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Pulse of

Medical technology
report 2014

the industry
Differentiating differently
To our clients and friends,
Welcome to the 2014 edition of Pulse of the
industry, EYs annual report on the medical
technology industry.
In the last three issues, we have described old ways of differentiating products
how the drive to value in health care, appear less valuable to customers. This
combined with the growing power of means that medtechs must transition to
patients, is transforming the sector. This differentiating differently, placing greater
year, our opening article, Differentiating emphasis on mechanisms that allow them
differently, focuses on an additional risk to distinguish products based on value
that has emerged: the commoditization and outcomes.
of many medtech product segments.
We recognize that differentiating
For medtech developers, the specter of
differently will require changes to
commoditization upends their business
medtech business models and can only
models and creates a scenario in which
be accomplished in conjunction with
competition is no longer based on
other strategic financial objectives. With
historical value drivers brand, quality and
that in mind, we have drawn linkages,
design but on a single element, price.
where applicable, to noteworthy financial
To understand how commoditization is performance, financing and M&A trends
playing out now and in the future, we that surfaced over the past 12 months.
surveyed medtech companies main As ever, we are grateful for the insights,
customers in four major markets: the US, opinions and perspectives of some of the
the UK, Germany and Spain. Through industrys leading insiders in helping us
interviews and case studies, we also develop this years Pulse of the industry.
explored the various strategies medtech We hope this report offers plenty of food
companies can adopt to differentiate for thought and discussion. We look
their products in an increasingly difficult forward to continuing the conversation
health care market. with you in one-on-one discussions and
via social media. Please visit our blog
Not all of the strategies we outline in
(lifesciencesblog.ey.com) and our Twitter
this report will apply to every company;
feed (@EY_LifeSciences) for more.
nor are any of these strategies mutually
exclusive. What we can say is that the EY Global Life Sciences Sector

Connect with us
@EY_LifeSciences lifesciencesblog.ey.com
Contents
Perspectives
05Point of view: Differentiating differently
11To improve medtech R&D, take a system-wide approach
Dr. Olaf Schermeier, Fresenius Medical Care
14Building a better model for health care
Brent Shafer, Philips North America
Dr. James V. Rawson, Georgia Regents Medical Center
18Collaborative contracting
Mark West, SharedClarity
20 Sea change in Chinas medtech industry
21Why medtech should embrace commoditization
Rob ten Hoedt, Eucomed and Medtronic
22Taking a new approach
Jos Almeida, AdvaMed and Covidien
23Strength, resilience and energy
John J. Greisch, Hill-Rom
24Charting a new course
Joseph M. DeVivo, AngioDynamics

Industry performance
26Financial performance | Holding steady
41Financing | Financing the future
56Mergers and acquisitions | Seeking scale
68 Medtronic/Covidien: Emblematic of what medtech is buying now

Appendix
70 Scope of this report: defining medical technology
71Acknowledgments
72 Data exhibit index
74Contacts
Part 1 | Perspectives

Part 1
Perspectives
Perspectives

Differentiating differently
For several years, we have written about two trends in health care that are transforming the medical
technology business. The first of these an increasing emphasis on value and the concomitant need
to demonstrate improved outcomes was something we explored in our 2011 Pulse of the industry
report. The following year, we discussed the second transformative trend: patient-empowering,
information-leveraging technologies (PI technologies) such as connected devices, smartphone apps,
sensor-embedded objects and social media platforms.

As a result of these two trends, patients process fundamentally changes the IBM sold its PC division to the Chinese
and payers are more influential, and nature of competition in a business manufacturer Lenovo.
companies must respond with new segment. Instead of competing on
approaches and business models to attributes such as brand, quality and To evaluate the extent to which this
succeed. At a minimum, companies design, products in a commoditized dynamic is playing out in medtech, we
must now measure health outcomes and industry compete largely along just one conducted a survey of US and European
demonstrate the value of their products dimension: price. Generally speaking, health care buyers in four major
to payers and providers. To accomplish the journey to commoditization and price markets: the US, the UK, Germany and
this, they may also have to expand their competition takes place in three steps: Spain. In particular, we focused on two
traditional offerings by moving beyond (1) a shift in customer perception; (2) constituencies within these organizations:
the product (expanding into services and lowered barriers to market entry; and practicing physicians and procurement
solutions), beyond the hospital (enabling (3) full-on price competition. officers.1 Providers, of course, have
care delivery wherever patients happen traditionally been the main buyers of
to be) and beyond treatment (providing This process is beginning to play out in medical devices. This remains true even
prevention, remote monitoring and more). medtech, in several ways. in an outcomes-driven world where
payers have more influence and the
But medtech companies strategies will physicians themselves have become
also need to account for an additional risk
A shift in customer perception the salaried employees of health care
emerging from this confluence of trends: The first step to commoditization is for systems. To get a sense of the direction
the threat of commoditization in many products to become undifferentiated and momentum of change, we asked
product segments. How to address this in the eyes of consumers. This can these respondents questions about
challenge is a central theme of this years result when products are functionally buying patterns today as well as their
Pulse report. identical for instance, high octane and perceptions of how buying decisions will
low octane gasoline. But commoditization be made three years from now.
can also occur when products still have
Commoditization distinguishing attributes, but customers The survey reveals some clear attitudinal
become unwilling to pay a premium shifts, with potential implications for the
Commoditization is the process by which price for these features. This happened nature of competition and how customers
products become undifferentiated and in the 1990s with desktop personal perceptions of medtech products will
therefore interchangeable in customers computers. Until the mid-1980s, IBM change. When asked about the biggest
perceptions. For manufacturers, this computers commanded a premium price pressures on their institutions, for
because of Big Blues reputation and its instance, respondents indicated that
long history in computing. Over time, simple cost-cutting issues will become
1 The survey, conducted in August 2014, was the features distinguishing one PC from relatively less important over the next
taken by 162 respondents in total 71 in the another became less and less important three years. Instead, they expect a
US, 33 each in the UK and Germany and 25 to customers, and the market was driven significant increase in the importance of
in Spain. Of those, 85 occupied clinical roles health care reform initiatives focused on
by narrow margins and aggressive price
(chief of cardiology, department head, etc.) and
77 were in administrative or managerial roles competition. By 2004, the industry value and outcomes (e.g., value-based
(purchasing, supply chain, etc.). had become so commoditized that purchasing and pay-for-performance).

Medical technology report 2014 5


Perspectives

Chart 1. Hospitals pressures are shifting from simple cost-cutting to value As shown in Chart 1, 34% of respondents
expect these measures to be among the
Today In three years
three factors placing the most pressure
50%
Declining: Increasing: on hospitals in three years time (up from
44% Simple cost-cutting Value/outcomes 21% today). Meanwhile, respondents
41% 40%
40% expect a relative decline in the focus on
37% 37% 38%
cost-cutting (down from 44% today to 37%
33% 34%
in three years), imaging costs (22% today,
30%
27%
12% in three years) and other such issues.

22% 21% Respondents also see a clear shift in the


20% most important influencers of purchasing
decisions over the next three years. As
12%
shown in Chart 2, physicians are expected
10%
to become significantly less influential,
while the influence of hospital managers
0% and administrators (e.g., the CFO/finance
Cost- Cost of High-end medical Rising Imaging Health care
department or procurement/purchasing
cutting upgrading or technology costs drug costs costs reform
maintaining IT (non-imaging) initiatives1 department) is expected to rise. Insurers
systems and other payers are expected to see the
1
e.g., Value-based purchasing, pay-for-performance most significant increase in influence,
albeit from a low base this constituency
Numbers show percentage of respondents who selected each factor in response to the following question:
Please select the three factors that place the most pressure on your institution today, and the three factors that is the least influential category by far,
you anticipate will place the most pressure on your institution three years from now. and this will remain the case in three
Source: EY Pulse Hospital Survey. years. Meanwhile, as indicated in Chart 3,
procurement decisions are becoming
Chart 2. Physicians are becoming less important more centralized in many major markets.
influencers of purchasing decisions These shifts have clear implications for
Today In three years the ways in which medtech companies
2.5 2.4
market their wares and how customers
perceive their products. If individual
physicians become less influential,
2.0 1.9 1.9 and purchasing decisions are instead
1.7 1.7 increasingly made by managers and
1.6 administrators whose prime focus is on
1.5
measuring and rewarding value then it
Ranking

seems likely that companies will need to


1.0 demonstrate the value of their devices in
terms of measurable improved outcomes
for patients and lower total system costs
0.5
0.5 if they are to make the cut.
0.2
Indeed, this is exactly what we see in
0 Chart 4 and Chart 5 on page 8. As we
Physicians CFO, finance Procurement, Payers,
department purchasing department insurers have discussed in past issues of Pulse,
medtech companies have traditionally
Higher scores indicate influencers who are more influential today or in three years time in hospitals
purchasing decisions. innovated at the bedside, working
Source: EY Pulse Hospital Survey. in close conjunction with practicing

6 EY | Pulse of the industry


Perspectives

Chart 3. The reimbursement landscape


Procurement of medical Availability of national list of
Country devices carried out at approved medical devices for Remarks
the national level procurement or reimbursement
NHS trusts can purchase products through one of five main routes:
1. Directly from suppliers using National Framework Contracts
2. From the NHS Supply Chain which provides end-to-end supply chain services
incorporating procurement, logistics, e-commerce, and customer and
UK Yes No supplier support
3. Collaborative Procurement Hubs/Confederations (regional multi-trust
purchasing)
4. Local contracts managed by individual trusts
5. Pan-government National Framework Contracts
The French Government is promoting the formation of regional procurement
collectives, as a cost-cutting measure. Ten such collectives are currently in operation
in France. The RESAH-IDF network, one of the largest procurement collectives in
France No Yes
France, is in the process of establishing a European collective procurement platform
known as Healthy Ageing in Public Procurement Innovation (HAPPI), through which
more than 3 billion of purchases may be made annually.
Procurement hubs are common in Germany. They have been consolidating in recent
Germany N/A N/A
years: there are around 35 hubs, down from 100 in the early 2000s.
Spain No Yes Procurement is being centralized at the provincial level (for several hospitals).
Procurement is being rationalized in Italy. Four procurement regions are planned
Italy No Yes (North-East, North-West, Central and South), which will replace several agencies at
local and regional levels.
Purchasing decision-making is shifting from individual clinicians to central
purchasing staff focused on economic cost/benefits. Hospitals are also seeking
US No No
preferred provider contracts and/or deploying standardized purchasing initiatives.
Group purchasing organizations continue to negotiate contracts with suppliers.
The National Health and Family Planning Commission is responsible for procurement
of medical equipment at the provincial level, including overseeing the bidding and
China Yes Yes
tendering process for medical devices sold to state-run hospitals. High-value medical
devices are increasingly purchased through a centralized purchasing system.
Private hospitals dominate the market and make their own purchasing decisions.
Public hospitals procure equipment through invitations to tender using an
Japan No Yes
approved list system. Hospitals are increasingly collaborating to raise procurement
efficiencies by forming group purchasing organizations.
Source: EY.

physicians and surgeons to develop new Instead, respondents expect that reduced total costs of care. Indeed,
variants of products that met the specific measures that target value and purchasers ranked this as much more
needs and preferences of these end outcomes (e.g., data demonstrating important than other factors, including
users. But as individual doctors become clinical outcomes, data demonstrating reduced hospital stays or increased
less influential over the next three years, value, beyond-the-product services, surgical efficiency.
survey respondents expect that features risk-sharing agreements) will become
targeted at these buyers will become less significantly more important influencers For medtech companies, the
important in purchasing decisions. As of purchasing decisions. repercussions are clear: to succeed,
shown in Chart 4, physician preference firms will need to design and market
for specific device, user-friendly And, as we show in Chart 5, when their products to appeal not just to the
design and training in use are all medtech purchasers were asked about preferences of physicians in the field, but
expected to become less important the economic outcomes they see as also to the value-driven considerations
in purchasing decisions. most important when differentiating that are becoming top-of-mind for
new products, the leading metric was administrators and managers.

Medical technology report 2014 7


Perspectives

However, this will not always be easy to Chart 4. Differentiate differently or become commoditized?
pull off, for a couple of reasons. Today In three years

Iterative innovation. In the search 100% Price


Old ways of differentiation Differentiation will have to be
for value, payers and providers are remains the
are less relevant based on data and value
top factor
most interested in highly differentiated
80% 77% 77%
medtech products that represent
a significant improvement over the
62%
standard of care. The reality, however, 60% 55%
is that such breakthroughs are rare. 51%
Innovation in this sector is often an
iterative process that yields relatively 40%
35% 35%
32% 31%
small improvements over existing 27% 27% 25%
products. So far, this approach has 22% 22%
20% 18%
worked for medtech companies as
long as the physicians for whom 6%
new iterations were designed valued 0%
Price of Physician User- Training Data Beyond Data Risk-
these improvements.
device preference friendly in use demonstrating the demonstrating sharing
for design clinical product value agreements
Demonstrating the value of these specific outcomes services1
products to payers and procurement device
departments may not be as easy. While 1
e.g., patient support
the process of iterative innovation has Numbers show percentage of respondents who selected each factor in response to the following
often generated huge improvement question: Please select the three most important factors in your medical device purchasing decisions
today, and three factors you anticipate will be most important three years from now.
in health outcomes over time, any
Source: EY Pulse Hospital Survey.
one iteration may not be enough of
an advance to be valued by buyers.
In many cases, purchasers will prefer Chart 5. Health care purchasers prioritize
a good enough product with fewer devices that reduce the total cost of care
features at a lower price point.
2.4 2.4
2.5
Different product segments. In our 2.1
2.0
2014 report Progressions: navigating 2.0
the payer landscape, we warned that
1.6
companies ought not regard payers
1.5
as monolithic in their approaches.
Ranking

As medtechs seek to understand the


changing purchaser landscape, they will 1.0
find that buyers may have very different
attitudes to products depending on the 0.5
deployment of those technologies in
the care spectrum. Differentiation will
0
be more difficult depending on where Reduced Reduced Improved Reduced Reduced
medtechs aim their products. total costs hospital surgical pharmaceutical readmission
of care stay efficiency utilization rates
Respondents were asked to rank the three economic outcomes that are most important in differentiating
new medical devices. The lower the score, the more important the economic outcome in differentiating a
medtech product.
Source: EY 2014 Pulse Hospital Survey.

