Outsourcing piggybacks growth in U.S. medical-device market.

(Special
Report)
Plastics News

Plastics News; 1/9/2006

Byline: Steve Toloken

True to form as a market known for stability and strict performance requirements, the medical-
device market in 2006 has a prognosis much like that of previous years: solid growth and
continued opportunities for outsourcing.

Projections say the device market generally is growing 8-12 percent a year, although some
observers said high raw material costs inflate that figure somewhat. On the high end, consulting
firm Frost & Sullivan of Mountain View, Calif., projects the device market will grow from $71.6
billion in 2005 to $79.9 billion in 2006, or about 11.5 percent.

Of course, the market continues to have high entry barriers, and processors involved in medical
manufacturing said cost pressures from the health-care industry continue.

But industry officials said opportunities for plastics processing continue to grow, along with
outsourcing. One of the larger contract medical manufacturers, Accellent in Newton, Mass., said
studies show that outsourcing will grow 14 percent a year through 2009, faster than the overall
medical-device market.

Currently, about 30 percent of U.S.-based manufacturing in cardiology, endoscopy and orthopedic

devices - Accellent's main markets - is outsourced, said marketing director Greg Audu.

"We're seeing steady, consistent growth,'' said Jay Policastro, president of Classic Industries Inc.
in Latrobe, Pa. "We continue to see the big companies outsource subassemblies and components.
There is still quite a bit of pressure on costs.''

Classic, which focuses almost entirely on medical molding, is seeing annual growth of 10-12
percent, Policastro said. The firm, with $50 million in sales, has been beefing up engineering and
design for manufacturing services, he said.

"I see more outsourcing in general, because the small to midsize [medical-device] companies
don't have the ability to hire more full-time staff, so they hire manufacturers,'' said Len Czuba,
president of product development firm Czuba Enterprises Inc. in Lombard, Ill. Czuba, whose firm
specializes in the medical industry, was twice chairman of the Society of Plastics Engineers'
medical division and is currently SPE president.

Those smaller medical-device makers are often more creative in product development than larger
firms, creating opportunities for smaller plastics processors to partner, Czuba said.

"There is still a lot of business being done by the small to midsize molders,'' he said.

The picture can be contrary. Medical is also a market where big firms are getting bigger: Some of
the larger medical plastics processors, including Tech Group Inc. and Precise Technology Inc.,
were acquired in 2005, and analysts expect more of that as medical-device makers trim their
supply bases.

Nypro Inc.'s medical-related business has grown more than 30 percent in its fiscal year that began
July 1, though that is a spike, said Bill Partridge, health-care business unit manager. Nypro's long-
term sustainable medical growth is closer to 15 percent a year, he said.

"It's the fastest-growing market segment for Nypro,'' Partridge said. "Everybody is going global,
and I'm also seeing [medical-device makers] refocusing on their core competencies. Everybody is
rationalizing what they are manufacturing, and the result is more outsourcing.''

COPYRIGHT 2006 Crain Communications, Inc

US demand for disposable medical supplies to grow.(Markets)

Medical Textiles

Medical Textiles; 11/1/2005

US demand for disposable medical supplies will increase by 5.6% a year to US$71. 1 billion in
2009, according to a study from The Freedonia Group. Demand for nonwoven medical
disposables is forecast to rise by 3. 7% annually to US$7. 0 billion, from US$4. 7 billion in 1999.

The growth in the US market will result from a number of trends, including an expanding number
of treated patients, heightened concerns about nosocomial [originating in hospitals] and related
infections, and the upgrading of infection prevention safeguards in hospitals and other healthcare
facilities.

The company of Cleveland, Ohio, USA, says home healthcare will be the fastest growing market
for disposable medical supplies as consumers broaden self-treatment and preventive medicine
activities, while medical providers increase the range of services available to home patients.
However, hospitals will remain the largest and most diverse market based on the complexity and
product-intensive nature of inpatient procedures and strong need for infection prevention
safeguards.

Based on performance and infection prevention benefits, the fastest growing disposable wound
management supplies will include:

* prefilled staplers;

* bioengineered tissue adhesives and sealants;

* collagen, foam and alginate dressings;

* growth factor healing agents.

Freedonia adds that Class IV surgical drapes and gowns will generate the best sales gains among
nonwoven medical disposables as surgical infection prevention safeguards are upgraded by
hospitals and ambulatory surgery centres.

Disposable Medical Supplies (published August 2005, 414 pages) is priced at US$4, 300.
Market for Surgical and Trauma Wound Care to Surpass $6 Billion by 2009.

M2 Presswire; 9/12/2005

M2 PRESSWIRE-12 September 2005-MarketResearch.com: Market for Surgical and Trauma

Wound Care to Surpass $6 Billion by 2009(C)1994-2005 M2 COMMUNICATIONS LTD

RDATE:12092005

New York - The worldwide market for products to treat surgical and trauma wounds will surpass
the $6 billion mark by 2009, according to a study released today from Kalorama Information.
Wound closure products, such as sutures and staples, dominate the sector which is currently
displaying approximately 7% annual growth.

The new study, Wound Care Markets, Volume III: Surgical and Trauma Wounds, predicts that
despite a general slowdown in growth in the next few years, several segments will outperform the
sector as a whole. Biological dressings will continue to display double-digit annual growth
despite limited use in these types of wounds. Meanwhile, sealants, adhesives, and glues have
been catapulting forward at over 30% annually.

The introduction of scores of these new, innovative products has put pressure on marketers and
clinicians to standardize product categorizations and indications, adding a new level of
complexity to the successful commercialization of wound products.

"There is a decided shift in clinical decision making about dressings, moving toward the drug
model-the specific interactions, indications, side effects, etc.-rather than categorizing products by
components," notes Mary Anne Crandall, RN, the author of the final report. "This new way of
thinking about and labeling products is something marketers need to begin positioning
themselves for sooner rather than later."

The study examines 6 broad categories of products and more than 15 subcategories, detailing
market size and growth through 2009, presenting competitive market share, and providing a
thorough understanding of the environment in which these wound care manufacturers operate.

Wound Care Markets, Volume III: Surgical and Trauma Wounds, the third volume in a series that
includes skin ulcers and burns, can be purchased directly from Kalorama Information by clicking
http://www.kaloramainformation.com/pub/1099233.html. It is also available at
MarketResearch.com.

About Kalorama Information

Kalorama Information, a division of MarketResearch.com, supplies the latest in independent

market research for the life sciences. For more information, contact Steven Heffner at 212-807-
2634 or sheffner@kaloramainformation.com, or visit www.KaloramaInformation.com.

An interview with Ron Sparks, president and CEO, Accellent Inc.:

considered the world's largest medical device contract manufacturer,
Accellent offers design and engineering services, precision component
production, finished device assembly, and supply chain management.
This month's 'View From The Top' offers a look at the man in charge of
this one-of-a-kind organization.(View From The Top)(Interview)
Medical Design Technology

Medical Design Technology; 6/1/2005; Arrigo, Lisa

The combination of UTI Corp. and MedSource Technologies late last year created an
organization of unprecedented scale. The new company, Accellent Inc., announced it had become
the world's largest medical device contract manufacturing firm. In fact, the company can boast of
a double-digit market share in the $3.9 billion outsourced medical device market, making it about
three times the size of its nearest direct competitors. At the helm of this dynamic organization is
Ron Sparks, president and CEO.

