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* o The proprietary and established product name;

* o The intended use of the product and whether it is a qualitative or quantitativetype of procedure, e. g., screening, physician's office, home use, etc. ;

o Summary and explanation of the test, including a short history containing methodology and the special merits and limitations of the test;

o The chemical, physical, physiological, or biological principles of the procedure.

For Reagents:

o The common name, if any, and quantity, proportion, or concentration or each reactive ingredient; and for biological material, the source and measure of its activity;

o Appropriate cautions or warnings listed in 16 CFR Part 1500; the statement: "For In Vitro Diagnostic Use;" and any other limiting statements appropriate to the intended use of the product;

o Adequate directions for reconstitution, mixing, dilution, etc.;

o Appropriate storage instructions;

o A statement of purification or treatment required for use; and

o Physical, biological, or chemical indications of instability or deterioration.

Exemptions from Labeling Requirements - Shipments or other deliveries of IVD devices are exempt from label and labeling requirements in the above headings and from standards listed under Part 861 provided the following conditions are met:

o A shipment or delivery for an investigation subject to Part 812, Investigational Device Exemption (IDE), if the device is in compliance with the subject IDE; or

o A shipment or delivery for an investigation that is not in compliance with Part 812 most IVD are exempt from the IDE because of the following labeling) if thefollowing conditions are met:- A product in the laboratory research phase, not represented as an IVD, that is prominently labeled: "For Research Use Only. Not for use in diagnostic

procedures;" and

- A product that is being shipped or delivered for product testing prior to full commercial marketing that is prominently labeled: "For Investigational Use Only. The performance characteristics of this product have not been established.

Investigational Device Exemption (IDE) - An investigational device exemption (IDE) allows the investigational device to be used in a clinical study in order to collect safety and effectiveness data required to support a Premarket Approval (PMA) application or a Premarket Notification [510(K)] submission to the FDA. Clinical studies are most often conducted to support a PMA. Only a small

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percentage of 510(K)'s require clinical data to support the application. Investigational use also includes clinical evaluation of certain modifications or new intended uses of legally marketed devices. All clinical evaluations of investigational devices, unless exempt, must have an approved IDE before the study is initiated. Many IVDs are exempt from IDE requirements.

Medical Device Reporting

Incidents in which a device may have caused or contributed to a death or serious injury must to be reported to FDA under the Medical Device Reporting program. In addition, certain malfunctions must also be reported. The MDR regulation is a mechanism for FDA and manufacturers to identify and monitor significant adverse events involving medical devices. The goals of the regulation are to detect and correct problems in a timely manner. Further information on the Medical Device Reporting process can be found at 21 CFR Part 803.