8 EY | Pulse of the industry


The reality, therefore, is that many This is relevant for medtech because Full-on price competition
products may find themselves caught medical devices are also engineered
Once a segment has been commoditized,
in no mans land. The features medtech products with shorter product cycles.
a company must choose one of three
companies have traditionally emphasized Western manufacturers who decide to
directions:
in order to differentiate their products compete on price will be in a business with
may no longer be valued by customers, razor-thin margins. Some might decide to 1. Move downstream into the lower-
and in many segments, it may not be easy apply reverse innovation developing margin, price competition space
to make the transition to differentiating relatively inexpensive, stripped-down and compete aggressively on price.
differently distinguishing products products for emerging markets and then Strategies to remain competitive could
based on value and outcomes. In these deploying them in the West as well. But include partnering with companies in
situations, products will be left with only companies should also prepare for the emerging markets, reverse innovation
one variable on which to compete: price. possibility of an additional challenge or acquiring scale to gain bargaining
competition from new entrants with the power and economies of scale.
ability to deliver products at far lower
Low barriers to market entry
price points. Chinas medtech industry, for 2. Move upstream into a higher-value
The pressure on price becomes even instance, is in a relatively early stage of segment, innovating within existing
greater when the barriers to market development, but there is no reason why product lines or adding new products.
entry are low. To return to the example such manufacturers would not be able to This is the preferred approach for
of the personal computer industry in the learn quickly, improve quality to meet global companies with products that are
1990s, for instance, the move to price regulatory standards and create products already well differentiated and that
competition was accelerated by the ease that would meet the needs of most patients want to continue to demonstrate that
with which other manufacturers were at much lower price points than in the their products add value and merit
able to reverse-engineer the IBM PC and West. Chinese firms in other engineering premium pricing.
develop computers that were functionally and manufacturing-based industries have
equivalent. The same process has repeated already followed precisely this path, and 3. Create stickiness. Explore other
itself with various information technology there is little reason to think that medtech ways to create customer loyalty and
products, from semiconductors to hard will be much different. (For more, see Sea differentiate your offering. This could
drives to tablet computers. change in Chinas medtech industry on include expanding into services,
page 20.) solutions and complementary
product categories.

Medical technology report 2014 9


Perspectives

Meeting those needs will require medtech product research and development, he
New bases of competition firms to engage with health care buyers says. Now, it might be 5%, with 3% going
If the old ways of differentiation are on the buyers terms, spending time toward R&D for commercial innovation,
becoming less relevant, companies on-site to understand concerns such as working with our customers to develop
must develop strategies for competition workflow efficiency or the ways in which better solutions that they can implement
on these new bases of differentiation. current devices are used to deliver care. in their protocols for delivering care. (See
Broadly speaking, these tactics fall into Building a better model for health care
This is the path Fresenius Medical on page 14.)
one of four categories:
Care took when it restructured its
1. Achieve superior outcomes via R&D operations in 2013. As Dr. Olaf
Schermeier, the companys Chief Officer 1. Achieve superior outcomes
technological advances
for Global Research and Development, via technological advances
2. Increase scope through services explains on page 11, Fresenius mandated
and solutions that every one of the companys In certain therapeutic areas, it has
engineers spend a minimum of two days become difficult to improve upon existing
3. Increase scope by adding product devices at least in ways that buyers care
annually in the clinic, working alongside
offerings (within a disease area or most strongly about. That said, there are
medical teams to gain a first-hand
across multiple disease areas) green field areas where new product R&D
understanding of how to optimize the
4. Take costs out of the health care delivery for renal patients. can catalyze a new standard of care.
care system
As they reconsider their strategic priorities Second Sight Medical Products Argus
Of course, these strategies will not apply to adopt one or more of the new bases II retinal prosthesis system is a case in
equally to every medtech company. for competition, companies are likely to point. The device a retinal implant
Whether they apply will depend on consider reallocating their R&D spending. accompanied by a wireless processing
a range of factors, including the Philips Healthcare, for example, which unit, glasses and a video camera can
companys therapeutic focus and stage of has embarked on a 15-year project with partially restore vision to people blinded
development. Moreover, to be successful, Georgia Regents Medical Center aimed at by the rare genetic condition retinitis
companies may find it beneficial to improving clinical outcomes, has already pigmentosa (RP). The device was
develop a strategic plan that incorporates done so. Brent Shafer, Chief Executive approved for use in Europe in 2011, and in
multiple differentiation mechanisms. Officer of Philips North America, explains February 2013, it won approval from the
that tackling initiatives such as improving U.S. Food and Drug Administration (FDA).
As medtechs consider which tactics to patient experience requires redistributing
prioritize, one commonality is how each resources. In the past, Philips might spend Sophisticated devices such as Argus II,
helps address the needs of its customers. about 8% of our total health care sales on which represent a technological step-
change, dont come cheaply. As the
companys Vice-President of Business
Development, Brian Mech, told Reuters
in February, getting Argus II to the
To be successful, companies may market took 14 years, US$200 million
and intestinal fortitude. Second
find it beneficial to develop a Sight is now working with insurers, the
US Centers for Medicare & Medicaid
strategic plan that incorporates Services and governments in Europe to
underwrite the devices US$100,000
multiple differentiation mechanisms. price tag. In August, the French Ministry
of Health approved financial support
for the system, which is also available in
Germany, the Netherlands, Switzerland,
Italy, Saudi Arabia and the UK.

10 EY | Pulse of the industry


Guest article Perspectives

To improve medtech R&D,


Dr. Olaf Schermeier
CEO Global R&D, Member of the
take a system-wide approach
Management Board, Fresenius Medical Care

Fresenius Medical Cares success is based on great inventions. for example, are unwilling to use bulky
and complex clinical machines. We have
Polysulfone fiber, for example, was key to creating the first truly
to understand that we cannot simply take
effective dialyzer. This kind of innovation was driven by creative a clinical system, adapt it slightly and
engineers, many of whom are still with the company, and this is assume the patient will be happy to have
stillone of our biggest assets. it in his or her home. What is the impact
on patients flexibility? Can they use the
system when they travel? How simple
As engineers, we have long been of the overall treatment, not just the cost is the user interface? These are huge
accustomed to innovating by looking of a specific product. Thus, reducing decision points for all home patients,
at individual products the best-in- the overall cost of therapy must be one and our engineers have to incorporate
class dialyzer, for example. But we now of our key innovation targets. Vertical this kind of thinking in the product
understand that even more value is integration from a complete renal development process.
created when we try to improve a specific product portfolio to owning the dialysis
The renal care space is still growing,
therapeutic system in its entirety, by center network has been a clear benefit
but the logical question is, where to go
taking a more holistic view of a therapy. for Fresenius Medical Care, not only in
from here? Many of our patients have
We now ask: What is the outcome for developing new products but also for the
comorbidities: more than 40% of dialysis
patients? What is the reimbursement overall economies of scale.
patients have diabetes, 70% have high
structure? What kind of therapy can I
A key differentiator for Fresenius Medical blood pressure, and nearly all have some
apply, and how can I make it as cost-
Care is the way that R&D interacts kind of cardiovascular disease.
effective as possible?
with the clinical part of the business.
For us, this is clearly an opportunity
This approach goes beyond individual Our 3,200 dialysis centers not only
to expand our services into chronic
products. It clearly represents the biggest provide an incredible data pool, they
care coordination, by incorporating
innovation potential in dialysis. also offer an opportunity for our R&D
elements of general practice, cardiology,
engineers to visit a clinic, where they
The various elements of Fresenius diabetology and even psychology to
can get an in-depth understanding of the
Medical Cares portfolio dialysis improve our overall patient care. This
optimization potential that can then be makes sense not only from a service
machines, disposables, drugs, dialyzers
addressed in the technology and in the perspective, by making use of our clinical
and IT solutions all interact with each
development process. In fact, every one infrastructure, but also from a product
other to create value and improved
of our engineers worldwide is required and technology perspective.
therapies for end-stage renal disease
to spend a minimum of two days per
(ESRD). A good example is our Online
year in a clinic, observing therapies and
hemodiafiltration (HDF) therapy. HDF
processes and discussing them with clinic
is based on the ultrafiltration of large
amounts of plasma across the dialyzer
staff and patients. This enables them
to get an in-depth understanding of the
Key decision-makers
membrane. The removed volume is
then replaced by ultra-pure substitution
optimization potential they can address in are increasingly
new technology developments.
fluid. Developed by engineers working
very closely with medical doctors, basing their
Our clinics treat around 280,000 ESRD
Online HDF therapy is a big advance in
care that provides clear advantages to
patients worldwide, three times per decisions on the cost-
week, and we conduct regular surveys to
patients. Asa result, many countries
learn how we can help to improve their effectiveness of the
haveincreased their reimbursement for
this specific therapy.
quality of life. On questions of care, the
patients play an increasingly important
overall treatment,
When it comes to reimbursement, the key role in the overall decision-making
process. Therefore, it is crucial for us to
not just the cost of a
decision-makers are increasingly basing
their decisions on the cost-effectiveness understand their needs. Home patients, specific product.

Medical technology report 2014 11


Second Sights highly specialized EMEA & Canada at Medtronic, notes, is no longer a sale. The endpoint is an
technology represents innovation as Innovation in medtech will continue to improved patient outcome. Thats where
medtech has typically defined it: a new be driven primarily by small to medium- the industry has to go.
therapeutic device to help solve an sized enterprises (SMEs) and start-ups.
important unmet medical need. Another That said, these companies arent immune Proving his point, Georgia Regents last
kind of technological advance is embodied to the challenges of commoditization year embarked upon a 15-year, US$300
by AliveCor, a much different kind of affecting larger medtechs. SMEs million agreement with Philips Healthcare
company. In 2012, the privately-held need to be extremely careful to remain in which Philips is paid for supplying and
San Francisco company introduced a competitive and to differentiate their maintaining equipment including that
smartphone case that doubles as an products from those of larger companies, of rival firms as well as for improving
electrocardiogram (ECG) for people says ten Hoedt. Put another way, SMEs patient care. (See Building a better model
suffering from heart disease. Sensors on need to make sure they have a solution for health care on page 14.) Philips has
the case turn electrical impulses in the that not only addresses a need in the embarked on a similar agreement with the
users body into ultrasound signals, which marketplace but can easily be tucked into Karolinska University Hospital, in Sweden.
are then recorded via an app and allow a larger entity. As part of that 14-year agreement, which
real-time monitoring. Philips won in May 2014 after a Europe-
2. Increase scope through wide tender, the conglomerate will invest
Since early 2013, AliveCor has collected in R&D and a provider education program,
anonymous ECG data, building a database services and solutions while also overseeing the procurement,
of more than 1 million recordings, with installation and maintenance of the
more data being gathered each month. As bundled payments become one of the
leading strategies for reducing health imaging equipment at the Karolinskas new
Using these data, the company has site in Solna.
developed an algorithm, approved by the care costs, an increasingly obvious tactic
FDA in August 2014, to detect in real time for medical technology companies is to
As Philips collaborations with Georgia
atrial fibrillation, the most common form try to own more of the bundle. Medtech
Regents and the Karolinska suggest,
of cardiac arrhythmia. The algorithm companies have, for some time, offered
beyond-the-product services must serve
moves AliveCors product beyond additional services alongside their
a clear purpose, for instance addressing
monitoring to facilitating intervention, so products as an incentive to purchasers.
operational efficiencies, if they are to
that providers can take action before a Thats a problem, according to Dr. James
succeed. Medtechs also need to be willing
patient suffers a more serious and costly Rawson, Chair of Radiology at Georgia
to manage and support the service well
event, such as a stroke. Regents Medical Center in Atlanta. Many
beyond the life of an individual product,
of the services developed by vendors
while being agnostic about where the
Its hardly surprising that these are focused on transactions, rather than
technology originated.
innovations came out of smaller, venture- relationships and partnerships, he says.
backed endeavors. Rob ten Hoedt, The endpoint of the relationship between
Chairman of Eucomed and President a medtech company and a care provider

12 EY | Pulse of the industry


Medical technology firms that offer
health care buyers an end-to-end
solution in a given disease area may
have a competitive edge.

To date, the companies that have company that offers services such within the current budgetary cycle. By
embarked on the most ambitious as hospital infrastructure design and establishing relationships with fewer
attempts to own more of the bundle are equipment management. suppliers, these health care buyers can
the largest medtechs. The big imaging begin to address the issue, negotiating
specialists such as Philips and GE new payment contracts that provide
Healthcare led the way, in part because
3. Increase scope by their organizations with improved pricing
they had to. They were among the first to adding product offerings around the total cost of care.
come under pressure from cost-conscious
The move from volume to value means The deeper a medtech supplier is in a
hospital systems given the centralization
medical technology firms that offer health therapeutic area, the more development,
of big capital equipment purchases.
care buyers an end-to-end solution in a regulatory and marketing costs it can
Therapeutic device companies are given disease area may have a competitive leverage across its various departments.
now moving in this direction as well. In edge. By having a suite of offerings Further out, one can imagine how these
December 2013, Stryker bought Patient designed to address the continuum of care deep relationships might shift, such
Safety Technologies for US$120 million in a given disease area, medtechs provide that a medtech developer contracts to
in order to gain access to traceability their customers additional value in two provide devices for a fixed fee, whether
software and hardware that reduce the related ways. First, by providing a full range the device is a simpler hip joint or a more
possibility of post-surgery complications of clinically tested products, medtechs complicated total hip replacement. Such
caused by medical errors. assist in ensuring provider groups can innovative contracts are, for now, just
meet important care metrics that are talk, but senior medtech executives should
Meanwhile, Medtronics US$200 million now a necessary precursor for their own start to understand how owning a disease
acquisition in 2013 of Cardiocom, a reimbursement. Second, by offering a could enable their companies to move
telehealth company that provides home spectrum of solutions in a given disease away from unit-based pricing to a payment
monitoring, shows how Medtronic is area, medtechs with the right portfolio of system that enables market access.
expanding its cardiovascular franchise offerings can help simplify the contracting
beyond implantable devices to the complexity health care buyers face. In many ways, the service-plus
provision of services. Just a month after relationships struck by Philips Healthcare
the acquisition, Medtronic established Surveys of health care payers and and Fresenius illustrate how increasing
a new business unit, Medtronic Hospital purchasers we conducted in 2014 suggest product scope (broadly defined) might
Solutions, to partner directly with that they have so many strategic priorities facilitate new commercial models
hospitals to increase the quality and to accomplish in the near term that they that are less transactional at the unit
efficiency of service delivery. And in dont have the bandwidth to engage with level and more relationship-driven.
August this year, the company pushed multiple medical technology makers in The question is how such a model will
further into the hospital sector when meaningful conversations about value be applied in the therapeutic device
it acquired NGC Medical, an Italian especially if that value wont be realized category, especially implants.

Medical technology report 2014 13


Perspectives Guest article

Building a better
model for health care
In 2013, Philips Healthcare and Georgia Regents Medical Center entered into a 15-year, US$300
million agreement to improve outcomes and deliver care more efficiently to patients. Here, Brent
Shafer, Chief Executive Officer of Philips North America, and Dr.James Rawson, Chair of Radiology
atGeorgiaRegents, discuss the rationale behind the deal, and its ambitions.