Sparks, who became president and CEO of UTI Corp. in 2003, has spent almost a quarter century
working in the medical industry. Prior to joining UTI, he was with Smith & Nephew plc for 20
years, where he served as president of the endoscopy division from 1998 to 2003 and as president
of the wound management division from 1995 to 1998. In his position at Accellent, Sparks
oversees a company that serves all the top medical device companies and has a workforce of
more than 3,900 employees. The majority of the company's facilities are in the U.S., including a
headquarters in Newton, MA. It also has facilities in the UK, Germany, Ireland, and Mexico.

Medical Design Technology asked Sparks recently about the changes he has seen in the contract
design and manufacturing field. He shared his thoughts on this subject as well as on many topics
affecting medical device makers today. Here is what he had to say.

Q: How has the role of the contract design and manufacturing provider changed?

A: Five years ago, contract design and manufacturing providers were viewed more as a vendor or
supplier. Our customer relationships now are more like partnerships. We're part of their team
because we're generating such significant value for them. We improve products for our customers
by improving process.

Q: How have your customers changed?

A: What has changed over the last five years is that increasingly our customers need to provide
more innovation to their customers and patients quicker than ever before. They are involving us
early in the design process as strategic partners in order to shorten the overall cycle time from
concept to delivery to the patient. Our customers want to shift resources to areas such as clinical
selling, research and development, marketing, and clinical research. We can handle everything
else from start to finish.

Q: Hew has the formation of Accellent changed the contract design and manufacturing
marketplace?

A: The power of two industry leaders, MedSource and UTI, has been combined to leverage all the
strengths. The acquisition has positioned us as the clear leader in a highly fragmented,
competitive industry that has lacked one. We now command the largest market share. The
acquisition also provided us with core competencies that we didn't have before. We are focused
on three key areas to better align with our customers' needs: endoscopy, cardiology, and
orthopedics.

Q: What's the best way for an OEM in the medical device market to approach a contract services
company to ensure successful product development?

A: At the very early stages of the development process, when the idea is just a concept, if contract
services companies can be engaged at that point, it's much easier to take it to a design mode
before everything gets set in stone. The earlier we're involved in the concept, design, and
development stage, the greater chance we will have to add significant value to the process.

Q: Once an OEM in the medical device market has finalized a device concept, what's the most
efficient way to obtain reliable quotes for design, development, and manufacture from a potential
outsourcing partner?

A: OEMs should be sure to relay the design intent of their device and its function in the clinical
application in addition to the standard drawings, prints, etc. OEMs should also provide their
voice-of-customer data and critical-to-quality attributes. In addition, we tend to ask for our
customers' quantifiable acceptance criteria for the product or service to ensure that we have a
specific goal to work toward. This may include taking the prototype product into the lab for proof
of principle.

Q: How can the OEM go about monitoring the outsourced product development process to make
sure his budget and time restrictions are being met?

A: When we're working with our customers, we like active participation from them rather than
working in isolation. Whenever possible, we like a member of their staff to be a part of the
"team." We work very closely alongside a product/program champion from our customer, who is
accountable at the customer's location to be responsible for the outsourcing activity. We establish
agreed-upon project metrics with our project champions. We have weekly calls and
weekly/monthly reviews.

Q: What's the ideal structure of a product development team?

A: The ideal structure of a product development team varies by project complexity. Typically, our
team will include a program manager, a quality engineering resource, a design engineering
resource, materials experts or scientists as needed, and a manufacturing engineering resource. On
the customer side, ideally there is a product champion, quality or regulatory representative to
work with periodically, and if possible, access to their marketing resource. These teams are scaled
up or down as appropriate, based on needs.

Q: Typically how much money can an OEM save by working with a contract design and
manufacturing provider?

A: It varies, but we've been told by our customers that our involvement in their projects have
provided them with a savings of 20 to 40 percent, as compared to if they had done it themselves.
As an example, we completed a Design for Manufacturability & Assembly-DFMA-which led to a
total timeline from concept to production of 12 months. The project included three devices,
assembled from 50 different components, and included a 30 percent reduction in cost from
original expectations.
Q: What advice would you give an OEM design engineer of medical devices who is looking for a
contract manufacturer?

A: Look for a breadth of services, including design and development, which can be leveraged and
incorporated into the actual engineering and manufacturing of the product. Many of the products
we design for our customers are manufactured with us, which puts a whole different perspective
on developing the products. We have a high level of responsibility and ownership of the designs
we do because it often goes beyond design. Something we design will likely be manufactured in
one of our facilities, so it's important for us to design for innovation as well as manufacturability.

Q: What's one example of a success that changed how your company approaches the product
development process?

A: In a product start-up for a biopsy device we reduced manufacturing time from greater than 30
minutes per assembly to less than seven minutes, the number of components by 50 percent, and
the cost reduced by greater than 75 percent. The tools used to produce the successful biopsy
device were incorporated into the "Accellent Design and Development" offering as our standard
practice. We use very clear templates and tools for design inputs and outputs, design intent,
quality plans, validation plans, etc.

Q: What's one example of a mistake that changed how your company approaches the product
development process?

A: A customer brought us a product to manufacture, which had been designed by someone else
without any manufacturability input, which Accellent could have easily supplied had we been
brought in earlier. The cost-to-manufacture result was prohibitive, resulting in the product not
being marketed and sold. As a result of this lesson, we incorporated several project metrics,
which are monitored and reviewed with our engineering management hi-weekly and
communicated to our customers during team meetings. The project metrics we incorporated
include "budget vs. estimated budget," "timeline vs. estimated timeline," "COGS vs. target price,"
and "project risks." By monitoring and managing these metrics proactively throughout the entire
design cycle, we can make decisions that affect the progress of the program using all three key
customer deliverables: speed, device cost, and budget.

Lab supplies will lead the way in price hikes.(Price Forecast)

Hospital Materials Management

Hospital Materials Management; 2/1/2005

Cardiology supplies, including drug-eluting stents, will generally maintain their 2004 pricing
levels this year, except that catheter prices will jump 5%. But other medical-surgical products,
from gloves to bandages, will become much more costly, with 15% hikes not out of the question.

Computers, not surprisingly, will be cheaper than ever, but food will cost more, and prices of
laboratory supplies and equipment will soar uniformly.

These are among the findings of contract specialists at Consorta, Schaumburg, Ill., released in the
group purchasing organization's annual market survey of inflation indicators. Representative
products and estimated price changes are shown below with Consorta's permission.
These predictions are based on opinions of contracting staff, suppliers and published industry and
government projections, and apply to the U.S. health care market as a whole.

Consorta also released a separate set of projections for members, based on contract prices it has
negotiated.

Based on the national market survey, the average annual price change for operating room supplies
will be + 4%. For general medical-surgical supplies, the average price change will be +5%. The
average for laboratory supplies will be + 16%, thanks primarily to a potential increase of up to +
125% for blood bank reagents.

