Looking at the Healthcare Industry for Growth Opportunities: What New Entrants to the

Market Need to Know

Charlie WhelanDirector of Consulting

HealthcareFrost & Sullivan

October 2009

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• Strength of healthcare driven by• Strong fundamental demand driven by aging population, government investment,

emerging economies investing in healthcare infrastructure• Domestic healthcare reform will open opportunities to those companies who can adapt

to the new landscape with innovative products and services• Healthcare: Why now?

• As older domestic industries face challenges (automotive, textiles, heavy manufacturing, etc.), smart companies see healthcare as a clean, 21st Century industry to invest in

• Healthcare will soon represent about 20% of the total U.S. economy (GDP). You cannot afford not to have a strategy focused on healthcare.

• Healthcare reform, the economic downturn and other major trends in the industry will open up new opportunities for companies with an outside perspective that can bring value to the system

• In the next five years we will see the emergence of the next generation of major healthcare technology companies. Timing and market entry will be critical.

Healthcare: A Hot Vertical to Focus On

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A Few Companies Making Major Healthcare Plays

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More Companies Leveraging their Strengths

Types of Companies Core Strengths

Materials, component and OEM manufacturers

Specialized technical knowledge, product innovation, manufacturing efficiencies and scale

Finished goods manufacturers in non-healthcare sectors

New market for existing products, product innovation

Service providers not currently in healthcare

Service innovation, efficiencies and cost reduction

Information technology companies

Data management, connectivity, analytics, cost savings, etc.

Contract manufacturers Specialized services, cost savings

Consumer goods companies

Product innovation, distribution channels, marketing clout

Distributors and retailers Market access, consumer information, supply chain management

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Healthcare Touching Nearly Every Sector

Telecommunication Companies• Telemedicine

• Remote patient monitoring

• Linking patient to providers

• Expanded apps could include health info and advice in some markets

Consumer Product Companies

• As consumers face a growing number of choices, healthcare manufacturers have to increasingly find ways to differentiate and manage brand portfolios effectively

• Strengthen relationships with retailers by catering to retail price, product distribution demands

• Retailers are branding homecare devices and providing HC services via clinics, in addition to the pharmacy expansion

Chemical Companies

• The $1 trillion chemical industry is expected to grow by $500 billion in ten years – 50% from Biotechnology

Employers & Government

• Key links in a consumer driven HC environments

• Convergence of Health Benefit Administration, Care Mgmt and Constituent Engagement

• Integrated Healthcare Management

Agriculture & Food Companies

• Genetically enhanced crops are the next in a natural progression of agricultural innovation

• Biotech crops were planted in 18 countries in 2004

• By 2010, it is projected that 15 million farmers will grow genetically modified crops on up to 375 million acres in 30 countries

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• An enormous ground swell of organizations operating across the healthcare value chain to better track and evaluate costs and outcomes in order to improve both. Implicit in this is standardization of reporting methods and, ultimately, standards of care.

• Healthcare becomes more like other service industries• Great collaboration and information sharing across value chain • Greater transparency of prices/ costs and outcomes• Increased development of standards of care and incentives to adopt• Increasingly challenging market for new technologies• Focus on economics• Longer time to market for new technologies• Tighter market for “physician-preference” items, declining influence of clinical

decision makers• More decision making on purchasing occurring at higher levels within a customer

organization, at system-levels or by GPOs• More locked out accounts and a more competitive market with customers signing

longer-term, exclusive contracts to enjoy lower prices• More “generics” – technologies providing same value at lower price, stripped down

feature sets

What Will the Future of Healthcare Look Like?

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• When considering new healthcare services opportunities targeted to consumers, Frost & Sullivan believes the greatest opportunities will be focused on:

• Providing interactivity and collaboration• Improving decision making• Improving transparency and benchmarking• Improving quality and outcomes, particularly for underserved conditions or with

underserved populations• Improving compliance and adherence• Eliminating wasted money, time and effort• Improving patient satisfaction• Lowering costs• Improving quality of life• Developing and implementing best practices and standardization• Shifting care from high-cost/high-skill areas to lower cost/ lower skill areas• Improving efficiencies and saving time• Improving safety and reducing risk• Adding delight!

How Can New Entrants Add Value to Healthcare?

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U.S. Medical Devices Industry

Estimated 2008 Spending on Devices ($Bil)

Esti

mate

d G

row

th R

ate

on

Pu

rch

ase o

f M

ed

ical D

evic

es (

20

08

-20

13

)

0%

20%

4%

16%

8%

12%

Source: Frost & Sullivan and published articlesNote: Diameter of Bubbles Reflects Spending on Purchase of Devices, Usually by Providers ($US Bil)

Cardiovascular

$24.9

Orthopedics

$17.0 Surgery

$11.7

DI Cap Equip

$10.3

Ophthalmic

$10.2Patient

Monitoring

$9.4

Wound Care

$8.1

Audiology

$4.8

Neurology

$3.1

Urology & Gynecology

$2.8

Infusion Pumps

$2.5

Mobility Aids

$2.3

Aesthetic Surgery

$1.6

PAP Therapy

$1.3

Respiratory

$1.2

Disinfection/Sterilization

$0.7

Anesthesia

$0.5

Endoscopy

$0.42008 Total Market:

$112.6 Bil

8.8% CAGR

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Higher liability and risk

Very diverse customer segment

Strong organic market growth

Small industry – lots of internal word of mouth

Unique Qualities of Medical Technology Industry

Customer demands for high degree of evidence for purchase

Strong domestic manufacturing base

Operating within a reimbursement-driven market

Biocompatibility issues

Higher regulation and testing/ validation requirements from FDA; need to meet ISO standards

Complex distribution and purchasing processes

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Technology• Battery and power transmission technology• Sensing technology• Materials sciences – particularly polymers and shape-

memory alloys• Information technology and informatics• Wireless and mobile communications technology• Nanotechnology• Technologies to enable drug-device integration• Enabling technologies for minimally-invasive or non-

invasive technologies• Microelectronics• Lab-on-a-chip• Video games and digital media• Robotics and artificial intelligence• Biologics and tissue engineering• Microbe detection, identification and elimination• RFID• Display technologies• Optical technologies (NIRS, OCT, etc.)• Semiconductors

Opportunity AreasStrategic• Ability to lower production costs,

improve operational efficiency or improve outcomes

• Synergies and co-promotion opportunities

• Access to new distribution channels• Access to new customers• Value chain efficiencies• Facilitating greater collaboration and

integration of care• Support in global expansion• Financing in a market where venture

capital has grown tighter

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• Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best in class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best practice models to drive the generation, evaluation, and implementation of powerful growth strategies. Frost & Sullivan leverages over 45 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 35 offices on six continents.

• The company is uniquely qualified to support non-traditional healthcare companies as they seek to expand into the healthcare space, since Frost & Sullivan covers both the healthcare market and many of the industry segments non-traditional clients are rooted in.

• For more information, contact Jake Wengroff at 210-247-3806 or jake.wengroff@frost.com

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