Weve partnered with many hospitals with Cerner to integrate electronic medical
around the world, but those partnerships records. And third, we will work on our
have been based more on managed hospital-to-home strategy, developing and
equipment services. This is different. It has deploying remote monitoring capabilities
a managed services component, but it is and other solutions for home care.
also tied in with a very strategic risk-sharing
component and other financial factors. Philips is in a good position to tackle these
initiatives. Its just a matter of how we
Under the terms of our relationship, the want to use our resources. In the past,
first thing Georgia Regents was able to Philips might spend about 8% of our total
do was reduce their cost of procurement. health care sales on product research
They didnt have to bid for equipment and development. Now, it might be 5%,
Brent Shafer with three different vendors; they didnt with 3% going toward R&D for commercial
Chief Executive Officer innovation, working with our customers
have to schedule on-site visits. And we
Philips North America
manage all the equipment, whether to develop better solutions that they
its our equipment or a competitors. can implement in their protocols for
Philips alliance with Georgia Regents We guarantee certain performance deliveringcare.
leverages our joint strengths Philips metrics, but at the core of the risk-
equipment, services and revenue cycle sharing component of the relationship, We want to establish many more of these
management and Georgia Regents our common goals are improved patient partnerships, but they wont necessarily
ability to serve patients and provide outcomes, shorter length of stay and work everywhere. We have to look at what
better outcomes. With Georgia Regents, greater patient satisfaction. is in the best interests of the customer and
we were looking at a partnership from in the best interests of Philips, and at what
a much broader perspective than just Our contract is for 15 years. There strengths we hope to achieve through a
a hospital entity. We were able to bring are three areas of focus tied to patient partnership. Our relationship with Georgia
Philips whole portfolio, from dental care satisfaction. The first is based on Regents means that we can do what we
to lighting, not just to the hospital and the patients experience once they get to the do best innovate, deliver and manage
university, but also to the community. institution. Second, we are partnering equipment capable of gauging, diagnosing
and recording everything from a patients
vitals to remarkably detailed images, giving
the clinicians more time to deliver expert
one-on-one care for each patient.

We expect this type of model to become


very attractive to hospitals across the
Weve partnered with many hospitals world. Each hospital is going to have
different needs, but this is a model from
around the world, but those partnerships which we can build.

have been based more on managed


equipment services. This is different.

14 EY | Pulse of the industry


Guest article Perspectives

The success of the partnership, in my Were both learning from each other,
view, is working with a partner on the from our patients and from our staff.
good days and the bad days, helping to Georgia Regents was an early pioneer in
move the ball forward to improve health. patient- and family-centered care. Welook
Its no longer about being sold a piece of at new equipment from an efficiency and
equipment or a technology. I no longer care delivery point of view, but also from
look at projects as being completed; I the patients perspective. How do we
look at them as journeys. We installed a make getting a scan a good experience
new Philips IntelliSpace PACS system for for the patient, and how does that fit into
storing and viewing and processing image a larger context of the patients overall
data six months ago, and we continue to experience in our hospital? Because we
innovate and improve that process. It is have Philips and our patient advisors
Dr. James Rawson now hard-wired into our operations. The sitting at the design table with us, I think
Professor and Chair of Radiology,
Georgia Regents Medical Center time we used to spend on buying and were able to make much better decisions.
selling equipment we can now reinvest
into innovation and improving the care We went live in January with the first
The relationship between Georgia phase of the PACS project, and were
given to each patient.
Regents and Philips is based on common continuing to improve that workflow.
values. When we compared our priorities, When we installed the PACS system, Entering year two, we plan to accelerate
we saw an overlap in the areas of we decided this was not going to be a the pace of innovation. As we keep at this
improving patient health, lowering costs radiology project, but an enterprise-wide for the remainder of the 15 years, we are
and increasing efficiency. We both wanted project. We thought a great deal about creating a very different model of care
to build a better model for health care. the methods our physicians would use delivery in which innovations are built
to access images in the hospital, in the on previous learnings. We expect this to
One challenge we had was in teaching
clinic and at external locations, and how lower costs and to improve outcomes,
people that this wasnt just a big
easily they needed to be able to interact efficiency and, most important, the
equipment deal, but something very
with that image data to make patient care patient experience.
different. But it is now part of our day-to-
decisions. It was about changing the way
day operations across the organization,
images would move in the entire health
not the responsibility of a single team.
system for everybody.
What Philips saw in us was alignment. In
many hospitals, there is a lack of alignment
between hospital staff and physicians.
In our case, rather than having different
departments fight over types of equipment
Because we have Philips and our
to be used, or workflow, our departments patient advisors sitting at the design
work collaboratively and have done so
for decades. In that type of environment, table with us, I think were able to
Philips doesnt get stuck in the middle of a
debate between what the doctors want or make much better decisions.
what different specialists want.

Medical technology report 2014 15


Perspectives

Creating scope in a In some cases, the push to add product and diabetes markets, while Covidien
single disease area scope may turn buyers into sellers. As we specializes in hospital supplies. Together,
have witnessed in the pharma business, the combined entity will be one of the
Two deals in the 12-month period ending
or with Johnson & Johnsons divestiture leading medtech distributers in six of the
30 June 2014 showcase how therapeutic
of its Ortho-Clinical Diagnostics division, top 10 hospital purchasing categories,
device companies are broadening the
larger companies may realign their according to Medtronic.
scope of their product offerings.
portfolios to create fewer business units
with competitive scale. (See Seeking The addition of Covidien broadens our
The first is Zimmer Holdings proposed footprint, Medtronic Chairman and
acquisition of Biomet; the second is the scale on page 57.)
CEO Omar Ishrak told an interviewer
Medtronic/Covidien megadeal, which is after the announcement of the merger.
an even more ambitious effort to create Creating scope in
The value proposition of Covidiens
scale across multiple disease areas. multiple disease areas technology is primarily to deliver hospital
If the Zimmer/Biomet and Danaher/ efficiency, while Medtronics chronic
The US$13.4 billion Zimmer/Biomet deal
creates an orthopedic player with the Nobel Biocare mergers are motivated by disease therapies deliver value in post-
critical mass to rival Johnson & Johnsons deepening product scope, Medtronic/ acute settings. When these two are
DePuy Synthes. As Pulse went to press, Covidien takes the argument to a new combined, in a world in which integrated
European regulators were assessing the level. In essence, executives championing health franchises will be more common,
anti-trust implications of the Zimmer/ that megamerger argue that depth in we become a very attractive partner
Biomet deal. Assuming it proceeds, the one particular disease area is no longer we can deliver value in the hospital, in
transaction will combine the number sufficient. To change conversations a measurable fashion, and value that is
two orthopedics player by revenue with hospital purchasers, especially realized outside the hospital.
(Zimmer) with the fourth-ranked firm as vendor consolidation continues,
medtech developers must have breadth In an era when health care buyers are
to create a new entity with revenues of
across multiple disease areas. Call it the inundated with must-dos, it may well be
nearly US$8 billion. Importantly, the deal
ber-scope approach. that the scale of a Medtronic/Covidien
promises to position Zimmer as a leader in
makes such entities more attractive
the musculoskeletal sector, with particular
Its too soon to say whether the suppliers during contract negotiations.
depth in knee and hip implants. Biomets
Medtronic/Covidien transaction will have Indeed, the emergence of a new initiative
sports medicine products, meantime,
a positive impact on the ways in which the in the US, SharedClarity, which is
will give Zimmer additional depth in the
combined entity brokers contracts with sponsored by the payer UnitedHealth
trauma market, an area where Johnson &
hospital purchasers, or whether scale at Group in conjunction with multiple provider
Johnson currently dominates because of
this level is required to achieve greater groups, underscores why medtech
its 2011 megadeal with Synthes.
leverage with health care buyers. That executives see scaling their businesses as
The Zimmer/Biomet transaction is said, there is no doubt that Medtronic/ an important strategic priority.
expected to trigger even more deal- Covidien has already altered the
The dearth of comparative data has long
making in the orthopedic space, as conversation about the role of medtech
vexed medtech customers who argue the
smaller firms seek scale to remain M&A in creating entities that can survive
rate and volume of the research hasnt
competitive. Moreover, we may see in todays tougher health care climate.
kept pace with the introduction of new
similar deals to deepen product offerings
in other therapeutic areas especially As we note on page 68, the US$42.9 billion products. SharedClarity was created at
those with an abundance of competitors. merger joins two leading medtech least partially to rectify that situation,
Indeed, as we were writing Pulse, news companies to create a new entity that as well as to deliberately correlate
broke that Danaher was to acquire will rival Johnson & Johnsons medtech existing research with value claims. As
Nobel Biocare Holding for US$2.2 billion division in annual sales. Medtronic and SharedClaritys President, Mark West,
to create the leading dental-focused Covidien offer complementary product explains on page 18, the company recruits
medtech based on sales of consumables portfolios: Medtronic supplies a range physicians from its member hospitals
and equipment. of devices for the cardiology, neurology to review the published literature and

16 EY | Pulse of the industry


Perspectives

Customers are increasingly


demanding more data before
they commit to a purchase and
are not necessarily getting it.

establish which technologies provide Medtronic/Covidien is better positioned to about clinical outcomes and impact on
better health outcomes. SharedClarity negotiate those purchasing agreements the patient with every new technology
then takes the process one step further: because its economies of scale mean it Ive assessed, says Georgia Regents
its sourcing group also negotiates can be more disciplined about its own Rawson. For the most part, vendors have
purchasing agreements with product costs, thereby passing along price savings not had the answers to those questions.
manufacturers based on the evidence to customers like SharedClarity while still
amassed. In March 2014, SharedClarity maintaining reasonable margins.
4. Take costs out of the
announced the results of its first review
and awarded contracts for drug-eluting Success in one purchasing negotiation is health care system
and bare metal stents. likely to breed further success, not simply
with the original buyer but with other Recognizing that commoditization is a
Apart from offering benefits to purchasing organizations. Thus, medtechs fait accompli in certain disease areas,
purchasers, the SharedClarity model that have participated, and won contracts, medtechs could also go on the offensive,
presents opportunities for medtech with groups like SharedClarity develop devising products or technologies that
companies. The first is the most relationships as trusted partners, setting provide better value because they remove
obvious a stable channel to the market. the stage for further positive negotiations. costs from the system. There are two
The second advantage is validation by ways to achieve this. First, companies
an independent third party. The final For medtech companies, achieving this can reduce their costs of production, for
advantage is the goodwill that results trust is no small matter. Customers are instance by engineering a simpler, lower-
from cooperatively participating in increasingly demanding more data before tech device or by manufacturing the
the negotiation process. Presumably, they commit to a purchase and are not product more cheaply, and passing the
a company the size of a combined necessarily getting it. Ive been asking savings on to the customer.

Medical technology report 2014 17


Perspectives Guest article

Collaborative
contracting Mark West
President, SharedClarity

The advent of SharedClarity is a very clear indication of the push Our credibility with device manufacturers
is based on the fact that the physicians
that weve seen for some time now toward outcomes and value
are engaged not only in the process
within health systems. of evaluating the product, but also in
its implementation. We dont charge
administration fees, and we are not
The concept stemmed from business diagnosis to procedure to after-care. structured like a group purchasing
reviews carried out by UnitedHealthcare What differentiates us is that we have the organization. And we have a committed
the largest commercial payer in the US data that follow that longitudinal activity. model. When our supplier for drug-eluting
and Dignity Health. The theme of medical stents signed the contract, they notified us
devices kept coming up, in particular We recently completed the clinical review it was the largest committed contract in the
the lack of independent knowledge of and contracting process for our first three United States that they remember signing.
how these products perform, and their products drug-eluting stents, bare metal
affordability. I was head of supply chain stents and peripheral stents a process Something I didnt expect is that we are a
at the Cleveland Clinic and was asked that took six months. Clinical review change management company, too. We
to develop some business models, one teams first look at existing research on are changing the processes and culture
of which is SharedClarity. Over the last the product. They survey specialists who administrative and physician engagement,
four years, we have taken the concept to use the product to get input on product joint decision-making within our health
business plan, to investment, to operations, attributes and performance. Then we see system members and the medical device
and now we are achieving results. if theres consensus on how the products community.
perform. If there isnt, we ask: why not?
The business model is two-fold. One What information and data are lacking? Suppliers are in the process of trying to
side of it is understanding how medical What holes in our clinical knowledge base figure out the model of the future, and who
devices perform, and the other is do we need to fill? This could lead us to they should partner with. Their relationship
collaborative contracting within our own more surveys, more reviews of existing with physicians has changed. They realize
membership, which now includes Baylor research or a customized study. that payers play an important new role, and
Scott & White Health, Advocate Health they are working out how to engage with
Care and McLaren Health Care, as well as Once the clinical review team has done its them. That is one reason why we have built
UnitedHealthcare and Dignity. work, we go to a collaborative contracting a process that engages not only the payers
process on behalf of our members. Here, but the providers, and creates an easy
On the clinical side, we have identified our strategy is simple: first, we take the entry for them that way. They have been
30 product families on which to focus output from the clinical review teams very receptive to what were doing, and we
high-cost, high-technology, high-clinical- and their findings. Second, our members see ourselves as their future partners.
impact products, such as pacemakers, commit to purchasing a significant portion
defibrillators, stents, knees, hips and of their volume off SharedClarity contracts. Our growth opportunities are global.
urological slings. Together, these 30 And third, we use the findings of our UnitedHealthcare bought Amil [Brazils
product families account for about clinical review team to help us to rationalize largest insurer and hospital operator]. This
US$35billion a year in the US market. the number of products that we use. represents a fascinating opportunity
We assign those products a clinical Amil is using some products that arent
review team, and we go through a The clinical review and contracting approved for the US. Its good to gain
structured clinical product review for process went very well for our first three some intelligence on those products,
each. We also tap into Optum, which is products. Every one of our members and to have an opportunity to do global
owned by UnitedHealth, for comparative achieved double-digit cost savings on the contracts for medical devices. I think well
effectiveness work. We believe that if you contracts it was the type of quantum see more globalization of products, and
really want to understand how a product leap of improved affordability that we the more options and competition we
performs, you have to follow the patient, were hoping for. have, the better it is for patients.
and you have to have data that go from