Product [Price] Change

Cardiology

Catheters 0%
Electrophysiology 0%
Grafts 3%
Guide Wires 0%
Intra-Aortic Balloons and Pumps 0%
Implantable Pacemakers 0-3%
Implantable Defibrillators 0-3%
Perfusion 0%
PTCA Balloons 0%
Thermodilution Catheters 0%
Drug Eluting Stents 0%

Diagnostic and Interventional Radiology

Catheters 5%
Guide wires 5%
PTA Balloons 5%

Diagnostic Imaging

Barium 2%
Brachytherapy Seeds 0%
Imaging Equipment (modality specific) 0-3%
Contrast Media
Ionics 5-7%
Non-Ionics 0%
Radiopharmaceuticals 27-44%
Injector Consumables 0%
X-Ray Film 0%
Analog Film 0%
Laser Film 0%

Medical & Non-Medical Equipment

Anesthesia Equipment 3%
Breast Pumps 2-3%
Copiers and Faxes 1-2%
Defibrillators 3-5%
Exam Room Furniture
Wood 3%
Steel 4-6%
Furniture (Steelcase, Kimball, KI) 5-7%
IV Pumps 2-4%
OR Lights and Tables 2-4%
Patient Beds 0%
Pulse Oximetry -3-0% [negative to zero; not good]
Sterilizers 2-3%
Stretchers 3-6%
Ventilators 0-5%
Computer Equipment -2-0%

Laboratory Products

Analyzers; Chemistry and Immunoassay, Reagents 5-10%

Analyzers; Coagulation Instruments, Reagents 3-10%
Analyzers; Hematology Instruments, Reagents 3-7%
Analyzers; Microbiology Systems (Automated) 5-10%
Blood Bank Reagents 30-125%
Blood Gas Equipment and Supplies 3-7%
Blood Glucose Monitoring 3-5%
Controls 0-3%
Diabetes Products 3-5%
Kits, Reagents, General 0-3%
Laboratory Supplies, General 1-4%
Microbiology Media 0-3%
Microscopes 0-4%
Rapid Diagnostic Tests:
Strep, Preg, HIV 0-5%
Reference Laboratory Services 3-7%
Specimen Collection 2-8%
Urinalysis 10-50%

General Medical Surgical

Adhesive Tapes and Closures 3-5% [US Surgical – Tyco owned - makes wound
closure supplies]
Anti-Embolism Hose 2-3%
Briefs and Underpads 5-7%
Casting Materials -2-0%
Chart Paper 5-6%
Durable Medical Equipment 0-5%
Electrodes 3-5%
Gloves, Exam, Latex 10-15%
Gloves, Exam Non-Latex 7%
Hyper and Hypothermic Products 0%
Electrosurgical Grounding Pads -2-0%
IV Catheters -2-0%
Safety Catheters 3-5%
IV Pumps 2-3%
IV Solutions and Sets 2-3%
Needles and Syringes 2-5%
Ostomy Products 2-4%
Patient Plastic Products 5-7%
Personal Protective Equipment 0-2%
Rehabilitation Equipment 2-3%
Respiratory Therapy Supplies 3-5%
Sharps Disposal 3-5%
Sterilization Wrap 2-3%
Suction Products 0-3%
Utensils, Disposable 10-15%
Urological Supplies 2-3%
Specialty Urological Supplies 2-3%
Vascular Compression 0-3%
Wound Care, Advanced 1-3%
Wound Care, General 8-15%

Operating Room

Accessories, OR 0%
Endo-Mechanical Products 4%
Gloves, Surgical 8%
Gloves, Surgical, Powder-Free 8%
Instrument Repair 2-3%
Kits, Sterile, clean 3%
Kits, non surgical 0%
Orthopedic Bone Cement 3-5%
Orthopedic Implants, Hips 9%
Orthopedic Implants, Knees 9%
Orthopedic Instruments 3%
Orthopedic Products for Spine 5-8%
Orthopedic Softgoods 3-5%
Prep Products 4-5%
Packs and Gowns 0-3%
Surgical Blades 2%
Surgical Masks 2%
Surgical Instruments 3%
Suture 4%
Trauma 3-5%
Global medical device and equipment market continues to be led by
USA.
M2 Presswire; 9/15/2004

M2 PRESSWIRE-15 September 2004-Research and Markets: Global medical device and

equipment market continues to be led by USA(C)1994-2004 M2 COMMUNICATIONS LTD

RDATE:09152004

Research and Markets announces the addition of The World Medical Market Report 2004 -
Current Trends & Future Prospects to their offering.

The global medical device and equipment market is expected to grow steadily by around 4.6%
over the next 5 years. The market continues to be led by the USA where demand will be strong.
However this will be tempered by poor economic performance and cost containment in Europe
and Latin America. Many Asian markets have fully recovered from the economic crisis and are
now performing strongly, as are leading central and east European countries as they enter the EU.

So what, practically, does that all mean? For planners, marketers, sales and general management,
being able to plan effectively requires a detailed knowledge of which markets and market sectors
are growing, and the national/regional context of that growth.

This report will be of interest to everyone operating or analysing international medical device and
equipment markets. It provides difficult-to-source data from hundreds of national and pan-
regional governments and organisations.

Easily answer questions such as: What is the estimated size of the global device industry in 2009?
Which Asian countries offer the best opportunities in terms of market growth and in what sectors?
What are the prospects for syringes, needles and catheters in India, China and Thailand? What
growth can be expected in the central European economies? How did the Mexican orthopaedic
market perform in 2001, and what is its estimated value in 2006 & 2009?

The report provides: - Market size and growth for the whole medical device and equipment
market as well as detailed figures for 16 product sectors, 2004-2009: - Medical supplies - Medical
X-ray film - Surgical gloves - Medical & surgical sterilisers - Wheelchairs - Contact lenses -
Medical equipment ---Electromedical ---Syringes, needles & catheters ---Dental instruments &
appliances ---Ophthalmic instruments and appliances ---Other instruments and appliances -
Therapy apparatus - Orthopaedic/prosthetic goods - X-ray apparatus - Medical furniture

Plus: - Global & regional overviews of the market - Analysis of the performance of 100 leading
medical device companies - Key demographic data

For a complete index of this report click on http://www.researchandmarkets.com/reports/224765

About Research and Markets Ltd.

And then there were three; With consolidation leaving three major
players in each sector of the medical device industry, what happens to
competition?
Modern Healthcare

Modern Healthcare; 5/16/2005; Becker, Cinda

Byline: Cinda Becker

The medical device industry is engaged in a feeding frenzy, gobbling up competitors in an effort
to shore up market share, reinvigorate sales forces and resupply product pipelines.

Though it's likely a cyclical, evolutionary moment, similar to what happened in the
pharmaceutical industry several years ago, consolidation creates an opportunity for large,
diversified healthcare companies to offer hospitals a Chinese-menu style of choices in supplies-all
bundled into one supposedly discounted price.

But will they be such great deals? Mergers and acquisitions in the medical device industry may
not be bad for hospitals, some industry insiders say, but that doesn't mean they will be good
either.

Among high-profile public companies such as Johnson & Johnson and Guidant Corp.,
consolidation predictably sparks fevered speculation on Wall Street and scrutiny from federal
regulators. When successful, such deals also frequently beget more deals among rivals. Yet while
mergers and acquisitions in the healthcare industry are often seen as an opportunity for
shareholders, it can be unsettling for hospital customers, who are suddenly negotiating with a
bulked-up sales force and product line.

Newly consolidated companies offer a wider range of products and greater opportunities for
vendors to market their disparate lines in one big package. The practice, known as bundling, has a
spotty reputation. Big vendors love to bundle because it gives them one convenient platform on
which to market their varied product lines. Small vendors loathe it for shutting their products out
of the marketplace. Providers frequently sign on to it without really understanding all the
consequences.

