www.MercatorMed.com

GlobalizationGlobalization of the

Medical Technology Industrygy y2012 Medical Device Manufacturing and R&D Summit

Thomas M. Loarie, Executive ChairmanMercator MedSystems, Inc.

Shifting Priorities

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Career Events 1968-2012

•Drug DeviceDi itiAHSC •Division President

•VenturesR&D

•IPO

•Diagnositics•eHealth

•Sales/Mktg•R&D •Financial Mkts

•China

1970 1980 1990 2000 20101960

HoneywellMfg Engineer

•ADVAMED•Govt Policy

International•Manufacturing•Logisticsg

Key Events in MedTech 1960-2012

Cuts in Funding to AeroDefense •Health Reform

•TEFRA•DRGs

i

•Kessler FDA•M&A

•ACOs•M&A Hospitals

FDA A t •Segmentation•Marketing

M&A

Globalization

•FDA Act

1970 1980 1990 2000 20101960

Social Security Act of

•FDA Modernization Act CMS takes front seat

•The Great Recession•Implosion of Venture Capital

•GoldStandard •Emergence of Multi National Act of

1965•CMS takes front seat Venture CapitalMulti-National

Key Events 1960-2012

•For Profit Hospitals

House Calls Hospital •HMOs

•Hospitals

•Segmentation•Doc in the Box

Hospitals M&A

1970 1980 1990 2000 20101960

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Economics and Global Politics

• Security• Prosperity• Prosperity• Values

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Geopolitical Center is Shifting to Indian Ocean from AtlanticOcean from Atlantic

The Global Middle Class is Booming

P. 13

World Population Ageing 1950-2050

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China

P. 16

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Frugal Innovation

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Lessons for Medtech

• 2.5% vs. 20-30% market growthGraying of great powers (Butter not guns)powers (Butter not guns)

• Will parents want one child to be in military? (China)(China)

• Healthcare spending on the rise globally• Skilled labor flows• Skilled labor flows• Implications

Treatment guidelines– Treatment guidelines– Reference pricing

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Lessons for Medtech

• Low Cost Chinese Competition is Coming• Growth in Asia is just beginning• Markets are untapped• This will be the growth market for next 20 years• Numerous Local players with cost advantages

• Stent Market shifted over night• Multinationals went from >70% to <30%

L Mi t Bi ll i i• Lepu, Microport, Biosensors all winning• These players are not as rational about price

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Lessons for Medtech

• Also taking share in EuropeMi d• Mindray

• Kung HuiThey will compete here• They will compete here

• Multinationals still struggling with business modelhi h t d hi h i d l- high cost and high margin model

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So what to Do

• Change creates great opportunity

• Affordability matters now more than ever – Focus on Value

• Healthcare purchase decisions now driven by value• Better care or physician profit is simply not enough• Fee for service model is coming to a close• Hospital managers have more say than physician employeesHospital managers have more say than physician employees• Hospital value analysis committees rule the day

• Make sure you develop cost effectively – Focus on Capital Efficiency

• Healthcare venture has veered off course• Funds grew large• Led to complex investments with greater capital and risk• Though exciting ideas, time & money required high exit valuations

With l l ti h i ll l• With lower valuations, purchase prices are generally lower• Capital efficiency provides optionality

P. 23

Healthcare Reform

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Coordination of Care

N Y k H it l L k t C bi F i Gi tNew York Hospitals Look to Combine, Forming a Giant

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New Point of Access

Lessons for Medtech

• Physician eTools

• Coordinated Care

• Home Health

• Sensors

• Data• Data

The U.S. Advantage

•High education

•High technology

•High reward•High reward

•Country of Laws

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Soft Power - Education

• U.S. is #1 educational power in world• 17 of top 20 Universities in world are in U.S.

– Exceptions are Oxford, Cambridge, Univ of TokyoOf t 500• Of top 500– U.S. = 154

Germany 39– Germany = 39– UK = 38– China = 23China 23

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Innovation

The U.S. Advantage

• Labor advantage• Globally competitive

– Goldman Sachs 25,000 (13,100 U.S.)A l 60 400– Apple 60,400

– Microsoft 90,412• America is ethnically blind• America is ethnically blind

– Google’s Sergy Brin– Univ of Chicago’s Prof RuoboniUniv of Chicago s Prof Ruoboni

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