18 EY | Pulse of the industry


Perspectives

The second way is predicated on taking create a socialized health care system for to developing messages that emphasize
costs out of the system. In this scenario, 1.5 billion people is the largest opportunity their customer-centricity, reliability and
how the actual medical technology is in the world for medtech firms, says Rob partnering capabilities. In essence, this
priced isnt the main focus; what matters ten Hoedt of Eucomed and Medtronic. beyond-the-product style of branding
most is whether the product results in is a natural evolutionary step in an
credible cost offsets that reduce the total As companies redesign and adapt environment where the differences
cost of care. their portfolios to develop products between individual products are
for emerging markets, they may take perceived to be small or non-existent.
This is the bar Johnson & Johnsons advantage of this reverse product flow
Ethicon division is hoping to clear with to build no-frills, lower-cost products for Moving forward, it will be interesting to
Sedasys, its computer-assisted anesthetic use in developed markets. Thats what see how or if medtechs will position
delivery system for colon cancer and Smith & Nephew is doing via Syncera, an themselves as brand builders. In other
upper gastrointestinal screenings. orthopedics-focused pilot that reduces words, can the medtechs, via their
Given the sophisticated automation the need for on-site technicians and other products and services, help providers
underpinning Sedasys, the instrument can services associated with two key hip and achieve top-quality care metrics that allow
be used to deliver the anesthetic propofol knee replacement products. As a result of these care teams to attract more patients
in the absence of an anesthesiologist. these changes, Smith & Nephew believes and build share in their own respective
(The gastroenterologist conducting the it can reduce implant costs by as much markets? By directly empowering care
exam would oversee the drugs delivery.) as 50%. The company first introduced providers, medtechs that enhance the
Johnson & Johnson estimates this will the Syncera pilot in emerging markets; bottom lines of their customers give those
allow health care groups to cut colon in August 2014, it launched a similar buyers a very compelling reason to be
cancer screening costs significantly, experiment in the US. loyal to specific medtech brands.
from an estimated US$600-US$2,000
to around US$150. Uptake of Sedasys, At the time of the US launch, CEO Olivier When it comes to charting a new course
which launched in early 2014, has Bohuon told investors that the ultimate to differentiation, medtech companies
been modest, in part because Ethicon idea behind Syncera was to maintain have a range of options to consider, and
has deliberately chosen to make sure margins by reducing prices on its a growing number of peers to emulate.
physicians are properly trained in how and orthopedic products in tandem with less Whatever strategies for differentiating
when the device should be used before intensive marketing, a process that was differently companies ultimately adopt,
rolling it out more broadly. expected to play out over at least a year. they need to give themselves time to
So far, health care buyers are responding assess and analyze not just the nature of
Creating a new device like Sedasys positively to the experiment: Bohuon changing purchasing habits in their core
requires companies assume significant noted that several customers were poised markets, but the implications of those
manufacturing, engineering and R&D to sign multi-year Syncera contracts, changes for their products.
costs it took over a decade to develop
despite its relative newness. If you take
the instrument. But medtechs can also The strategies we have set out here
a hospital that has 700 implants a year,
either refine their engineering processes offer a good starting point for medtech
over the three-year contract this hospital
to create simpler products that can be companies as they consider the next steps
will enjoy net cash flow benefit of well
sold more cheaply, or shift manufacturing they should take to grow their markets.
over US$4 million, he said.
to markets where labor costs are lower. If their products already demonstrate
In fact, such cost-saving strategies are superior outcomes, for example, there is
already in evidence in India and China, less pressure to embark on strategies that
where both domestic and multinational
The shape of increase scope, whether that is through
medtechs are devising lower-cost, things to come additional products or services. Note that
affordable products to treat the new superior outcomes alone may no longer
and rapidly growing middle class in each In an effort to stave off commoditization, be enough to sway buyers especially
country. (See Sea change in Chinas companies must also rethink their if the innovation does not also fulfil a
medtech industry on page 20.) The fact branding strategies. They will need to purchasers key objective to take costs
that the Chinese Government wants to move beyond product-specific branding out of the system.

Medical technology report 2014 19


Perspectives

Case study

Sea change in Chinas medtech industry

A sea change is occurring in Chinas revenues in R&D. Time Medical Systems, and knee implant business of Tennessee-
medtech industry. Since 2008, the meantime, is a pioneer in the development based Wright Medical Group, and
Chinese market for medical devices has of high-temperature superconducting announced that it would base its global
nearly doubled in size, and at US$16.1 (HTS) coil technology for use in clinical orthopedic business in Tennessee.
billion is now second only to the US. MRI scanners, while MicroPort is
Double-digit growth rates for medtech developing its own drug-eluting stents. Dr. Olaf Schermeier, Chief Officer for
sales have put China at the forefront Global R&D at Fresenius Medical Care,
of multinational medtech companies These companies, and a growing number understands the potential risks to his
strategies. But their enthusiasm comes of others, offer stiff competition for business model. We are one of the
with a note of caution: an evolving multinational companies products largest renal care product providers
regulatory environment and government in China and not just in terms of in China, but competition will certainly
policies aimed at boosting the domestic product sales. They are actively seeking come, he says. We should never
industry mean that the path to market M&A opportunities, both at home and underestimate local [Chinese] engineers.
already complicated is not likely to internationally, in order to boost the
quality of their product lines. In June But equally, the skills learned by
become simpler. Meanwhile, many
2013, Mindray acquired California multinational companies in developing
Chinese medtech companies have
company Zonare Medical Systems, an low-cost products for the Chinese
stepped up their investment in innovation,
ultrasound technology specialist in the market and the agility they have had
with an eye on the global market.
high-end radiology segment with sales to maintain in keeping up with policy
High-end in vitro diagnostics specialist teams in the US, Canada, Scandinavia and changes will also add value in their
Mindray Medical International, for Germany. In the same month, MicroPort home markets, where health reform and
instance, invests around 10% of its Scientific acquired OrthoRecon, the hip commoditization are now facts of life.

20 EY | Pulse of the industry


Guest article Perspectives

Why medtech
Rob ten Hoedt
should embrace
Chairman, Eucomed
Executive Vice President & President EMEA & Canada, Medtronic commoditization
Commoditization is a natural trend in any technology-based industry. in the delivery of care so that we can
guarantee that those other activities are
But the medtech industry should not regard it as a threat. I would
done properly and the maximum benefit
rather ask: How will medtech benefit from the opportunities this of our technology is realized. Not only do
trendis creating? we need to collect and share data, but
we must also find ways to ensure that the
appropriate care is delivered.
Western Europe currently spends may not be accepted because it slightly
We can only achieve this if there is
110billion on health care. It has become increases the cost of care in the hospital.
complete trust in what we do, among
clear that growth in health care spending
Clearly, debate and discussion need to policy makers, payers, providers and
cannot continue to outpace the growth
happen between the medtech industry patients. It is important for Eucomed to
of gross national product. If we dont find
and health care providers to make sure work with the European Commission to
a way to provide care in a completely
that we are all focused on the total cost of make sure that regulations for medtech
innovative way, fewer people will have
care. As an industry, we cant expect care optimize the quality of the technologies
access to adequate care.
providers to simply pay for the technology that come to market, but dont stifle
The drive to value in health care is behind and then figure out themselves where innovation, which would be equally
the commoditization of medtech. And the benefits will fall. If we are convinced devastating for patients.
while only a small portion of spending of the benefits of our technologies, we
As people start to pay more out of
currently goes to medical devices, the may have to guarantee those benefits up
their own pockets for health care,
medtech industry will soon have a major front with a risk-sharing agreement. That
they will demand more in return, at
role to play in care delivery if the drive will dramatically change our traditional
higher quality. Although we believe
to value transforms care in the way it business model, but it will also open up
that patients should have a bigger say,
should. There is massive potential in a much larger portion of the market and
medtech industry business models
remote patient management, using improve patients access to therapies.
are predominantly focused on care
smart IT and decision-making platforms
Were an engineering-driven industry, providers, payers and regulators. One of
to allow patients to live a healthy life at
and that spirit needs to stay alive. If you our objectives at Eucomed is to create
home. There are opportunities in data
only take economic values into account, a dialog with patients so that we can
management and analysis to improve
you will never end up with something build relationships, understand patients
the consistency and quality of care.
truly innovative. But the moment that expectations and understand the
There are opportunities to incorporate
technologies are created, all companies language that we as an industry should
robotics and nanotechnology. We can
whether they are small, medium or start to use to communicate with patients.
now deliver technologies and drugdevice
combinations at very small levels to large medtech firms need to initiate
precisely the places they are needed. discussions about value.
A healthy environment for medtech is
crucial for these developments.
If we in medtech are to genuinely improve
delivery of care, we need to move beyond
We need to provide
We need to provide technologies that the transactional model and take more technologies that
have clear health benefits, but we also responsibility for patient outcomes.
have to prove that they have clear We should get paid when the desired have clear health
outcome is achieved. The device is only
economic benefits. There is growing
awareness that medical technology can part of the total solution for the patient. In benefits, but we
offer value across the health system, but diabetes, for example, patients may need
an insulin pump, insulin, exercise and a
also have to prove
health care systems themselves have
difficulty dealing with that. A product healthy diet in order to get well. We need that they have clear
may be shown to decrease the cost of to do more than just supply the insulin
care after a patient is discharged, but it pump. We need to become more active economic benefits.

Medical technology report 2014 21


Perspectives Guest article

Taking a new Jos E. Almeida


approach Chairman, AdvaMed
Chairman, President and Chief Executive Officer, Covidien

Innovation has long been a hallmark of the medical technology to US$200,000 per year through a
sharedsavings arrangement whereby
industry. The groundbreaking products created by entrepreneurial
our sales reps for select product areas
device and diagnostics companies have led to remarkable serve as utilization managers. Under this
improvements in patient outcomes over the last several decades. program, payment for our offerings is
Fueled by research and development budgets that are more than twice based on appropriate utilization, not just
on the amount sold.
the average for other US industries, the device industry continues to
frequently bring new and improved iterations of products to market. These approaches recognize the shifting
challenges facing providers today, and
the results are positive for all parties. For
While innovating to save and improve lives foresight to leverage its strengths in new such partnerships to work, however, all
will always be a central focus, economic ways to partner with payers and provide stakeholders must be willing to look beyond
pressures on providers, payers and other value in a wider sense. their traditional roles and experiment with
stakeholders are increasing, and the new ways of collaborating. In addition to
medical technology industry must find At Covidien, for example, we are piloting finding new ways to use the information
ways to reach beyond its core strengths several new approaches to help health care we get from our day-to-day interaction
of developing next-generation treatments systems meet the challenges of todays with providers, there is an opportunity for
and cures if it is to continue thriving. highly dynamic health care environment. medical technology players to create value
by helping patients make better-informed
Change has been rapid and sweeping. One is our Project CARES (Covidien care decisions. Covidien is partnering
The Patient Protection and Affordable Analytics to Reduce Episode Spend) pilot with United Healthcare on a pilot initiative
Care Act, growing pressures of cost program, which leverages the analytics to help patients in our workforce better
containment, provider consolidation expertise of our medical affairs team to understand the advantages of minimally
and other market forces are working help hospitals better understand why invasive surgical approaches. We aim to
to fundamentally alter the landscape. health care providers spend different see if this information incents patients to
Changing incentives are prompting payers amounts of money to care for patients choose providers who have proven results
and providers to explore new payment with the same disease. Most hospitals do in these approaches, which often have
mechanisms such as accountable care not have the data analysis infrastructure better outcomes at lower costs.
organizations, bundling and pay-for- and specialized capabilities to identify
performance that place a premium on and address this cost variation or the These programs and others that are
delivering high-quality patient care with reasons behind it. By providing detailed beginning to emerge are just a start,
greater efficiency and lower costs. No analysis of a hospitals end-to-end cost but they show what might be possible.
less important, todays patients armed of care, Project CARES helps institutions The challenge ahead will be to think of
with the latest online intelligence and identify opportunities to capture value innovation in a way that looks beyond the
demanding the best modern care has to through improving episode performance; next breakthrough product to additional
offer are taking a more proactive role in benchmark how they are performing ways that medical technology companies
their health care decision-making. relative to their peers; and pinpoint areas can partner with all stakeholders
with the largest potential for improvement. patients, physicians, health care systems
To meet these many challenges, medical and payers to develop solutions that will
technology companies need to take a new Covidien is also looking at ways to help enhance care while benefiting the overall
approach. Other than working to secure identify unnecessary variation in resource health care system.
positive coverage policies, our industry utilization. For example, in a pilot program
has not traditionally engaged deeply with conducted with Fairview Health Services
payers. Yet, we are uniquely positioned to in Minneapolis, we were able to develop
partner with both payers and health care appropriate standards and best practices
systems to redesign care, eliminate waste for utilization of our products. Through
and improve patient outcomes. I believe this program, we have been able to help
our industry has both the ability and Fairview save a projected US$100,000

22 EY | Pulse of the industry


Guest article Perspectives

Strength,
resilience
John J. Greisch
President and Chief Executive Officer, Hill-Rom and energy
In 2014, goalie Tim Howard and the US Mens Soccer Team captured providers track and record hand washing
opportunities and measure compliance
the hearts of Americans and soccer fans around the globe in an
based on existing hygiene protocols.
exciting bid for the World Cup. Here in Chicago, the 1July2014 game The data can be viewed in real time at
with Belgium drew 28,000 fans to a viewing event at Soldier Field! the individual, unit or hospital level to
facilitate infection control.
In the Belgium contest, Tim Howard made the premier reason we exist to improve
Exhibit leadership. In this challenging
a World Cup record-setting 16 saves. His the lives of patients and caregivers
landscape, leadership and management
performance, gritty determination and through our innovative technologies. If
will separate successful medtech
commitment to the game and to his we keep our focus where it should be,
companies from the pack. The voices
team made for great drama. Howard the associated metrics on cost, quality
speaking about health care are many and
has a reputation for playing through (including patient engagement and patient
varied, and all have important messages.
pain; his resilience, strength and energy satisfaction) and outcomes are likely to
As an industry, we must redouble our
serve as a metaphor for what it will take be more easily addressed. For example,
commitment to aggressively and distinctly
for medical technology companies to numerous studies show that encouraging
speak to the important contributions
succeedin the future. patient mobility not only helps improve
medtechs make, not only for patients,
patient outcomes, but also has a positive
The environment for medical technology but also as engines for economic growth.
effect on a hospitals bottom line. At
companies continues to be challenging. We must continue to work toward an
Hill-Rom, weve designed a progressive
The uneasy global economy and volatile environment that promotes investment in
mobility program to help make it easier
health care market mean our customers innovation and job creation.
for hospitals to get ICU patients moving
face unprecedented pressure. as quickly as possible. The program is In short, inspired by this summers
built on the most recent clinical evidence, performance by Tim Howard and his
In our more mature markets, hospitals
checked by national thought leaders, and team, well need to play through a bit of
everywhere are looking for ways to
provides the practical tools necessary to pain. The medtech industry will need to
reduce costs. More than ever before,
hospitals are being thoughtful about the improve patient mobility. call upon similar strength, resilience and
level of service they want to provide, energy to successfully navigate todays
Empathize with the customer. The
deciding what is essential and what isnt; health care environment. In particular, we
reimbursement landscape has changed
they are looking for what truly will make need to focus on patients and caregivers,
fundamentally. Hospitals and clinicians
a difference in outcomes, and discarding respond to our customers and lead to
everywhere resonate with the mantra of
what will be merely incremental. In the last whistle.
doing more with less. In more developed
developing markets, the circumstances
markets, the payment incentive structure
are different, but governments and
emphasizes quality, access and choice
payers are asking the same question: How
but generally not volume. This paradigm
can they deliver optimal care to the most
shift is taking place where the difference
people for the least cost?
between victory and defeat is a margin Governments and
of 2% or less, so workflow efficiency
To be successful in the coming years,
the medical technology industry must is a key area of strategic focus. Today, payers are asking
be laser-focused and bring the strength,
resilience and energy Tim Howard
more than ever, medtech partners
will distinguish themselves by fully
the same question:
embodies to the health care arena. In appreciating, articulating and responding
to their customers needs. One big need:
How can they deliver
particular, we must:
reducing hospital-acquired infections, optimal care to the
Retain strong focus on whats best which in the US are estimated to cost
for patients and caregivers. Intense up to US$45 billion annually. To help most people for the
business and regulatory pressures can hospitals, Hill-Rom has created a software
sometimes divert our attentions from program using locating technology to help least cost?