"Bundling is a strategy that multidivisional suppliers (use to) entice hospitals. But when you
examine it closely, it actually results in hospitals paying much higher costs, although it leads the
unsophisticated buyer to think they have a good deal,'' said David Ricker, chief operating officer
of Broadlane, a group purchasing organization. "Suppliers do not employ programs that result in
margin erosion; they only employ programs that result in more sales and higher margins. That's
what they are directed to do.''

By far the most prominent deal unveiled in recent months was J&J's $25.4 billion proposal late
last year to acquire Guidant Corp., a marriage that will bring Guidant's highly lucrative and fast-
growing electrophysiology business under J&J's massive umbrella. Guidant shareholders
approved the proposal on April 27. Regardless of the Federal Trade Commission antitrust
investigation it spurred in February, and the decision by the European Commission last month to
open a second phase review, officials at both companies said they are confident the deal will close
as expected in the third quarter. Guidant and J&J officials declined to comment for this story.
J&J's buying spree

Still, that huge deal did not seem to diminish J&J's usual appetite for acquiring smaller
companies. Last month, the healthcare conglomerate acquired TransForm Pharmaceuticals,
Lexington, Mass., a privately held drug discovery and development company, for approximately
$230 million. J&J first announced plans to buy it in March, just one week after announcing a deal
to acquire Closure Medical Corp., Raleigh, N.C., for about $370 million. Closure Medical, which
makes biomaterial-based adhesives, has worked closely with J&J's Ethicon unit since 1996 on the
development of topical adhesives. Closure Medical's board approved the sale on April 25, and the
FTC terminated its review earlier this month. The deal is expected to be completed soon after
Closure Medical's stockholders meet on June 2.

Also in April, J&J announced an agreement to acquire Peninsula Pharmaceuticals, Alameda,

Calif., a privately held biopharmaceutical company focused on developing antibiotics to treat
infections, including hospital-acquired infections, for approximately $245 million. The deal is
expected to close this quarter.

More recently, German conglomerate Siemens purchased CTI Molecular Imaging, Knoxville,
Tenn., in a deal valued at approximately $1 billion. Siemens officials said the acquisition was the
natural progression in the companies' long association, which in 1987 spawned CTI PET
Systems-a joint venture combining CTI's expertise in PET with Siemens' global distribution
network. Siemens' May 5 acquisition of CTI's portion of the joint venture as well as all of its
other businesses will accelerate and strengthen its position in the fast-growing area of molecular
imaging, said Michael Reitermann, president of the nuclear medicine group at Siemens Medical
Solutions.

The rash of activity in the medical device industry is not really "any more rampant now than at
other times in the recent past,'' said Kem Hawkins, president of Cook Group, the world's largest
privately held medical device manufacturer, in an e-mailed response to questions. "Most of it
seems to follow the pattern of small, emerging technology companies being acquired by bigger
public corporations that need fresh technology to fill their product pipelines and have the capital
and equities to pay for it and the marketing or sales power to drive those technologies to the
marketplace.''

Meanwhile, GPOs, many of which are transforming their business practices under pressure from
the Senate Judiciary Committee's antitrust subcommittee, are watching the activity with caution.

Concerns about bundling

"I think the latest spate of merger activity is certainly an opportunity for great bundling, but it's
too early to tell what the impact will be,'' said John Strong, president and CEO of Consorta, a
GPO that primarily services Roman Catholic hospitals. "I know that providers are concerned
about the ability of manufacturers to bundle bigger and bigger product'' categories.

Large deals like the J&J and Guidant proposal, frequently unleash speculation that similar deals
will follow, said Jason Wittes, senior medical device analyst for Leerink Swann & Co., a
healthcare equity research and investment banking firm. Wall Street is now rife with predictions
that Boston Scientific Corp., J&J's only competitor in the surging drug-eluting stent market, will
now have to make a move. One candidate for acquisition by Boston Scientific or another
company would be St. Jude Medical in St. Paul, Minn., a prominent player in the
electrophysiology space, Wittes said.

In reality, the medical device industry has been on a consolidation roll for at least the past five
years, part of the natural cycle of smaller fish getting swallowed by larger competitors.

"Any small company, when it reaches a certain level of sales, usually gets acquired,'' he said. "I
would say it is just a constant drumbeat.''

The J&J agreement with Guidant stands out among the normal ebb and flow of deals in that
Guidant already commands considerable size and market share in its own right. But with its
single-minded focus on cardiology, Guidant's business has matured after 10 years of "tremendous
growth,'' Wittes said. "Once a market reaches maturity, management has to figure out a way to
reinvent themselves or sell themselves.''

That's good for shareholders but not necessarily for hospitals, Wittes said. Consolidation "means
more power to suppliers, and they try to leverage their strength,'' Wittes said. "At the same time
this does open the door to more bundling. So J&J can now bundle stents with orthopedics and
everything else. ... I think bundling is a fact of life. It's not always effective, but it's always
attempted.''

Three seems to be the magic number for consolidating healthcare sectors, said Mike Hildebrandt,
director of materials management for 338-bed High Point (N.C.) Regional Health System.
Several years ago, Hildebrandt said he had as many as nine different players to choose from when
buying orthopedic implants for the hospital. That has been whittled down to three. If J&J acquires
Guidant, he will be left with only three major players in the cardiovascular arena, including
Boston Scientific and Medtronic, he said. Even medical device distribution has consolidated to
just three: McKesson Corp., Cardinal Health, and Owens & Minor, he said. Likewise, GE
Healthcare, Philips Medical Systems and Siemens dominate diagnostic imaging.

"It certainly has limited the choices we have in purchasing,'' Hildebrandt said. "But as long as
there are three out there, I don't think it is going to be a particularly bad thing or punitive thing.
We're not seeing a huge effect on pricing as long as there are three.''

Searching for the sunny side

James Thrall, chairman of the radiology department at Massachusetts General Hospital, Boston,
sees a sunny side to consolidation in the big-ticket diagnostic imaging sector of the healthcare
supply industry. All three of the major imaging companies have jump-started many product lines
through acquisition, Thrall said.

The Siemens acquisition of CTI fills in "an important component of its product line,'' he said.
"Frankly, it's always been somewhat confusing to have two organizations bidding against each
other who are selling the same devices, so I particularly welcome this consolidation and think it is
a very wise move on the part of Siemens because of the growing importance of the PET scan.''
With at least two other strong competitors in the marketplace, "that will keep pricing honest,''
Thrall said.

Consolidation in the industry is "a natural phenomenon and in the long run, healthy for us as long
as there are three or four major global competitors,'' he said. Without the consolidated global
players, companies with interesting technologies but no capital would "languish in a sort of
perpetual undercapitalized state,'' Thrall said. "So there's a natural phenomenon of a new
company getting started, demonstrating it has a viable and novel technology and growing to a
certain point and then getting purchased by a larger company that's in a position to leverage
global marketing and economies of scale.''

Bundling does not pose a problem for large academic medical centers such as Massachusetts
General because no one vendor offers the best product in every product line, he said.

Like Hildebrandt, Thrall noted that various sectors of the diagnostic imaging business have
consolidated in recent years: film companies, equipment manufacturers and pharmaceuticals. But
one category is still ripe for consolidation, he said-information technology.

