Medical Device
Sector Overview
Irish Medical Device
Association (IMDA)
December 12, 2013
Agenda / Contents
• Medical Device Sector Overview
• Manufacturing Strategies
• Considerations for Irish Medical Device Sector
2 | MDT Confidential
Market Overview
•
Market Size = $230B
•
Emerging Markets Annualized Growth = 13% to 15%
•
Developed Markets Annualized Growth = 2% to 3%
•
Total Market Growth = 3% to 4%
•
Annual Pricing = -3% to -5%
Developed Markets
YOY Growth
= 2% to 3%
•
•
•
•
US
WECA
Japan
Asia Pac
Emerging
Markets
= 15%
Developed
Markets
= 85%
EM YOY Growth
= 13% to 15%
•
•
•
•
•
Greater China
Latin America
MEA
CEE
India
3 | MDT Confidential
Market Dynamics and Business Strategies
Market Dynamics
• Increasing burden of
chronic disease
• Demographic shifts
/aging of population
• Broadening of
stakeholder base
• Increasing alignment
of customers
• Rising cost burdens
• Payment reforms
• Pressure on
provider/payer
economics
• Rise in wealth in EM
• Healthcare as
government priority
• Local competition
Universal Healthcare Needs
• Improve Clinical Outcomes
• Expand Access
• Optimize Cost & Efficiency
Strategic Imperatives
Globalization
Economic Value
4 | MDT Confidential
Changing Healthcare Environment has Created
Uncertainty in MedTech
Key Changes
•
Broader customer base
–
–
•
Evolving payment models
–
–
•
Purchase Decision: Shift from
solely the physician to more
stakeholders
Physicians becoming employees
of hospital systems
Expanding time horizons: Shift
from time of implant to episodes of
care & disease management
Increasing focus on quality of care
Value starting to be measured
–
In healthcare, value comes over
time, and was rarely measured in
the past
Current Impact:
 MedTech industry slow to adapt
 Increased pricing pressure
 Scrutiny on cost of technology
 Technology viewed as commoditized
 Slower MedTech market growth
“In the middle of difficulty lies
opportunity.” – Albert Einstein
5 | MDT Confidential
Strategies to Address Healthcare Needs
Universal HC needs
Strategies
New Therapies
Improve clinical
outcomes
Globalization
Expand access
Economic Value
Optimize cost
and efficiency
Develop new therapies and technologies
to address unmet clinical needs and
drive them to standard of care
Develop tailored solutions to address
market-specific needs and expand
access in global markets
Transform offerings and commercial
models to deliver greater economic
value and optimize healthcare delivery
6 | MDT Confidential
Globalization
Develop tailored solutions to address marketspecific needs and expand access in global markets
Premium
Local R&D and
Local Manufacturing
Value
Underserved
7 | MDT Confidential
MedTech Considerations
• Current model is not sustainable
• Focus on being part of the solution
• New business models based on value measured over
time
• Greater accountability for the outcome not just the
procedure
• MedTech companies also as service providers
• Need to reduce disparity of access
• Develop tailored solutions based on local needs
8 | MDT Confidential
Regulatory Bar
Increasing
9 | MDT Confidential
Increasing Enforcement Across Medical Device
Industry; By FDA and Global Regulators
Global FDA Warning Letters
FDA Class I Recalls
International FDA Warning Letters
FDA 483 Findings By Major Category
10 | MDT Confidential
MedTech Manufacturing Sector
Perspective
11 | MDT Confidential
INVESTMENTS
MedTech Mfg Location Strategy
Considerations (179 Plants)
Medtronic (24)
J & J (15)
St. Jude (11)
Abbott (10)
Stryker (9)
Boston (6)
Zimmer (5)
Edwards (2)
England
(3 Plants)
Canada
(2 Plants)
Medtronic (1)
Abbott (1)
Ireland
(12 Plant)
Medtronic (1)
J&J (1)
Abbott (4)
Boston (3)
Stryker (2)
Zimmer (1)
Medtronic (1)
J&J (1)
United States
(82 Plants)
J&J (3)
Medtronic (2)
Sweden
(1 Plant)
Abbott (1)
Germany
(10 Plants)
J&J (5)
Stryker (3)
Medtronic (1)
Abbott (1)
J&J (1)
J&J (7)
Medtronic (3)
Stryker (2)
Abbott (1)
Zimmer (1)
Edwards (1)
Stryker (3)
Medtronic (2)
J&J (1)
Zimmer (1)
Mexico
(5 Plants)
Austria
(1 Plant)
Boston (2)
Abbott (1)
St. Jude (1)
Costa Rica
(4 Plants)
Puerto Rico
(13 Plants)
Spain
(1 Plant)
Medtronic (1)
St. Jude (1)
Brazil
(1 Plant)
J&J (4)
Stryker (2)
Zimmer (2)
Abbott (1)
Medtronic (1)
St. Jude (1)
Abbott (1)
Medtronic (3)
Abbott (2)
Stryker (2)
Boston (1)
St. Jude (2)
J&J (1)
Zimmer (1)
Edwards (1)
China
(10 Plants)
Switzerland
(15 Plants)
France
(7 Plants)
Edwards (1)
Dominican
Republic
(1 Plant)
Netherlands
(2 Plants)
J&J (2)
Abbott (1)
Growing
Singapore
China
Malaysia
Costa Rica
Dominican Rep.