Medical technology report 2014 23


Perspectives Guest article

Charting Joseph M. DeVivo


a new course President & Chief Executive Officer,
AngioDynamics

This year, one of the largest medical device deals in history, Zimmer/Biomet, was followed by the largest-
ever medical device deal, Medtronic/Covidien. While the industry has seen megadeals before, I believe recent
deals like these are signposts of the medical technology industrys future, potentially charting a new course in
medical device M&A.

I believe this activity illustrates the The answers to these questions, though, outcomes. More than ever, we need
industrys attempt to rebalance the have enormous implications for medical effective clinical and economic trials
bargaining power payers and providers device companies now and in the future. that clearly demonstrate that our new
have gained during the last decade. Whatever the outcome, we need to be technologies achieve these results within
Previous unions have been driven by prepared for a new paradigm. Do we align the current budget cycle. If we accomplish
cost savings and call-point synergies, but with other like companies to provide new this within our focused segments, we will
the megadeal activity over the past year bundles? Do we consider smaller-scale always have a vital role to play regardless
seems to signal that product line breadth service models to help our customers of the model that emerges.
and market leverage are the strengths take out cost? Do we ignore the trend
executives seek in todays market. altogether and go about our business? While our industry has arrived at a
Do we pretty ourselves up for sale to be a crossroads, our customers values have
Will this activity mark the nascent stages part of an ultra-scale world? not changed. I believe the market has
of a mass consolidation similar to what proven it demands technologies that
happened in the pharmaceutical industry In the face of this change, I believe mid- both improve outcomes and reduce
in the early 1990s, resulting in a few sized companies like AngioDynamics must costs. Strategies to expand market share
ultra-scale companies? If so, how will identify how they thrive in this emerging are important, but ultimately, for our
these ultra-scale companies leverage paradigm. If we are moving down the industry to advance, we must also invest
their breadth to bundle diverse products? path of Big MedTech, I believe mid-sized in innovation.
Will we witness the re-emergence of companies are presented with an even
anticompetitive practices that were greater opportunity to drive disruptive It is time to focus our considerable energy
challenged by the Senate Judiciary innovation into the marketplace, because and knowledge on those innovations that
Committee or will new business often, the casualty of scale is focus. bring clinical and economic improvements
models emerge in which medtechs to the health care system. That is
combine products, services and analytic Within our targeted segments, we must medtechs winning one-two punch.
capabilities along the continuum of care leverage our focus to develop disruptive
to help providers deliver better results? technologies that meet customers needs
Given the breadth and scope, the latter is while simultaneously reducing overall
a very good possibility. health care costs and improving patient

While our industry has arrived at a crossroads, our customers


values have not changed. I believe the market has proven it demands
technologies that both improve outcomes and reduce costs.

24 EY | Pulse of the industry


Part 2 | Industry performance
performance
Industry
Part 2
Industry performance
1 | Financial performance

26 EY | Pulse of the industry


Financial performance

Holding steady
In the 2013 edition of Pulse, we outlined the storms buffeting the medical technology sector, including
the shift to value-based health care and growing regulatory pressures. Over the course of 2013,
these headwinds didnt abate. Still, based on the annual financial performance metrics we collect,
the medtech industry, while not pressing full steam ahead, has maintained course amid changeable
commercial seas.

Taking advantage of health cares warming Medical technology at a glance, 201213


financial climate and a pronounced (US$b, data for pure-plays except where indicated)
uptick in market capitalization, medtech
Public company data 2013 2012 % change
companies strengthened their cash
positions and charted modest revenue Revenues $336.2 $323.6 4%

growth. Even so, in the wake of a years- Conglomerates $153.8 $149.1 3%


long period of financial restrictions, Pure-play companies $182.4 $174.5 5%
most medtech players were reluctant R&D expense $13.5 $12.7 7%
to invest their cash in activities that SG&A expense $60.6 $57.9 5%
set the stage for future growth. Thus, Net income $16.5 $14.2 16%
while R&D investment and headcount Cash and cash equivalents and short-term investments $58.1 $46.7 24%
expanded 7% and 5%, respectively, from
Market capitalization $566.7 $432.9 31%
2012 to 2013, these increases were
Number of employees 671,100 641,300 5%
unexceptional compared to the additional
Number of public companies 376 381 1%
cash companies added to their balance
sheets or the money they returned to Numbers may appear to be inconsistent due to rounding. Data shown for US and European public companies.
shareholders during the same period. Market capitalization data is shown for 31 December 2013 and 31 December 2012.
Source: EY, Capital IQ and company financial statement data.
Context is also critical when evaluating
the 16% year-on-year increase in net
income. On the surface, the double-digit
percentage growth in net income is a impact on companies on both sides of analysis shows which medtech segments
welcome change from the 24% decrease the Atlantic. Based on our analysis of the achieved the greatest annual revenue
in net income that took place from 2011 top 10 US-based medtechs, currency growth: pure-play businesses (e.g.,
to 2012. However, the picture changes shifts dragged down their European non-conglomerates) in the non-imaging
when one realizes 2013s net income revenues by an average of 1.5% in 2013. diagnostics and imaging sectors
growth was boosted by a series of Meantime, those same shifts resulted in performed the best, each posting 7%
charges incurred by Boston Scientific in the inflation of European firms revenues revenue growth. The research and other
2012. Normalizing for these charges, net by approximately 3%. equipment segment saw its year-over-
income actually fell by 2.6%. year revenues expand 5%. Meantime,
performance of the therapeutic device
The global numbers only tell part of A modest uptick class, by far the biggest category in
the story. Grasping the full picture medtech, was roughly equal to the
requires parsing the data to understand in revenues revenue growth for the sector.
which companies and this year, which
types of medtech companies drove After converting all results into US The slight revenue growth of therapeutic
the overall trends, as well as how dollars, the 2013 revenues of US and device medtechs is explained by the
currency fluctuations impacted overall European companies increased by performance of the cardiovascular and
financial performance. Once again, the 4%, an improvement over 2012, when orthopedic players, which reported 3%
strengthening dollar had a material the top line grew just 2%. Additional and 4% revenue growth, respectively.

Medical technology report 2014 27


Such modest revenue growth is hardly a it can improve its top line. While Wall make the combined entity the leading
new phenomenon, but it does present a Street analysts and mass media have device manufacturer in six of the top
conundrum, given that the disease areas focused primarily on the tax advantages 10 hospital purchasing categories. (See
with the most potential for growth dont Medtronic will enjoy by moving its Medtronic/Covidien: emblematic of what
have the same overall market potential as headquarters from the US to Ireland, the medtech is buying now on page 68.)
the medtech industrys historic mainstays. companies complementary pipelines will

On a percentage basis, 2013 revenue


growth for US and EU therapeutic device Change in US and European therapeutic device companies
companies was strongest in the following revenue and net income by disease category, 2013 vs. 2012
disease categories: gastrointestinal (US$b)
(118%), hematology/renal (21%) and
Revenue Net income
womens health (16%). If anything, these
numbers highlight why companies and Cardiovascular/
analysts alike were so excited by the Oncology vascular Dental Multiple Ophthalmic Orthopedic
$5
opportunity in renal denervation for
hypertension and so devastated when
$4
negative clinical trial data sent companies
such as Medtronic and St. Jude Medical $3
back to the drawing board in early 2014.
$2
US$b

To accelerate top-line growth, industry


players, especially those in the $1
therapeutic device class, will need to
increase their M&A activities in addition $0

to improving their organic growth. The


$1
biggest deal announced thus far in
2014 Medtronic/Covidien shows how
$2
at least one pure-play medtech believes
Data shown for pure-play companies only.

Source: EY, Capital IQ and company financial statement data.

28 EY | Pulse of the industry


Commercial leaders hold steady
Since 2009, the number of medtech US and European commercial leaders, 200913
commercial leaders, defined as those > US$10b US$2.5bUS$5b US$0.5bUS$1b
companies with revenues in excess of US$5bUS$10b US$1bUS$2.5b
US$500 million, has remained constant
thanks to the push and pull of M&A. In 60 2
2 3
4 3 2
2013, this pool of medtechs expanded 5 6 5
50 6
from 56 to 58, as Masimo and Thoratec 11
9
8 9
Number of companies

joined the leader board for the first time 9


40
as a result of organic growth.
30 26
Masimo, best known for its pulse 26 27 25 27
oximetry devices, is a California-based
20
manufacturer of non-invasive patient
monitoring tools, while Thoratec 10
16 15 13 14 14
specializes in the development of products
to treat patients with advanced heart 0
2009 2010 2011 2012 2013
failure. Medtronic remained the largest
pure-play medtech, with US$16.6 billion Source: EY, Capital IQ and company financial statement data.

in revenue, followed by research and


equipment behemoth Thermo Fisher
Scientific (US$13.3 billion). Covidien,
meanwhile, posted US$10.2 billion in saw a 22% yearly gain in net income. which saw its net income fall US$279
2013 revenues, joining that elite club of This metric was heavily influenced by million as a result of charges associated
medtechs with annual revenues greater Boston Scientifics improved financial with its acquisition of BioMimetic
than US$10 billion. performance in 2013 relative to Therapeutics. Four other companies saw
2012. When the data were normalized their net incomes drop at least US$50
for Boston Scientifics results, the million from 2012 to 2013.
Net income inequality commercial leaders net income declined
1.5% relative to the year before. Of the different medtech categories,
Net income performance varied companies in the therapeutic device
considerably depending on company size Net income for other smaller medtechs segment saw the biggest uptick in net
and type. Commercial leaders, defined also fell, decreasing 100% from 2012 to income (21%), while imaging businesses
as pure-play medtech companies with 2013. This decline was partially fueled by reported the largest drop, falling 8%
annual sales greater than US$500 million, the 2013 performance of Wright Medical, year-over-year.

Medical technology report 2014 29


Financial performance

In addition to being influenced by outliers US public medtech cash index, 201113


like Boston Scientific, these numbers are
More than 5 years 35 years 23 years 12 years Less than 1 year
at least partially explained when one looks
at R&D investment by medtech category. 100
10% 8%
Increases in R&D spending outpaced net 14%
8% 9%
income growth for imaging, diagnostics 80 11%
11% 10%
and research and equipment businesses 7%
by 15, nine and two percentage points,
Percentage

60 24% 23% 17%


respectively; meantime, the net income
of therapeutic device firms outpaced their
R&D spend by 15 percentage points. 40

48% 49% 51%


20
Strengthening
the balance sheet 0
2011 2012 2013

Whatever the metric, the medtech sector Chart excludes companies that are cash flow positive. Numbers may appear to be inconsistent due to rounding.
has always been populated by haves
Source: EY, Capital IQ and company financial statement data.
and have-nots. That trend continued to
hold true in 2013, particularly in terms of
cash on the books. (See Financing the
future on page 42.)

An analysis of the US medtech sector European public medtech cash index, 201113
shows that in 2013, a growing number More than 5 years 35 years 23 years 12 years Less than 1 year
of companies populated either end of the
spectrum e.g., those with more than 100
14% 12% 11%
five years of cash or those with less than
11% 9%
one year of cash. Indeed, the pool of US 80 9%
companies with more than five years 6% 11% 14%
of cash expanded 42% year-over-year 60 17%
Percentage

to 14%, while one of out of every two 23% 26%


publicly traded medtechs has less than
one year of financing. 40

55%
In Europe, the opposite was true, as the 20 44% 40%
number of companies in the middle pools
those with two to five years of cash grew
0
compared to those at either end of the 2011 2012 2013
spectrum. Indeed, 49% of all publicly
Chart excludes companies that are cash flow positive. Numbers may appear to be inconsistent due to rounding.
traded European medtechs fall into this
category compared to 45% a year ago. Source: EY, Capital IQ and company financial statement data.

30 EY | Pulse of the industry


Investing for the future
From 2012 to 2013, 60% of US and just 24 in 2012. Meantime, the number of imperatives at work in the device industry,
European medtechs increased their R&D device applications submitted for 510(K) its also important to track R&D spending
spend. Thats similar to 2012, when clearance fell nearly 8% in the same period as a percentage of revenue over time.
61% of companies expanded their R&D to 2,936. These data suggest medtechs Based on this metric, R&D investment has
commitments compared to the year are spending more to test their devices held constant at 7% of the top line since
before. The total dollars spent on R&D via new, more stringent and more 2008. Thus, even though R&D spending
grew 7% to US$13.5 billion in 2013. expensive clinical trials in the hopes of grew faster than revenue in 2013, it
Thats a significant increase over the 1% differentiating products with provider and wasnt enough to change the overall R&D-
upturn reported from 2011 to 2012. Of hospital purchasers. to-revenue ratio. Coming in a year when
the 58 commercial leaders with annual medtechs saw significant growth in their
sales greater than US$500 million, 43 Year-over-year trends in medtech R&D available cash, these data suggest firms
increased their annual R&D spend during investment tell only part of the story, are taking a measured approach to their
this period, while 56% of companies in the however. To understand the strategic R&D investments.
other category upped their investment
in pipeline development. In contrast to
2012, when no company grew its R&D by
more than US$35 million, five medtechs
Hologic, Illumina, Medtronic, Stryker and
CR Bard increased their R&D spend by
more than US$60 million each.

This increase in R&D spend was likely The increase in R&D spend was
partly driven by a more challenging
regulatory and pricing environment. Based likely partly driven by a more
on our analysis of regulatory submissions
for premarket approval (PMA) or 510(K) challenging regulatory and
clearance, there were 43 original device
PMA submissions in 2013 compared to
pricing environment.

Medical technology report 2014 31


Financial performance

Returning cash to shareholders


If medtechs as an industry didnt double- dollars returned annually to shareholders dividend by 8% and repurchased more
down on R&D, how did companies spend have equaled or exceeded the dollars than 30 million shares of common stock.
their cash? That question is partly spent on R&D. Other companies that rewarded investors
answered by medtechs need to balance via stock buybacks or dividends in 2013
the demands of longer-term growth Moreover, while medtechs are returning included Covidien, St. Jude Medical and
with the shorter-term expectations more money to shareholders overall, the Intuitive Surgical.
of shareholders. In 2013, medtech pool of companies doing so has shrunk
companies returned 56% of their net cash since 2008, when 183 device firms either There are important implications from
generated through operations (US$16.7 issued dividends or repurchased stock. these findings. Note that in the biotech
billion) to shareholders, an increase of In 2013, 162 companies returned cash sector, lengthy and expensive product
seven percentage points over 2012. In to shareholders in the form of dividends development time lines can create tension
dollar terms, thats US$3.5 billion more or stock buybacks. Medtronic was among with shareholders looking for nearer-term
than they invested in R&D during the the most active, returning more than returns via share repurchases or a dividend.
same period. Indeed, since 2010, the US$2.3 billion in cash as it increased its This tension isnt as pronounced in the
device sector, where shorter development
times allow medtechs to recoup their R&D
investment dollars more quickly.
Since 2010, medtechs are returning more cash to
shareholders than they are investing in R&D That medtech companies are choosing
to return more money to shareholders
Cash returned to shareholders R&D than they are investing in R&D therefore
suggests they believe they can create
$18 more value for investors by returning cash
to them than they can by investing it in
R&D or M&A initiatives. In an innovation-
$16
driven industry, thats quite telling and may
be one more indication of the challenging
$14 regulatory and pricing environment.