"That's the newest category, and interestingly, it's the one with the most companies active and
successful right now, so it speaks to the concept of a natural process of consolidation,'' Thrall
said. "I think it's quite possible that all the major imaging companies will try to have enterprise
information solutions.''

Erich Reinhardt, president and chief executive officer of Siemens Medical Solutions, said
Siemens was the first of its competitors to move into IT with its acquisition of Shared Medical
Systems. "We assume we will see more global players in IT,'' he said. Siemens' overall strategy is
to integrate its vast array of services and equipment "to improve the efficiency of healthcare in a
patient-centered system'' that will ultimately improve quality and reduce costs, he said.

As a global company, Siemens is able to summon the resources needed for research and
development. The large conglomerate can take bundling even beyond the reaches of its medical
company, offering hospitals other Siemens products such as telephones, electrical power and
security, he said. "One of the advantages of a large company is there are more company solutions
that you can offer to a customer,'' Reinhardt said.

But J&J's acquisition of Guidant poses a more troubling scenario for hospitals. FTC investigators
have solicited comment from Consorta, said Nancy Walsh, the GPO's senior director of medical
supplies. "Irrespective of who the players are, our concerns come into play when there are fewer
players in the market,'' Walsh said. "We think the most competitive opportunities exist when you
can go to multiple sources for products and negotiate. When you eliminate a player from the
market, you are obviously removing competition.''

Walsh said she doesn't believe there is ever a situation in which there are too many companies in
a marketplace. The more competitors there are, the more prices are driven down, she said. But
"anytime you have these monopolies continuing to grow, it becomes more difficult for smaller
manufacturers to do business with GPOs or hospitals because of all the bundling that occurs.''

The Senate Judiciary Committee's antitrust subcommittee, which has been scrutinizing GPOs for
three years, has been sharply critical of bundling, and nearly every GPO has forsaken the practice
in individual codes of conduct. But manufacturers still bundle, going around the GPOs to
negotiate directly with hospitals, she said. "That's the only way you can get more aggressive
pricing. If you want a price concession, you really have to commit much more to the
manufacturer than a single product category,'' Walsh said. Since Consorta doesn't bundle, "that
eliminates our ability to negotiate,'' she said, leaving hospitals on their own to haggle with
vendors. Making it worse, some companies will bundle completely disparate products, cutting
across physician practices, she said.
Bundling possibilities

As a result of the Guidant acquisition, J&J potentially could begin bundling drug-eluting stents
and implantable cardioverter defibrillators-products that cut across different physician practices,
making hospital purchasing decisions even more complex. "I don't see why they wouldn't'' bundle
the two vastly different product lines, Broadlane's Ricker said. "I would expect them to. Both
Cordis (the J&J company that makes drug-eluting stents) and Guidant do so. It's a course of
practice that has served J&J very well.''

Since most GPOs no longer engage in the practice, vendors are offering bundled discount
packages to hospitals individually. Though the bundled price tag might seem attractive to an
unsuspecting hospital, it can be deceiving, Ricker said. For example, it might seem like a sizable
discount if hospitals used to paying $2,500 for drug-eluting stents and $5,000 for pacemakers are
offered $250 discounts on the stents in a bundled deal. But hospitals would be locked into both
prices, and thus lose the discount if pacemaker prices were to sharply decline, which is very
possible in today's market, he said. Bundling "locks (hospitals) up on so many product categories,
it keeps (hospitals from benefiting) from normal price degradation,'' Ricker said.

Jeff Rooney, vice president and chief financial officer at 177-bed Rush North Shore Medical
Center in Skokie, Ill., said consolidations always raise concerns about cost, but the situation in the
device industry does not seem to have gotten "to the point where we feel vendors have
extraordinary pricing power. I still think there is sufficient competition that prices are remaining
reasonable.'' The hospital's supply costs of approximately $28 million increased about 8% from
2003 to 2004 and went up about 7% this past year, but that was driven by increases in certain
drugs, which vary by patient mix, he said. "Consolidation seems to be much more about
companies' internal needs than about any way it affects their customers,'' Rooney said.

On the positive side for hospitals, vendors bulked up by acquisitions are able to bring new
technologies to the market more quickly, said Hawkins of the Cook Group. "Dealing with larger
companies also usually offers providers better access to product information and training, and
one-stop shopping across product lines, which can help contain costs.''

But Patrick Flaherty, service line coordinator in corporate purchasing for the University of
Pittsburgh Medical Center, said he has concerns with any consolidation that removes a competitor
from the field, even Siemens' seemingly logical acquisition of CTI. "It is disproportionately
stratifying for people like me to successfully negotiate on PET/CT when I only have four
(vendors) to begin with and then it is diminishing to three,'' Flaherty said. J&J's acquisition of
Guidant is of even more concern as J&J's "business model and approach tend to be that of a drug
company, and drug companies are notorious for having high margins,'' he said.

"It's a bellwether change for us. We do a lot of business with Guidant,'' Flaherty said. "J&J is
saying it is a great opportunity for taking the best and moving forward to a more beneficial future.
I sincerely hope that's true. I'll reserve judgment on that. I have no reason to doubt their sincerity,
but I work on one side of the equation.''

What do you think?

Write us with your comments. Via e-mail, it's mhletters@crain.com; by fax, 312-280-3183.

CAPTION(S):
Thrall sees industry consolidation as "a natural phenomenon." * A Siemens' scan, above, shows
an unknown patient's PET scan. Siemens officials think their recent acquisition will make them
stronger in the area of molecular imaging. * Reitermann: CTI buy will strengthen Siemens'
position. * Ricker: J&J and Guidant probably will bundle product lines. * Walsh: Fewer market
players is cause for concern.

The Home-Healthcare Marketplace

The rapidly growing home-healthcare segment represents win-win potential
for both consumers and manufacturers.
Originally Published MX January/February 2005

Alpesh Gandhi

One of the fastest growing—and most opportunity filled—sectors of the

healthcare marketplace is that devoted to home healthcare.
As a product-generating sector of the medical device
Sidebar:
industry, the key segments of the home-healthcare market Major Players
are those for respiratory devices, infusion-therapy devices, in the
Respiratory
and durable medical equipment (DME). But the range of Segment
devices now being developed for home use is extremely
diverse, including such varied products as infusion pumps and
syringes, rehabilitation equipment and bedside monitors, beds and
wheelchairs.

In 2003, the U.S. home-care medical devices market generated

revenues of approximately $53.1 billion (see Figure 1). Growth of this
market has slowed somewhat over the past few
years as a result of requirements in the Balanced
Budget Act of 1997, which directed the Centers for Figure 1. Revenue
Medicare and Medicaid Services (CMS, when it was forecast for the home-
healthcare segment of
still the Health Care Financing Administration) to test the U.S. medical device
competitive bidding for some types of durable market, 2002–2008.
Source: Frost & Sullivan.
medical equipment. Nevertheless, the market for
1
(click to enlarge)
home-use medical devices is forecast to increase at
a compound annual growth rate (CAGR) of approximately 9.1% through
2008. And shortly thereafter, it is expected to take off at a steady rate
and reach double-digit growth rates. It is projected that this market will
double in size by 2011.

This article looks at some of the key trends that are influencing the
direction of this growing sector, as well as the challenges and
opportunities the sector presents to medical device manufacturers.