India
Italy
(1 Plant)
J&J (2)
India
(2 Plants)
Medtronic (1)
J&J (1)
St. Jude (1)
Israel
(2 Plants)
Malaysia
(1 Plant)
Note: Corporate Tax Rates for the eight leading
MedTech multinationals is 19% to 24% (2012)
Thailand
(1 Plant)
Medtronic (1)
Edwards (1)
Singapore
(2 Plants)
12 | MDT Confidential
Maintaining
Ireland
Puerto Rico
Mexico
Switzerland
Brazil
Thailand
Netherlands
Declining
France
Germany
Sweden
England
Italy
Austria
Spain
Israel
Canada
United States
Direct Labor – Fully Loaded Rate
$33.11
$35.00
$30.43
$30.00
$25.00
$20.00
$18.57
$15.00
$13.26
$8.81
$3.28
$4.47
$5.63
Mexico
$5.00
$5.24
Malaysia
$10.00
$6.73
Fully Loaded DL Rates
- Base Rate
- Employee Benefits
- Worker Comp
- All Other
Fully loaded wage rate data includes 2012 rates for experienced operators at MedTech manufacturers
13 | MDT Confidential
Ireland
United States
Puerto Rico
Singapore
Brazil
China
Costa Rica
India
$-
Low Cost Country Labor – 2011 to 2020
Multinational
Medical Device
Manufacturers
US / WE / Japan (%) =
Low Cost Countries (%) =
Tier 1
Medical Device
Suppliers
(Material is ~40% of LBM)
18
35
65
82
2011
2020
12
30
70
88
14 | MDT Confidential
Medical Device Contract Manufacturing
• Global Medical Device Market = $230B
– Medical Device companies have significant capacity but need more
low cost capacity for higher technology products
Contract Mfg Market by Segment
Contract
Mfg
= $30B
(13%)
18
16
15.4
13.0
14
($bn)
12
10
8
6
Device Mfg
= $200B (87%)
4
1.7
2
0
Material
Processing
Electronics
15 | MDT Confidential
Source: Visiongain 2011
Finished
Products
Key Considerations for Global Manufacturing Strategy
• Corporate Tax Rates are approaching desired target (~20%)
• Emphasis on maintaining tax rates while reducing labor and
burden costs
• Most companies have plans to rationalize their manufacturing
• Single sourcing is now a much greater consideration
• More recent large investments have been in low-cost and low-tax
locations (e.g., Costa Rica, Malaysia)
• Major focus on manufacturing presence and investment in BRIC
countries
• Acquisitions will continue adding capacity
16 | MDT Confidential
Implications for
Manufacturing Strategy
17 | MDT Confidential
Implications for Manufacturing Strategy
• How do we create sustainable and predictable manufacturing to
achieve quality, regulatory ,cost and service objectives with
capability to address headwinds and flexibility to respond to local
manufacturing requirements in Emerging Markets
• Key Considerations:
– Strategy on local-for-local manufacturing
– Consolidation and the creation of Centers of Excellence
– Development of deep core competencies
– Alignment and relationship between R&D centers and Manufacturing
centers
– Talent and cultural development
18 | MDT Confidential
Manufacturing Network Optimization
Plants
Plant Network
Optimization
Business
Focused
Factories
Shared
Mfg
Centers
Shared
Technology
Centers
Local for
Local
Mfg
19 | MDT Confidential
Contract
Mfg
Partners
Capability / Maturity Model
HIGH
• Deep technical
capability; product line
experts
“BLACK HOLE”
AVOID
• Medium-to-high
manufacturing capability
• Drives some change and
continuous improvement
Strategic
Importance of
Market and
Technology
• Low-to-medium
management and technical
capability
• Has developed enough
process and technical
knowledge to maintain
operations
• Relies on business unit
direction and decisionmaking
• Invests in people and
process development
• Needs business unit
support for problem
solving
LOW
STAGE #1
Implementer
LOW
• Contributor to product
development
STAGE #2
Contributor
• Highly experienced and
technically strong
management team
(cradle of global talent)
• Leads process
development and
continuous improvement
• Active part of PDP
process
• Site integrated across all
functions; highly
specialized
• Is considered Best
Practice in
Manufacturing
STAGE #3
Strategic Partner
HIGH
Site Capability /
Competencies
20 | MDT Confidential
Considerations for Irish Medical Device Sector
• Need to maintain and leverage low tax status
• Clearly define and understand what a Strategic Partner
(Leader) means at a company and country level
• Charter is a function of capability for strategically important
markets
• Pursue global best practice as a new target and reputation
• Target core competencies both at a company and country
level
• Consider how Ireland can create more Shared Manufacturing
Centers and Shared Technology Centers
21 | MDT Confidential
Thank You
22 | MDT Confidential