$12
A rising tide
$10 lifts all medtechs
US$b

Since the beginning of 2012, the share


$8 prices of medtechs, like other health care
companies, outpaced the broader indices
$6 in both the US and Europe. In comparison
to the huge run-up seen in biotech
(driven by the extraordinary revenue and
$4
profit growth of the commercial leading
biotechs), medtechs performance looks
$2 more modest. Still, even the 31% increase
in market capitalization for EYs medtech
$0
index could be viewed as extraordinary
2008 2009 2010 2011 2012 2013 given that the medtech industrys top
line grew modestly and normalized net
Source: EY, Capital IQ and company financial statement data. income declined.

32 EY | Pulse of the industry


Financial performance

What drove the growth? US market capitalization relative to leading indices, 201214
EY US medtech industry Russell 3000 NASDAQ Composite Big pharma
For starters, investors had extremely
80%
low expectations for the group, given
the potential impact of the US medical
device tax on the bottom line and ongoing 60%
reimbursement pressures. These low
expectations, coupled with positive
financial turnaround stories of players 40%
such as Boston Scientific, helped build
a case for an undervalued medtech 20%
sector in 2013. As the calendar flipped
to 2014, a bolus of late-stage products
fueled optimism that 2014 would result 0%
in an emerging pipeline story that would
drive top-line growth for years to come.
20%
The end result: in the medtech space, 2012 2013 2014
the market capitalizations of US and EU Chart includes companies that were active on 30 June 2014.
commercial leaders increased 30% from
Source: EY and Capital IQ.
2012 to 2013, while smaller players
enjoyed a 34% uptick.

Analyzing the medtech sector by


product type, its easier to parse which
US market capitalization by product type, 201214
companies drove the growth in market EY US medtech industry Research and other equipment Non-imaging diagnostics
capitalization. Indeed, this growth was Therapeutic devices (total) Imaging
largely driven by companies in the 160%
research and other equipment space;
in the US, share prices for that class
surged 153% from 1 January 2012 to 120%

30 June 2014, increasing from US$34.5


billion to US$94.3 billion. In comparison, 80%
therapeutic device companies generated
returns around 28%, in line with the
Russell 3000 and below the NASDAQ. 40%

0%

40%
2012 2013 2014

Chart includes companies that were active on 30 June 2014.

Source: EY and Capital IQ.

Medical technology report 2014 33


Financial performance

That research and other equipment European market capitalization relative to leading indices, 201214
companies drove shareholder returns in the EY European medtech industry CAC-40 DAX FTSE 100 Big pharma
medtech sector in 2013 isnt too surprising.
Given this group sells products directly to 80%
other life sciences companies, which are
themselves trying to improve their R&D
60%
efficiency, it is easy to see how read-through
from the biotech boom positively impacted
investors perceptions of these companies. 40%
Among the biggest gainers: Thermo Fisher
Scientific, which showed itself to be a top
20%
player and boosted its reach and product
offerings via its US$13.6 billion purchase of
Life Technologies. Investors also rewarded 0%
Illumina, which posted strong revenue
growth, growing margins and a solid cash
position, sending its market capitalization up 20%
2012 2013 2014
US$19.2 billion since the beginning of 2012.
Chart includes companies that were active on 30 June 2014.

Source: EY and Capital IQ.

European market capitalization by product type, 201214


EY European medtech industry Research and other equipment Non-imaging diagnostics
Therapeutic devices (total) Imaging

100%

Growth was 80%

largely driven 60%

by companies 40%

in the research 20%

and other 0%

equipment
20%
2012 2013 2014

space. Chart includes companies that were active on 30 June 2014.

Source: EY and Capital IQ.

34 EY | Pulse of the industry


Financial performance US

United States
Financial performance

The 2013 financial performance of US public companies closely resembled the financial performance of the sector
overall. While no major acquisitions skewed the numbers, a stronger US dollar negatively affected the results state-
side by approximately 1.5%. Thus, adjusting for currency fluctuations, 2013 revenues would have increased 5.5%.
Although this growth rate is below the industrys average prior to the great recession, it is a solid result, suggesting
US medtechs are holding steady in a challenging reimbursement and pricing climate.

The brighter or at least stable revenue US medtech at a glance, 201213


picture was accompanied by a 6% jump (US$b, data for pure-plays except where indicated)
in the R&D spend to US$10.7 billion,
Public company data 2013 2012 % change
up from the 1% and 2% increases seen
Revenues $218.5 $210.5 4%
in 2012 and 2011, respectively. An Conglomerates $85.6 $82.8 3%
analysis of the data shows that 62% of Pure-play companies $132.9 $127.7 4%
US companies increased their R&D spend R&D expense $10.7 $10.1 6%
in 2013, down slightly from 2012, when SG&A expense $42.5 $41.6 2%
66% of US medtechs expanded their Net income $11.4 $8.6 32%
R&D investment. As a group, pure-play Cash and cash equivalents and short-term investments $49.8 $39.8 25%
medtechs spent 8.1% of their top line on Market capitalization $422.4 $309.3 37%
R&D efforts, with the commercial leaders Number of employees 458,800 435,300 5%
Number of public companies 224 231 3%
turning in a steady 7.4%.
Numbers may appear to be inconsistent due to rounding.
Net income grew 32% compared to 2012, Market capitalization data is shown for 31 December 2013 and 31 December 2012.
a welcome change from the year prior, Source: EY, Capital IQ and company financial statement data.
when it fell 37%. However, impairment
charges taken by Boston Scientific in US commercial leaders and other companies, 201213
2012 influenced the results. Normalizing (US$b)
for these charges, net income growth was
2013 2012 % change
0%, in line with the normalized growth
Commercial leaders
seen in 2012 (0.5%) and 2011 (-1%). Revenues $119.7 $114.2 5%
R&D expense $8.8 $8.1 8%
Renewed confidence in the medtech
Net income (loss) $13.4 $9.7 37%
sector was also bolstered by strong Market capitalization $365.2 $266.2 37%
improvement in market capitalizations, Number of employees 405,800 379,800 7%
which surged 37% in 2013, compared to Other companies
only a 4% growth in 2012. More than 70% Revenues $13.2 $13.5 2%
of US medtechs saw their market caps R&D expense $1.9 $2.0 3%
increase, and nearly a quarter saw their Net income (loss) $(2.0) $(1.1) 79%
share prices increase 100% or more. Market capitalization $57.8 $43.1 34%
Number of employees 53,100 55,500 4%
Analyzing the US medtech industry Commercial leaders are pure-play companies with revenues in excess of US$500 million.
by company size shows how much of Numbers may appear to be inconsistent due to rounding.
the US performance was driven by the Market capitalization data is shown for 31 December 2013 and 31 December 2012.

commercial leaders. Similar to 2012, Source: EY, Capital IQ and company financial statement data.

Medical technology report 2014 35


US Financial performance

US medtechs are holding steady in a challenging


reimbursement and pricing climate.

the other category, which includes all The other companies, however, Market capitalization was the only metric
pure-play medical technology companies reported a 79% increase in net loss in which the other medtech companies
with revenues less than US$500 million, and pulled back by 3% in their R&D kept pace with the commercial leaders.
underperformed the commercial leaders in investments. Note that the performance Both groups saw very healthy increases
all categories except market capitalization. of the other category was not materially in market cap, symptomatic of 2013s
Indeed, revenues of US commercial affected by the movement of Thoratec broader market rally and investors
leaders grew 5% year-over-year, while the and Masimo to the commercial leaders enthusiasm for health-care-related stocks.
other group saw its revenues shrink category. Had they remained in the
2% in the same period. A similar trend other category, an analysis of the NuVasive, the San Diego, CA-based
was also seen for net income and R&D. normalized data shows all the financial developer of spinal products, topped the
Commercial leaders reported net income metrics for this medtech segment would list of fastest-growing US medtechs as
gains of 40% in 2013 even as they upped have remained the same. measured by five-year compound annual
their R&D spend by 8% over 2012. growth rate (CAGR). Eight of the top 10

Selected US medtech public company financial highlights by region, 2013


(US$m, % change over 2012)

Market
Number of capitalization Cash and cash
Region Revenue companies 31 Dec 2013 R&D Net income equivalents Total assets
$32,500 27 $83,434 $2,328 $28 $8,928 $74,476
Massachusetts
5% 4% 62% 4% 99% 155% 5%

$22,736 14 $80,968 $2,349 $4,247 $13,015 $46,364


Minnesota
2% 7% 44% 4% 4% 19% 7%
Southern $15,444 33 $63,318 $1,699 $1,215 $6,862 $29,840
California 6% 0% 36% 12% 11% 11% 5%
Northern $12,531 29 $49,576 $1,267 $1,235 $5,074 $18,786
California 5% 3% 7% 2% 3% 9% 4%

$12,418 13 $35,743 $859 $1,940 $3,981 $19,141


New Jersey
4% 8% 38% 12% 12% 19% 10%

$9,284 3 $30,154 $544 $1,035 $4,067 $16,111


Michigan
4% 0% 37% 14% 22% 7% 19%

$6,740 3 $18,722 $298 $830 $1,942 $11,683


Indiana
3% 25% 37% 7% 5% 18% 4%

$6,673 9 $17,111 $256 $566 $1,107 $11,873


Pennsylvania
4% 10% 45% 2% 225% 18% 6%

$3,315 20 $7,232 $217 $69 $437 $4,972


New York
9% 5% 25% 2% 13% 41% 5%

$3,126 5 $5,343 $114 $177 $275 $3,187


Ohio
1% 0% 41% 14% 31% 14% 11%

$1,916 3 $8,616 $114 $422 $1,850 $3,675


Maryland
3% 0% 9% 1% 2% 18% 13%

$1,523 10 $5,453 $163 $36 $586 $1,941


Texas
9% 11% 25% 13% 76% 31% 14%

Data shown for pure-play companies only.

Source: EY, Capital IQ and company financial statement data.

36 EY | Pulse of the industry


Financial performance US

companies in this category expanded Finally, we note that in contrast to 2012, benchmark in 2013. It is yet another data
primarily via organic growth, compared when all 10 of the fastest-growing point demonstrating top-line growth is
to six in 2012. New to the list were Align companies expanded revenues by more difficult to achieve given the medtech
Technology, maker of the Invisalign more than 20%, just five exceeded that industrys current business challenges.
clear aligner orthodontics system, Natus
Medical, developer of tests to screen,
treat and monitor common medical
ailments, and AngioDynamics, producer Selected fast-growing US medtechs by revenue growth, 200813
of minimally invasive technologies to treat (US$m)
cancer and peripheral vascular disease.
Companies 2008 2013 CAGR
Interestingly, five of the 10 fastest- NuVasive $250 $685 22%
growing companies on the 2013 list are Danaher Life Sciences & Diagnostics and Dental $3,277 $8,951 22%
developers of either diagnostic tests or Corning Life Sciences $326 $851 21%
research and instrumentation equipment Intuitive Surgical $875 $2,265 21%
used by life sciences companies. Illumina $573 $1,421 20%
These companies sell products to
Cepheid $170 $401 19%
biopharmaceutical players who, as we
Volcano $171 $391 18%
wrote in our 2014 biotechnology report
Align Technology $304 $653 17%
Beyond borders: unlocking value, are
interested in increasing their use of Natus Medical $162 $344 16%

capital-efficient research strategies AngioDynamics $167 $340 15%


such as precision medicine to shorten Companies in italics made significant acquisitions between 2008 and 2013.
development times and increase the CAGR = compound annual growth rate
probability of success of their products. Source: EY, Capital IQ and company financial statement data.

Medical technology report 2014 37


EU Financial performance

Europe
Financial performance

As was true in the US, currency fluctuations impacted the financial performance of European medtechs. While
revenues expanded 4%, in line with results achieved in the US, these results were boosted 3% by the strong dollar.
Normalizing for local currencies, revenue growth for European medtechs was just 1%. In terms of top-line growth,
pure-play medtechs outperformed conglomerates by three percentage points.

In contrast to the situation in the US European medtech at a glance, 201213


(where net income increased 32% in (US$b, data for pure-plays except where indicated)
2013), the net income of European
Normalized
device companies shrank by 9% to Companies 2013 2012 % change
% change
US$5 billion. This reverses a two-year Revenues $117.7 $113.1 4% 1%
trend that saw net income grow 10% in Conglomerates $68.3 $66.3 3% 0%
2012 and 5% in 2011. A closer look at Pure-play companies $49.4 $46.8 6% 2%
the numbers shows that only 50% of R&D expense $2.8 $2.6 11% 7%
SG&A expense $18.0 $16.4 10% 7%
the companies increased net income
Net income $5.0 $5.6 9% 12%
from 2012 to 2013. Moreover, three
Cash and cash equivalents and short-term investments $8.3 $6.9 19% 15%
companies saw their net income drop
Market capitalization $144.3 $123.6 17% 13%
by more than US$100 million: Covidien, Number of employees 212,300 206,000 3%
which restructured its business in Number of public companies 152 150 1%
2013; Smith & Nephew, which cited Numbers may appear to be inconsistent due to rounding.
pricing pressure in the orthopedics Market capitalization data is shown for 31 December 2013 and 31 December 2012.
market; and Sonova Holding, which in Source: EY, Capital IQ and company financial statement data.
its annual report noted costs associated
with an out-of-court settlement with
investors and increased product European commercial leaders and other companies, 2012-13
liability provisions. (US$b)

2013 2012 % change


While the year-over-year drop in net
Commercial leaders
income is a cause for concern, any bleak
Revenues $44.1 $41.7 6%
predictions about the future of European R&D expense $2.3 $2.1 11%
medtech must be tempered by the Net income (loss) $5.2 $5.5 5%
recognition that at least some of that dip Market capitalization $128.4 $112.3 14%
resulted from this groups reinvestment Number of employees 189,800 185,100 3%
in R&D. Indeed, European companies Other companies
increased their R&D spend 11% to nearly Revenues $5.3 $5.1 4%
US$3 billion from 2012 to 2013. Thats R&D expense $0.5 $0.4 8%

nearly double the increase seen in Net income (loss) $(0.2) $0.0 588%
Market capitalization $15.7 $11.3 39%
the US. In another positive, European
Number of employees 22,500 20,900 8%
companies also increased investment
Commercial leaders are pure-play companies with revenues in excess of US$500 million.
in personnel, expanding their employee Numbers may appear to be inconsistent due to rounding.
base by 3% over the year. Market capitalization data is shown for 31 December 2013 and 31 December 2012.
Source: EY, Capital IQ and company financial statement data.