The Aging Trend

The aging of the U.S. population has had a greater impact on the
development of the home-care market than on any other sector in the
healthcare marketplace. By 2011, approximately 78 million Americans
(one-third of the U.S. population), will have reached age 65. This rising
tide of retirees belonging to the baby boom generation is a trend of
increasing importance for the home-care market.

The baby boom generation is unlike any other that this market has
experienced. Baby boomers are much more health-conscious and
better informed than previous generations, highly aware of the
products and services available to them, and willing to take an active
role with their healthcare providers. Their desire for technologically
advanced medical products—along with the growing availability of
such devices to meet their demand—is one factor that has led to the
emergence of a viable and thriving home-healthcare market.

Coping through Technology

In many respects, the U.S. healthcare system is highly fragmented and
inefficient. Helping patients deal with such inefficiencies is a great
business opportunity for home-care providers, and represents one of
the strongest drivers for the market.

Home-care providers customize their services to the needs of each

individual, enabling the prescribing provider to remain in control of a
patient's care while eliminating the waste of extra services not needed
by a particular individual. This practice increases the number of
patients who can benefit from home-care services and drives market
growth.

The technological advances of the past two decades represent another

strong driver for the home-care market. Not so long ago, home care
was pretty much limited to daily feeding and bathing. Today, a wide
variety of services are available at extremely professional levels to
patients wishing to be treated in the home.

Although many services provided by home-care providers are not

dependent on technology, new technologies that can be used to
monitor and treat patients in the home environment represent a major
area of potential market growth. For instance, a number of
manufacturers are developing home-use technologies such as
software-driven infusion pumps that can minimize medication errors.
These automated medication safety pumps incorporate drug-
administration protocols that reduce the possibility of human error—
the cause of 66% of medication errors. And because they are more
expensive than earlier models, their adoption will gradually increase
revenues in the home-care market.

Restrained Adoption
Although the adoption of new home-use technologies has distinct
advantages for both providers and their patients, many home-care
providers are small entities that cannot afford the costs required to
implement high-tech solutions in the home-care environment. This
limitation is hampering efforts to expand the services available to
patients in the home, and has also retarded the growth of the market.

The most effective home care involves seamless coordination among

the physician who prescribes a plan of treatment, the home-care
provider who executes the plan, and the patient. In the current market,
however, communication breakdowns frequently lead to coordination
problems, causing physician dissatisfaction with home-care services
and patient frustration with inadequate care.

The key to the seamless coordination of care is greater application of

information technologies. Because the implementation of such
technologies is costly, however, their penetration into the home-care
market has been slow. The absence of mechanisms for coordinating
care limits the number of patients using home-care services, and
continues to be a restraint on market growth.

Challenges for Manufacturers

Because the home-care market is highly fragmented, penetrating the

market can be fairly costly and requires considerable market
knowledge. In most cases, lack of resources prevents manufacturers
from entering this market directly. Except for companies that occupy a
specialized niche in the home-care market, most small manufacturers
shy away from direct-to-consumer marketing.

The home-care market is very volatile with respect to reimbursement

issues. A single change in reimbursement policy can cause a company
to lose market share in the blink of an eye. Although reimbursement
trends are therefore very important to the viability of products in the
home-care market, most manufacturers do not follow such trends very
well. Companies that intend to do business in the home-care market
should identify resources that will enable them to track such pertinent
trends.

One example of such reimbursement-related volatility is the market for

power wheelchairs and scooters. In 2003, Medicare payments for
power wheelchairs and scooters totaled $1.2 billion. But at the
beginning of 2004, after an investigation revealed that two counties in
Texas had filed fraudulent claims, CMS halted all reimbursement
payments for power chairs and scooters. Billing scrutiny faced by
dealers has forced suppliers into bankruptcy. In spite of this collapse,
however, significant growth in the market for power wheelchairs is still
expected in the future.
By far the fastest-growing area in home-care—and
the one that offers the greatest opportunities for Figure 2. The market for
device manufacturers—is the respiratory-care respiratory products is
the fastest-growing
segment, which includes oxygen-therapy products subsegment in home
healthcare. The market
(oxygen concentrators, liquid oxygen, and for such respiratory
compressors), nebulizers, continuous positive airway devices currently totals
approximately $822
pressure (CPAP) equipment, ventilators, and sleep million. Source: Frost &
apnea therapy products (see Figure 2). Although Sullivan.
(click to enlarge)
CPAP products represent the third-largest group,
they are also the fastest- growing area, experiencing
growth rates of 15–18%.

Medicare Modernization Act

The Medicare Prescription Drug, Improvement, and Modernization Act

of 2003 (MMA) will have major short- and long-term effects on the
home-healthcare market.2 Major changes initiated by the act include a
five-year CPI freeze on several DME products, which took effect at the
beginning of 2004, and a round of competitive bidding in the nation's
top-10 metropolitan areas beginning in 2007.

Near-Term Impact. Home-care providers are expecting a revenue

decrease of as much as 20% as a result of MMA. To make up for such
losses, providers are planning to reduce acquisition costs and
operating expenses, and they may also reduce the level of services
they provide. Providers will also be asking the manufacturing
community to share the burden of the cuts.

Between 2004 and 2007, MMA cuts will lead to a much more
consolidated DME market than the one that is currently in place. Many
small local and regional providers will be looking to exit the market
because they will not be able to survive.

Long-Term Impact. MMA will take a toll on manufacturers by way of

increased pressure to reduce pricing and slower acquisitions from
providers. In turn, manufacturers may offset such losses by reducing
their investment in R&D. The end result may be to further slow the
introduction of innovations for the home-use market—such as those in
information technologies—while manufacturers attempt to hold down
expenses.

Conclusion

The medical device industry is one of the largest and most stable in
healthcare, but it is undergoing important changes that providers and
manufacturers will need to understand in order to succeed.
In the home-healthcare market, manufacturers will do best by building
strong relationships with providers that emerge as market leaders.
They may also seek to take advantage of the shakeout caused by MMA
by acquiring ownership of distribution channels.

To capture the double-digit growth that is expected in the future,

manufacturers should invest in technologies such as CPAP, which
present high-growth and high profit margin opportunities.

Finally, manufacturers will need to find ways to address the

marketplace directly. Building brand and product awareness among
patient populations that are likely customers—such as those suffering
from obstructive sleep apnea or chronic obstructive pulmonary disease
—will pay dividends when the home-healthcare market begins its rise
to prominence.

The Future of Wound Care

Active products represent an area of huge potential growth for medical
device manufacturers.
Stuart Jackson and Jeffrey Stevens

Originally Published MX January/February 2006

Wound care costs the U.S. healthcare system more than $20 billion
each year, including more than $4 billion spent on wound
management products. Chronic and severe wounds, the most Thoughts
Sidebar:
for
difficult wounds to heal, have been the focus of significant Smaller
Companies
product innovation in recent years. Yet despite this
innovation, unmet clinical and commercial needs persist.

Physicians and patients are looking for improved

treatment options that heal wounds effectively,
Figure 1. The potential
minimize complications, and shorten hospital stays. for advanced and active
The potential to reduce overall costs to the wound care therapies in
the U.S. wound care
healthcare system is a further motivating factor. market. Percentages
Now, a new class of products is emerging to better indicate the implied
penetration rate of the
address these unmet needs. Active wound care therapies.
products, many of which combine the advantages of (click to enlarge)

medical devices with those of pharmaceuticals,

promise to redefine "best medicine" for treating chronic and severe
wounds.