38 EY | Pulse of the industry


Financial performance EU

Normalizing for local currencies, revenue


growth for European medtechs was just 1%.

In terms of market cap, medtech remains again, smaller companies were hit harder performances of a few players, especially
a tale of two continents. Market cap by the continents austerity measures, Mazor Robotics, LifeAssays and Alpha
growth in Europe was half what was particularly in terms of device pricing Helix Molecular Diagnostics.
observed in the US (17% versus 37%) and and delayed payment cycles. That said,
below the 26% increase seen in 2012. in 2013, smaller European medtechs In terms of the R&D spend/revenue ratio,
increased their revenue and R&D spend European companies arent investing as
As was true in the US, commercial leaders by 4% and 8%, respectively, over 2012. heavily: European commercial leaders
in Europe contributed significantly to And while smaller companies saw a big spent 5.2% of revenues on R&D and
the overall performance of the medtech year-over-year drop-off in net income, other European medtechs spent 9.4%,
companies in that region. While Europes they did outpace the commercial leaders while their respective US counterparts
18 commercial leaders account for on market cap and number of employees. spent 7.3% and 14.4% of revenues on
only 12% of the total number of public The sharp increase in the market cap pipeline development.
companies, they generated 89% of the of the European other companies
revenues, 104% of the net income and appeared to be driven by the strong
82% of the R&D dollars invested. Once

Selected European medtech public company financial highlights by country, 2013


(US$m, % change over 2012)

Market
Number of capitalization Cash and cash
Country Revenue companies 31 Dec 2013 R&D Net income equivalents Total assets
$10,280 2 $31,351 $512 $1,710 $1,890 $20,144
Ireland
3% 0% 13% 6% 11% 3% 10%

$9,981 26 $28,400 $586 $894 $1,885 $14,471


France
5% 18% 5% 8% 5% 51% 14%

$5,940 34 $15,501 $322 $507 $776 $9,964


Sweden
11% 3% 2% 15% 17% 11% 8%

$5,022 20 $14,684 $286 $573 $458 $7,017


United Kingdom
3% 5% 25% 32% 24% 50% 3%

$4,230 14 $4,667 $175 $169 $300 $3,857


Germany
7% 7% 30% 10% 14% 18% 10%

$4,087 8 $14,784 $263 $319 $1,179 $5,508


Switzerland
6% 11% 27% 3% 19% 102% 17%

$3,966 4 $19,404 $195 $725 $344 $3,858


Denmark
11% 0% 31% 10% 22% 33% 12%

$3,022 5 $5,058 $151 $205 $506 $3,913


Italy
3% 0% 13% 4% 15% 35% 4%

$1,613 2 $6,493 $186 $10 $438 $4,797


Netherlands
5% 0% 30% 28% 91% 15% 0%

$529 20 $2,452 $86 $82 $347 $855


Israel
1% 17% 74% 5% 13% 12% 1%

Data shown for pure-play companies only.

Source: EY, Capital IQ and company financial statement data.

Medical technology report 2014 39


EU Financial performance

In Europe, 60% of the fastest-growing Selected fast-growing European medtechs by revenue growth, 200813
companies as measured by five-year (US$m)
CAGR grew by acquisition. This was
Companies Location 2008 2013 CAGR
in contrast to the US, where 80% of the
Syneron Medical Israel $115 $257 17%
fastest-growing companies achieved their
rise organically. Novartis: Alcon Surgical Switzerland $2,881 $6,388 17%
Merck KGaA: EMD Millipore Germany $1,602 $3,514 17%
Israel-based Syneron Medical won Elekta Sweden $800 $1,587 15%
bragging rights as Europes fastest- Stratec Biomedical Systems Germany $91 $170 13%
growing company over the past five
Sonova Holding Switzerland $1,131 $1,937 11%
years. Fueling the upward trajectory was
Semperit: Sempermed Austria $356 $578 10%
Syneron Medicals broad range of medical
DiaSorin Italy $360 $578 10%
aesthetic solutions, which are sold under
the brand names Syneron and Candela. Ambu Denmark $155 $246 10%
William Demant Holding Denmark $1,060 $1,640 9%
Four new players joined the ranks of
Companies in italics made significant acquisitions between 2008 and 2013.
Europes fastest-growing medtechs: CAGR = compound annual growth rate
Stratec Biomedical Systems, which
Source: EY, Capital IQ and company financial statement data.
manufactures fully automated analyzer
instruments for clinical diagnostics and
biotechnology applications; DiaSorin,
maker of in vitro diagnostic reagent
kits; Ambu, developer of diagnostic and
life-supporting equipment solutions; and
William Demant Holding, a Danish firm
developing hearing devices.

As the above list shows, companies


developing diagnostic tools or research
supplies and equipment were well
represented on the list of fastest-growing
European medtechs. Again, this trend
mirrored what was seen in the US.

40 EY | Pulse of the industry


Industry performance
2 | Financing

Medical technology report 2014 41


Financing

Financing the future


US and European medical technology companies raised a combined US$27.3 billion during the
12-month period ending 30 June 2014, a 14% decrease compared to the year prior, but still the
second-highest capital raise since 30 June 2008.

Positive financial indicators included follow-on Thermo Fisher Scientifics just 14 commercial leaders raised 68%
the resurgent market for initial public US$2.5 billion offering in the 12-month of the total debt dollars (US$13.2 billion)
offerings, a marked year-over-year uptick period ending 30 June 2013 and there were seven debt financings
in venture dollars in Europe and, for dramatically impacted the 201314 result. worth more than US$1 billion. In the
larger medtechs, continued access to Normalizing for this exceptional financing, prior 12-month period, 17 commercial
cheap capital via the debt markets. Still, funding associated with follow-ons actually leaders garnered 58% (US$13.5 billion)
while venture dollars have held steady in increased 18% year-over-year in 201314. of the debt financing and six deals
recent years, the pool of capital available eclipsed the US$1 billion mark. Notable
to smaller medtechs is significantly debt deals in 201314 included Thermo
smaller than before the recession, raising Debt-heavy Fisher Scientifics US$3.2 billion offering,
important questions about how the which helped fund its acquisition of
medical technology industry will finance An uptick in follow-ons, together with
Life Technologies, and Medtronics
future innovation. the 600% increase in IPO financing from
US$2 billion deal, which was intended for
201213 to 201314, sounds like the
general corporate purposes, including
The 2013-14 period was also a tale of two makings of a brighter financing story. Still,
dividends and stock buybacks.
continents. Funding in Europe increased its important to note that roughly 71%
81% year-over-year, reaching US$5.1 of medtechs total financing during the While Thermo Fisher Scientific used its debt
billion, with percentage increases across 12 months ending 30 June 2014 came offering to fund its biggest acquisition ever,
all types of funding. In contrast, in the US, from the debt markets. Indeed, 201314 most of the proceeds from the debt raised
funding in three different categories marked the third year in a row where debt in the 12 months ending 30 June 2014
venture, follow-on and debt declined, financing contributed more than 70% of were not used to fund growth activities
resulting in a 23% decrease (US$6 billion) the total financing dollars. such as acquisitions or investments in
in financing from 201213 to 201314. early-stage companies. Instead, based on
As has also been true in years past, debt
EYs estimate, at least 60% of the debt was
The biggest declines were seen in dollars in 201314 disproportionately
used to refinance existing obligations or
follow-on public offerings, which slid flowed to the commercial leaders, defined
restructure balance sheets.
52% from US$4.2 billion in 201213 to as those companies with revenues greater
US$2.0 billion in 201314. One mammoth than US$500 million. Indeed, in 201314,

Capital raised in the US and Europe by year (US$m)


Jul 2007 Jul 2008 Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
Type Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014
Venture $5,166 $4,678 $4,880 $4,107 $4,495 $4,162 $4,401

IPO $1,282 $17 $353 $820 $436 $205 $1,449

Follow-on and other $2,112 $1,807 $2,250 $2,390 $1,004 $4,205 $2,010

Debt $4,552 $6,421 $13,337 $11,764 $20,088 $23,072 $19,446

Total $13,111 $12,922 $20,820 $19,081 $26,023 $31,643 $27,306

Numbers may appear to be inconsistent because of rounding. PIPEs included in follow-on and other.

Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.

42 EY | Pulse of the industry


Financing

Such data, in conjunction with the While the double-digit percentage growth Europe in 2013-14, the dollars generated
US$16.7 billion in cash returned to in innovation capital in 2013-14 was a via IPOs comprised just 5% of the total
shareholders during the same period positive development, it also shouldnt be financing dollars for the 12 months, a
and the sectors modest year-over-year viewed as proof that financing for smaller 4 percentage point drop compared to
increase in R&D spend, reinforces the companies particularly emerging, 2007-08. Similarly, venture commitments
notion that larger medtechs are acting venture-backed firms was once again and follow-on offerings also made up a
more cautiously in investing in traditional flowing freely. In part, thats because the much smaller percentage of the total
product innovation. (See Holding prior 12-month period was particularly financing picture in 2013-14 than six years
Steady on page 27.) As we discuss in dismal for innovation capital: just prior, when venture rounds and follow-on
this years Point of view, this retreat is US$6.0 billion, 19% of the total dollars offerings accounted for 39% and 16% of all
at least partially due to the rapid shift in raised, funded innovation-stage medtechs medtech financing dollars, respectively.
the medtech commercial landscape and during 2012-13. Moreover, the 2013-14
companies realization that the emphasis financing data mark the fifth 12-month If this is the medtech industrys new
on health care outcomes requires them to period in a row in which commercial normal, early-stage companies have
differentiate their products in new ways. leaders have commanded more than no choice but to squeeze further
With clear definitions of what constitutes two-thirds of all the medtech financing. efficiencies out of their R&D efforts, while
value changing and the need to satisfy Thats very different from 2007-08, simultaneously searching for creative deal
shareholders during a period of low when total dollars for innovation capital structures and new kinds of investors
industry growth, companies have prioritized exceeded those for commercial leaders by to finance their efforts. That fact in
the return of capital to shareholders. US$2.3 billion and made up nearly 60% of turn leads to some serious questions
all medtech financing. about the medtech industrys future
prospects. In particular, how will the
Early-stage medtechs The numbers reinforce the notion that biggest players continue to grow if their
the 2008 recession dramatically redrew traditional wellsprings of innovation
continue to struggle the medtech financing picture. Even with smaller, VC-backed medtechs remain
30 new medtech listings in the US and underfunded?
Even as fund-raising totals have jumped
in recent years, the majority of this
capital windfall has gone into the coffers Driven by the resurgence of IPOs,
of medtechs commercial leaders. The innovation capital swelled in the US and Europe
12-month period ending 30 June 2014
Innovation capital Commercial leaders
was no different. Commercial leaders
generated 72% (US$19.6 billion) of the 35
total funding raised in 2013-14, mostly
via large debt deals. 30

Meantime, funds raised by the rest of the 25

industry what we refer to as innovation


20
capital climbed 31% from the prior
US$b

12-month period, to US$7.7 billion the 15


most innovation capital raised since
2007-08. The strong IPO market was a 10

big reason for the year-over-year rebound


5
in innovation capital. (Normalizing the
data for IPO-sourced financings, funds 0
raised by non-commercial leaders in Jul 2007 Jul 2008 Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014
2013-14 would have totaled US$6.25
billion, a modest 4% increase over the Innovation capital is the amount of equity capital raised by companies with revenues of less than US$500 million.

12 months prior.) Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.

Medical technology report 2014 43


Financing

Venture investings steady state


Medtechs raised US$4.4 billion in venture Medtechs share of US venture capital continues to tumble
capital in the 12-month period ending Medtechs share of total venture funding Health cares share of total venture funding
30 June 2014. Thats a 6% increase in
investment over the prior 12-month period, 35%
but it isnt an unalloyed positive. Recall that
2012-13 was one of the worst time spans 30%
in the past decade for venture investment.
On average, from July 2008 to June 25%
2013, venture capital firms committed 14%
fewer dollars annually to medtech than 20%
they did before the recession. That figure
is consistent with the amount of venture 15%
capital spent on medtechs in 2013-14,
suggesting more restrained financing for 10%
early-stage medtechs is a reality for the
forseeable future. 5%

Ventures departure from medtech comes


0%
at a time when venture capital fund-raising 2008 2009 2010 2011 2012 2013 H1 2014
in general is on pace to surpass levels Source: EY, Dow Jones VentureSource.
amassed only prior to the financial crisis.
According to the National Venture Capital
Association, US-based VCs are on track or to medtech in particular. With the Over that same period, medtechs share
to raise an estimated US$33 billion by the technology sector booming, health cares of the venture pie has also diminished.
end of 2014, a dollar threshold that hasnt share of US venture dollars has slipped In 2009, 12.5% of total VC dollars in the
been cleared since 2006. But that uptick from 34% in 2009 to 21% in the first US went to fund device- and diagnostic-
in overall fund-raising doesnt appear to half of 2014, according to Dow Jones focused start-ups. In 2013, that share
be filtering down to health care generally VentureSource. tumbled to 7.5%, and, in the first half of

44 EY | Pulse of the industry


Financing

2014, it fell even further to just 6.7%. (In The share of early-stage venture investment in the
Europe, the trend is just as pronounced: US and Europe reached its highest point in four years
total venture investments in European Late stage Early stage
start-ups reached a seven-year high in
100%
2013-14, but medtechs portion of the
capital deployed sank precipitously to 90%

2.9% of all VC funding.) 80%

70%
Given VCs relative withdrawal from
medtech investing in 2013-14, one 60%

might have expected a similar decline 50%


in investments in early-stage medtechs 40%
(e.g., start-ups raising seed or Series A
30%
or B financing). However, the 12-month
period ending 30 June 2014 was one of 20%

the best years for early-stage medtech 10%


deals since 2009-10. In 2013-14, 0%
approximately US$1.5 billion of venture Jul 2007 Jul 2008 Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014
funding roughly 40% of all VC medtech
investment went to early-stage Source: EY, Dow Jones VentureSource and Capital IQ.

start-ups. Compared to the prior


12-month period, that was a 28% increase
in funding to early-stage medtechs. with the average annual amount spent to expertise in diagnostics M&A, to create
finance emerging medtechs during the a stand-alone diagnostics player built
Further analysis of the data shows the three prior 12-month periods. via rolling up smaller testing firms that
recent uptick in early-stage venture already have at least US$15 million in
financing isnt quite what it seems. One Moreover, while the Maravai financing operating earnings. In essence, Maravai
mammoth-sized seed round GTCRs is technically a seed-stage round, the isnt focused on developing new innovative
US$300 million investment to create company being created is a far cry from testing technologies per se; like the
Maravai Life Sciences disproportionately a traditional medtech start-up in terms Zimmer/Biomet deal in orthopedics, its
affected the financing picture. Excluding of its focus and its investors. In March about creating scope in a disease area by
this particular financing, investments in 2014, the private equity firm GTCR gathering revenue-generating entities and
early-stage privately held medtech would recruited two industry veterans, Carl Hull, housing them under one corporate roof.
have made up 32% of the total medtech the former CEO of Gen-Probe, and Eric (See Seeking scale on page 57.)
financing spent in 2013-14. That is in-line Tardif, an ex-Morgan Stanley banker with

Medical technology report 2014 45


Financing

The pool of VCs investing in early-


stage medtech changed dramatically
from 2007-08 to 2013-14.