Active wound care products are used to treat approximately 2 million

wounds in the United States annually (see Figure 1). This is less than
20% of the wounds that they could treat. New product introductions,
greater physician awareness, expanded third-party reimbursement,
greater regulatory clarity, and continued proof of safety and efficacy
will drive growth of 23% for the active wound care segment through
2009 (see Figure 2). The increasing popularity of active wound care
products will have many winners: the medtech industry will benefit
from market expansion, doctors will have enhanced treatment options,
patients will gain better outcomes, and payers will see lower overall
costs due to reductions in hospital stays.

But although the rewards in this market could be

substantial, there are also strategic challenges.
Given the nature of active products, medical device Figure 2. Projected sales
of traditional, advanced,
companies will likely need to share the spotlight with and active wound
management products in
pharmaceutical and biotechnology firms. This may the United States, 2004-
require creative partnerships in research and 2009. Percentages
indicate the compound
development, manufacturing, and sales and annual growth rate of
marketing, as well as new, coordinated approaches each sector.
(click to enlarge)
to regulatory affairs, reimbursement, and intellectual
property. In the end, if the pace of innovation
continues and strategic challenges can be addressed, active wound
care will be the next big growth area in medical devices.

An Evolving Market

The market for wound care products has evolved in three overlapping
phases (see Figure 3), with caregiver techniques generally keeping
pace. Today, treatment options include traditional, advanced, and
active products.

Traditional Products. Traditional products—those

that treat wounds with dry bandages and dressings Figure 3. The evolution
of the wound care
—account for more than 50% of the chronic and product market from
severe wound care market today. Since many traditional dry dressings
to active products that
wounds can be healed with products that do nothing treat wounds and
more than cover and protect the wound from promote healing.
(click to enlarge)
infection, traditional products will remain an
important alternative in the physician's arsenal.

On the whole, the traditional wound care segment is mature, and total
sales are expected to decline by 2% per year through 2009. Part of this
decline will be attributable to a lack of new product innovation. The
features and benefits of tomorrow's sponges, nonadherent and
conforming bandages, abdominal pads, and other traditional products
will be virtually indistinguishable from today's dressings.
From a competitive standpoint, large suppliers such as Johnson &
Johnson's Ethicon Inc. (Somerville, NJ), Bristol-Myers Squibb's ConvaTec
(Skillman, NJ), Smith & Nephew (London), Tyco International's Kendall
Co. (Mansfield, MA), 3M (St. Paul, MN), and others are largely focused
on improving product quality and increasing product line breadth. In
addition, products are becoming increasingly commoditized and price
points are generally expected to fall. For medium and smaller
suppliers, these dynamics suggest a bumpy road ahead (see sidebar).
While consolidation is likely, there is little fear of a dramatic market
shakeout. Most competitors can survive, but margins will be under
pressure and excess profits will be difficult to achieve. While traditional
products will remain important, evolving medical practice is shifting
the market toward newer alternatives.

Advanced Products. Advanced products promote a moist

environment, thereby accelerating healing of many difficult-to-treat or
chronic wounds. Substances that help provide ideal moisture
conditions include hydrogels, hydrocolloids, foams, and alginates.
Unlike the traditional segment, the advanced segment is far from
mature. Total sales in the advanced wound care segment are expected
to grow more than 10% annually through 2009.

Many of the large players in traditional wound care are also active in
the advanced segment. Alongside them are more than 200 smaller
companies, approximately 40% of which have annual revenues of less
than $15 million. Large and small competitors alike stand to reap
substantial benefit from double-digit market growth over the next
several years. Some of this growth will come from market expansion,
which will be driven by the treatment of patients who historically could
not be treated with traditional products.

Beyond this, growth will come at the expense of traditional products,

as advanced products are increasingly used as first-line therapy. In the
past, physicians might only have turned to advanced products after
traditional products failed. Now, advanced products are being used
earlier and more often. Understanding how such clinical pathways will
evolve and predicting the impact on specific products and suppliers
should be a focus of all companies in this market.

Underlying patient demographics will accelerate the trend toward

advanced products. The rising incidence of diabetes, for example, will
translate into more diabetic ulcers and amputations, the wound types
for which advanced products have seen greatest market penetration to
date. Similarly, the aging U.S. population will yield more cases of
venous ulcers, which tend to occur in older people with poor lower-
extremity circulation, and pressure ulcers, which are most common in
the bedridden elderly. With age, decreased cellular function lessens the
body's natural ability to close and heal wounds, so wounds in the
elderly are often better candidates for advanced products. As patient
demographics change, suppliers may need to shift their sales and
marketing efforts to better target clinical decision makers and decision
influencers, both by practitioner type and by site of care.

Why won't advanced product segment growth be even greater? One

medical challenge with advanced products is that a precise level of
moisture must be maintained to prevent the problem of excess
exudate interfering with the healing process. This requires a lot more
work to treat the wound, hence increased immediate cost of patient
care.

Another factor limiting growth for advanced products is that traditional

products are adequate for many wounds. If a simple dry bandage or
dressing can heal a wound, practitioners may prefer that less labor-
intensive and cheaper option. In these cases, payers find it difficult to
justify the higher prices of advanced products. For other wounds,
suppliers need to educate the healthcare community on advanced
products' long-term value proposition, including significant savings
from reduced hospital visits. Especially useful would be compelling
data on cost per quality-adjusted life year.1

Finally, growth in the advanced segment is expected to be constrained

by the next and newest phase of wound care evolution: active products
have emerged onto the scene.

Active Products. The active wound care segment is anticipated to

grow 23% per year through 2009. Active products administer
substances to the wound that contribute to repair either by delivering
bioactive compounds or by utilizing materials that facilitate the body's
own ability to heal. This is a step beyond providing a moist healing
environment. The substances used range from relatively low-tech
collagen to high-tech artificial growth factors that catalyze the wound
healing process, and biosynthetic materials that act as scaffolds for
delivery.

One of the most advanced active wound care techniques is tissue

engineering, the ultimate goal of which is the replacement of tissue,
whole or cellular. Other technologies, such as "living" stem cell
bandages, are in development. Today, companies such as LifeCell Corp.
(Branchburg, NJ) are leading the pack with active tissue-regeneration
products, including a deconstructed version of human skin that can be
transplanted without fear of rejection. LifeCell has established sales
and marketing partnerships with Boston Scientific (Natick, MA), Stryker
Corp. (Kalamazoo, MI), Wright Medical Group (Arlington, TN), and
BioHorizons (Birmingham, AL).
Not all active wound care products involve cell
engineering or biotechnology agents. Therapies such
as Kinetic Concepts' (San Antonio, TX) vacuum-
assisted closure technology, a noninvasive wound The VAC Instill system by
Kinetic Concepts Inc.
closure system that uses controlled, localized (San Antonio, TX)
promotes healing
negative pressure to promote healing, are also through vacuum-assisted
helping to transform wound care. Advances in
2
closure technology, an
example of active wound
related fields such as nanotechnology are further care.
accelerating innovation. Nanocrystalline silver-based (click to enlarge)
wound care products, one of the world's first medical
applications of nanotechnology, broaden and extend the decades-old
use of silver to include antiinflammatory activity.

The overall drivers of growth in active products are similar to those in

advanced products. By taking wound care to a new level of efficacy
and treating wounds that could not be treated before, these products
will grow the overall market. Further market expansion will come as
physicians employ active products in treatment regimens that include
traditional products, advanced products, or other active products,
thereby increasing the total number of treatments for a given patient
base. Evolving clinical pathways and underlying patient demographics
will also contribute to active product growth.

If the full potential of active products is to be achieved, targeted sales

and marketing efforts, peer-reviewed literature, and other initiatives
will be required to improve physician awareness and convince the
medical community that these products offer unique clinical benefits.
Pharmaceutical and medical technology companies will need to work
together to achieve this.

Collaboration will also be important in research and development for

medical technology companies that lack biologics capabilities.
Pharmaceutical companies are an option, as are biotechnology start-
ups hungry to access the marketing savvy, operational infrastructure,
and capital they lack. Collaborators will need to carefully address
issues such as sharing of intellectual property rights, and will need to
allow for a coordinated approach to sales and marketing. Ultimately,
because many active products combine drugs with devices, the
historically separate evolution of these therapeutic modalities needs to
converge on a common future path.

From a regulatory standpoint, the combination of two distinct

components—medical device and active healing agent—that would
normally be regulated under different authorities has complicated the
situation. Determining the primary regulatory jurisdiction and
subsequent authorities for hybrid products is done on a case-by-case
basis. Of particular interest to regulators are products that comprise
living cells or tissues. Further, the outcome of clinical trials for wound
care can fluctuate substantially. Because wounds vary in size, depth,
and complications, truly controlled trials are elusive. Companies in the
active wound care segment will need to clarify what data constitute
approvable clinical trial endpoints.

Active wound care market participants also face uncertainty regarding

existing reimbursement structures, and will need to work with third-
party payers and managed-care entities to prove favorable cost-benefit
profiles relative to other alternatives.

Into the Future

Despite significant wound care advances, unmet needs remain. Many

wounds cannot be optimally healed even with the latest products and
clinical techniques. All wound care market participants must stay
focused on the ever-advancing technology horizon.

Future innovations, particularly drug-device combinations, will create

expansion opportunities for some and obsolescence risk for others. The
newest active products promise cross-talk in the wound environment to
dynamically control which growth factors and wound-regulatory
elements are activated, and at what time.

The future of wound healing is a directed process that provides more-

effective tissue regeneration than has ever before been possible. As
the wound care market continues to evolve, active products will remain
at the forefront of best medicine, redefining patient care and garnering
substantial market growth.

It is interesting to compare the outlook for wound care with the

evolution that the cardiovascular market has undergone. The direct
and indirect costs of cardiovascular disease and stroke have expanded
from $60 billion in 1997 to approximately $400 billion today. With these
spiraling costs have come larger market opportunities for many
suppliers. Underlying patient demographics and better diagnosis have
played a role, but pharmaceutical and medical device company
innovations have also been critical to expanding their respective
segments. Entire new product classes have been created, often at the
expense of those that came before.

One lesson to be taken from this is that market growth can total more
than the sum of separately evolving segments. This is largely because
physicians tend to employ overlapping drug and device therapies for a
given patient. Research conducted by L.E.K. Consulting shows that
anticoagulants and angioplasty are used in 70% and 66% of coronary
artery thrombosis cases, respectively—that's 136% usage, or almost
1.4 treatments per patient, not counting the myriad other therapeutic
alternatives employed. Another lesson is that drug-device convergence
can create value for all market participants. Drug-eluting stents, for
example, once a holy grail of the industry, are now a reality. Benefits to
suppliers, physicians, patients, and payers are increasingly clear.

Conclusion

Wound care is big business—and it is only getting bigger. There are

large companies in the market, but none has yet achieved clear market
dominance. This is especially true in the advanced and active
segments, where innovations are occurring at an accelerating pace.
Competition will be increasingly price-based in the traditional segment,
but in advanced products, differentiation will be the key to success.

Manufacturers in the active product segment will need to be especially

mindful of the importance of cross-disciplinary device-pharma-biotech
collaborations, the risks inherent in choosing the wrong partner, and
the rewards of partnering with the right company. In the intermediate
to long term, increased merger and acquisition activity is likely as
competitors seek to create a one-stop shop with traditional, advanced,
and active wound care products under a single roof.

Applying lessons from the evolution of cardiovascular devices to wound

care underscores the prediction for overall market expansion and rapid
growth in some segments. Volumes will trend upward as products heal
wounds that could not be healed before and physicians employ
multiple products to treat the same patient. The premium prices
commanded by newer products will supplement volume growth,
particularly when changing clinical pathways position these as first-line
therapies.

Ultimately, active device-drug combination products will be the biggest

beneficiaries. At currently anticipated growth rates, active wound care
will represent a more than $1 billion opportunity within the next five
years in the United States. If even a couple of the more exciting
innovations in the pipeline materialize, then the market's growth could
easily surpass these expectations.

HPIS Market Highlight: Physician Market

Trends & Forecasts: Sales to physician market increase 18.8%
November 2005

Market Intelligence from HPIS™, a Neoforma® Company, indicated distributor sales to

the physician market by its contributing distributors (representing between 50% and 60%
of the overall physician market) increased nearly 19% for the year ending September
2005.
While all of the top 10 product categories grew over the past year, four grew faster than
the overall market. Medical surgical products-durable* jumped 33.4% over the previous
year to break into the top 10. The parenteral category was up 31.3%, increasing its share
of the total market from 5.6% a a year ago to 6.2%. The wound sutures category was up
30.0% and now comprises 4.0% of all sales to the physician market. The electromedical
category slightly exceeded market pace, growing 19.6%.
Needles and syringes, the top distributed product category sold into the physician market,
has experienced only moderate dollar growth in the last two years. The category grew
9.1% for the year ending September 2005, well below the market average, and 9.6% the
previous year. As a result, the category makes up 7.8% of total market sales now versus
8.5% a year ago [Figure 1].

Figure 1

Although needlestick safety regulations have been in place since 2001, physicians have
been slow to adopt them for at least two reasons. First, there are higher costs associated
with safety products. Second, there has been little monitoring to enforce regulations.
But what has been a stagnant market may be changing.
Current sales trends suggest that physicians are more willing to adopt safety products in
the face of new needlestick safety regulations. Many manufacturers are discontinuing the
standard versions of these products, which is evident because their use almost has been
phased out of the hospital setting. In addition, the growth of physician-owned infusion
centers may fuel physicians' increased use of safety products.
Among other products in the top 10, sales of point of care reagents and supplies
moderated, growing 17.2%, from a 24.4% growth rate the previous year. The glove
category accelerated growth slightly, up to 14.3% from 10.3%, but still lagged behind
overall market growth [Figure 2].
Figure 2

Some categories far outpaced the industry, even if they don't yet hold major market share.
Respiratory products (36.6%), immunology reagents and supplies (32.2%), kits, packs
and trays-custom (43.8%) and incontinence products (44.6%) are among the categories
that experienced strond growth through September 2005. Other categories lagged behind
the market, including metal/plastic/paper products (7.2%), orthopedic supplies (2.2%),
hazardous waste control (8.1%) and patient restraints and supports (5.5%).
*Other medical/surgical durable products include beds, cabinets, carts, chairs, containers, floor mats, face/eye wash fountains, hamper stands,
hampers, identification tags, intravenous poles, kick buckets, examination and surgical lights, medical charts, scales, privacy screens, stools,
stretchers, tables, timers, and training aids.