A new breed of medtech venture investors


The private equity group GTCR is than US$5 million) were the stalwarts of Thus, while the pool of capital available to
just one example of how the cohort the VC world: SV Life Sciences, Domain early-stage medtechs has shrunk in the
of medtech investors has changed Associates, Versant Ventures, InterWest post-recession era, were it not for groups
since the 2008 recession. In the years Partners and Kleiner Perkins Caufield like Easton Capital and Founders Fund,
following the collapse of Lehman & Byers. Fast forward to 2013-14 and which each staked multiple emerging
Brothers, poor financial returns meant the most active investors include Easton medtechs in 2013-14 (and none in the prior
traditional medtech VCs struggled to Capital Investment Group, Founders Fund, period), the financial shortfall would have
raise money from their limited partners, Sofinnova Partners, Domain Associates been even greater. HealthQuest Capital,
who themselves were reallocating their and the corporate venture arm of one an investor group affiliated with Sofinnova
investments away from alternative pharmaceutical company Merck Global Ventures, is another entity likely to play an
investments like venture capital into Health Innovation Fund. Indeed, based important role in future medtech financings.
publicly traded equities. on the analysis, only Domain Associates Founded in 2013, the group made its
ranked as one of the top 10 medtech public debut in August 2014, announcing
With less dry powder to invest, traditional investors in both time periods. a US$110 million fund devoted to medical
medtech VCs reserved their capital for technology and patient care products.
their portfolio companies, which faced
longer and more uncertain R&D cycles VC rounds of US medtech companies with participation
thanks to increasing regulatory and of corporate venture investors, by year
reimbursement scrutiny. When making new Capital raised Number of financing rounds
investments, VCs still active in medtech
looked for companies with devices in $1,200 60
later stages of development, where the
$1,000 50
probability of success (both clinical and
Number of financing rounds
Capital raised (US$m)

commercial) was higher and there was a


$800 40
greater likelihood the investment would
generate the significant returns required to $600 30
win back limited partners.
$400 20
The end result? The pool of VCs investing in
early-stage medtech changed dramatically $200 10
from 2007-08 to 2013-14. Based on EYs
analysis, six years ago the most active $0 0
Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
medtech investors (based on the number of Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014
seed and first-round investments of greater Source: Dow Jones VentureSource.

46 EY | Pulse of the industry


The participation of Merck & Co.s Merck Ventures (26), Johnson & Johnson exception that proves the rule. Note that a
Global Health Innovation Fund in nine Development Corp. (20), Medtronic (17) pharmaceutical corporate venture group
medtech or digital health investments and Qualcomm Ventures (17). not a medtech corporate venture arm
since 1 July 2012 underscores another played an instrumental role in catalyzing
important point: the role of corporate Notable medtech deals at least partially the start-ups Series A financing. Thus,
venture in bankrolling future medtech financed by corporate venture groups while corporates are providing a much-
innovations. From 1 July 2009 to 30 in 2013-14 included Flatiron Healths needed infusion of capital into the
June 2012, the average annual number of US$130 million Series B round (Google medtech sector, they arent necessarily
medtech financings involving a corporate Ventures and Laboratory Corporation of investing ignition capital, the dollars
venture group was around 43. That annual America), Practice Fusions US$85 million required to seed early-stage medtechs, to
average jumped 30% to 56 for the 2012- Series D (Qualcomm Ventures), and the same extent as their pharma-oriented
13 and 2013-14 periods as corporate ElectroCore Medicals US$40 million corporate investor brethren. Thats
venture groups from medtech companies Series A (Merck Global Health particularly true for medtech start-ups
such as Medtronic and Covidien and tech Innovation). (On 1 July 2014, ElectroCore developing novel therapeutic devices
giants like Google and Qualcomm ramped Medical announced it had pulled in an like ElectroCore Medical (as compared
up their medtech investment activity. additional US$10 million from its existing to emerging digital-health or diagnostic
investors, including from Merck & Co.s firms). Indeed, an analysis of the 2013-14
Importantly, this increased deal activity venture group.) data shows that just 13 of the 81
led to a dramatic uptick in medtech investments made by corporate medtech
financing dollars. In 2009-10, corporate ElectroCore Medical, which is developing investors involved early-stage medtechs
investors played a part in syndicating a self-administered vagus nerve developing therapeutic devices.
financings worth US$637 million. In stimulation therapy, is actually the
2013-14, the annual dollar total for
financings that included a corporate
venture investor grew to US$1 billion,
a 57% increase over 2009-10. In all,
since 1 July 2009, corporate venture
Since 1 July 2009, corporate
investors have played a role in catalyzing venture investors have played a
US$4.2 billion in financing, contributing
to more than 240 venture rounds. Based role in catalyzing US$4.2 billion
on our analysis, since 2009, the most
active corporate venture investors in in financing, contributing to
medtech have been Kaiser Permanente
Ventures (45 investments), Ascension more than 240 venture rounds.
Medical technology report 2014 47
Financing

Medtech IPOs: a welcome positive


After six lackluster years, 2013-14 was oncology-focused medtechs brought home are likely to result in lucrative acquisitions
a banner 12 months for medtech IPOs, the most IPO dollars (US$265 million), by large-cap medtechs looking to round
generating nearly US$1.5 billion. Most of just edging out the five orthopedic firms out their portfolios. (See Seeking scale
the activity 24 of the 31 listings in the which together raised US$260 million. As on page 57.)
US and Europe occurred during the first M&A in the orthopedics sector continues
half of 2014, as the window for medtech apace, this particular therapeutic device In the four years prior to 201314,
offerings finally widened following segment continues to remain popular 15 IPOs managed to tip the US$50
Tandem Diabetes Cares November 2013 with investors, who believe newly public million threshold. In the 12 months
listing. That public listing, the largest companies can create additional value in ending 30 June 2014, the same
IPO since 30 June 2011, helped boost developing innovations that, if successful, number of medtechs beat that figure.
investor appetite for medtech offerings
as the sector benefited from the return
of investors to early-stage health care
deals more generally. US and European IPOs by year
Capital raised Number of deals
In terms of dollars raised and IPO volume,
1.6 40
2013-14 was one of the strongest years
ever, rivaling the banner 2000-01 and 1.4 35
2004-05 time periods. Of the medtechs
1.2 30
that debuted in the US and Europe in
Capital raised (US$b)

Number of deals
2013-14, 15 companies called the US 1.0 25
home and another 16 were located in 0.8 20
Europe. Still, in terms of capital raised,
0.6 15
it was the US companies that brought
home the lions share of the capital: of the 0.4 10
US$1.4 billion raised via medtech IPOs
0.2 5
in 2013-14, 69% was concentrated in the
US. Indeed, the European medtech cohort 0 0
raised just US$444 million, and a third of
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9

Oxford Immunotec Global and Lumenis,


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which listed on the US NASDAQ. Thus,


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the capital markets in Europe remain very The 2001-02 totals exclude Nestls spin-out of Alcon, worth US$2.3 billion.
challenging for early medtech entities
Source: EY, Capital IQ, BioCentury and Dow Jones VentureSource.
seeking financing.

Therapeutic device companies were well


represented in the 2013-14 medtech
IPO class, accounting for 22 listings and
nearly US$1 billion of the total raised. After six lackluster years, 201314
Seven diagnostics firms also went
public during these 12 months, raising was a banner 12 months for
approximately US$375 million. Two
imaging firms rounded out the IPO class, medtech IPOs, generating nearly
US$1.5 billion.
earning a combined US$75 million. An
analysis by disease area shows that four

48 EY | Pulse of the industry


Financing

Fourteen companies in the 2013-14 an average of 32%. Vital Therapies, maker oversight associated with a public listing.
Pulse cohort priced within their expected of a bioartificial liver support device, and For a number of reasons, in 2014 that
IPO price range, and one, Foundation BrainCool, which as its name suggests is dynamic appears to be changing. First,
Medicine, actually priced US$2-a-share using therapeutic hypothermia to treat the lower amounts of investable capital
above its expected range. Foundation stroke and cardiac arrest patients, were at many medtech VC firms mean IPOs
Medicine was the only medtech to price its among the best-performing medtech are an important fiscal alternative to
IPO above the expected range since 2009. stocks: since their IPOs, the share prices raising another equity round. Second,
of these companies increased 127% and given that US-based medtechs raised
Share prices of newly public medtechs 101%, respectively. close to US$70 million on average via
also held up well in the aftermarket. public listings in 2013-14, the amount
Eighteen medtechs saw their share prices Historically, medtechs, and the VCs garnered through an IPO is likely to be
go up in the months between their listings who back them, havent aggressively more generous than what the company
and 30 June 2014: the share prices of pursued IPOs. Thats because acquisitions could raise via a late-stage round, often
the 10 US-based medtechs increased by typically provided early-stage medtechs resulting in less dilution to current
an average of 43%; share prices of the with a faster path to exit, allowing them investors. The extra financial runway
eight European companies also rose, by to avoid the expense and regulatory enables medtechs to launch products in
multiple markets simultaneously, thereby
increasing revenues and potential exit
valuations should acquirers materialize.
US and European IPO pricing by year
Below range Within range Above range Capital raised That said, even in 2014, there are
30 1.8 still certain key criteria that medtechs
need to be able to cite if they want to
25 1.5 have successful public offerings. FDA
approval, or the promise of such shortly
Capital raised (US$b)

20 1.2 after the public listing, is still de rigueur.


Number of IPOs

Better still if companies can point to


15 0.9 significant revenue growth and positive
reimbursement decisions. Indeed, of the
10 0.6 15 US-based medtechs that went public
in 2013-14, 73% (11) had two years of
5 0.3 revenue prior to their listings on the
NASDAQ. These revenue-generating
0 0
Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013 medtechs also raised US$30 million
Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 more on average via their IPOs than the
Number of IPOs does not include offerings without a filing range. companies with no revenue.

Source: EY, Capital IQ, BioCentury and Dow Jones VentureSource. Going forward, it remains to be seen
whether the strong IPO market of
201314 can galvanize venture financing
to help create future innovative products.
Even in 2014, there are still certain As weve shown, corporate venture
capital has filled and will continue to
key criteria that medtechs need to fill an important gap in catalyzing the
development of privately held companies.
be able to cite if they want to have Yet there remains a dearth in ignition

successful public offerings.


capital of which the industry must
be mindful.

Medical technology report 2014 49


US Financing

United States
Financing

In 201314, USbased companies raised US$22.2 billion, the thirdhighest total since 200708. With the exception
of IPO financing, which increased 550% compared to 201213, all other sources of financing declined, including a
24% drop in debt offerings. Even so, 201314 marked the fifthstraight 12month period in which large debt offerings
by the industrys commercial leaders made up the vast majority of total funding. Similar to 2012-13, debt offerings
constituted nearly 75%, or US$16.2 billion, of the US industry total in 2013-14.

US medtech venture funding slid for the US financings by year


second consecutive 12-month period to Debt Follow-on and other IPO Venture
US$3.4 billion, a 4% decline from 2012-13
and in line with the trend seen since 30
July 2010. The companies commanding
investment were primarily later-stage 25
medtechs, such as Proteus Digital Health
and Halt Medical, which respectively 20

raised US$120 million and US$93 million.


US$b

15
Indeed, in 2013-14, more than 60% of
US medtech venture financing went to
10
later-stage firms, including 13 of the 14
richest venture rounds. (The diagnostics 5
roll-up play Maravai Life Sciences was the
lone example of an early-stage deal.) 0
Jul 2007 Jul 2008 Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014

Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.

US venture capital by year


Total amount raised Average deal size

5 15
Total amount raised (US$b)

4 12
Average deal size (US$m)

The companies
commanding
3 9

investment
2 6

were primarily 1 3

later-stage 0
Jul 2007
Jun 2008
Jul 2008
Jun 2009
Jul 2009 Jul 2010
Jun 2011
Jul 2011
Jun 2012
Jul 2012
Jun 2013
Jul 2013
Jun 2014
0

medtechs.
Jun 2010
Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.

50 EY | Pulse of the industry


Financing US

As we noted, the one financing category that saw year-over-year growth in 2013-14 was the IPO sector, thanks to new listings by 15
US-based medtechs which raised US$1 billion. In terms of deal volume and dollars raised, the 2013-14 window was the strongest since
2006-07, when 15 companies also went public, raising approximately US$1 billion.

Top US venture rounds, July 2013June 2014


Gross raised
Company Location Product type (disease) (US$m) Quarter Round stage
Maravai Life Sciences Southern California Non-imaging diagnostics 300 Q1 2014 Early stage
Proteus Digital Health Northern California Non-imaging diagnostics 120 Q2 2014 Late stage
Halt Medical Southern California Therapeutic devices (women's health) 93 Q1 2014 Late stage
ConforMIS Massachusetts Therapeutic devices (orthopedic) 79 Q3 2013 Late stage
Apollo Endosurgery Texas Therapeutic devices (multiple) 61 Q4 2013 Late stage
DFine Northern California Therapeutic devices (orthopedic) 48 Q4 2013 Late stage
TRIA Beauty Northern California Therapeutic devices (aesthetics) 46 Q3 2013 Late stage
AqueSys Georgia Therapeutic devices (ophthalmic) 44 Q1 2014 Late stage
Holaira Minnesota Therapeutic devices (respiratory) 42 Q1 2014 Late stage
TriVascular2 Northern California Therapeutic devices (cardiovascular/vascular) 40 Q4 2013 Late stage
Invitae Northern California Non-imaging diagnostics 40 Q4 2013 Late stage
Inspire Medical Systems Minnesota Therapeutic devices (respiratory) 40 Q2 2014 Late stage
Benvenue Medical Northern California Therapeutic devices (orthopedic) 40 Q2 2014 Late stage
EarLens Northern California Therapeutic devices (ophthalmic) 40 Q1 2014 Late stage

Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.

While seven of the 15 IPOs in the 2013- US IPOs by year


14 class priced within or above their Capital raised Number of deals
range, no US-based medtech that went
1,200 18
public after 1 March 2014 priced above
its expected IPO range. Still, even if
1,000 15
investors appetite for public offerings
Capital raised in IPOs (US$m)

was lackluster in the latter half of 2014, 800 12


once public, a majority of the 2013-14 Number of deals

medtech IPO class saw their share prices 600 9


increase on the aftermarket. In all, 10 of
the 15 US-based medtechs that debuted 400 6
in 2013-14 outperformed their launch
prices as of 30 June 2014. 200 3

For the third consecutive 12-month 0 0


period, Massachusetts, with
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total financing. Southern California


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(US$5.17 billion) and Minnesota


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(US$2.3 billion) claimed the second


and third spots, respectively. Source: EY, Capital IQ, BioCentury and Dow Jones VentureSource.

Medical technology report 2014 51


US Financing

US IPOs, July 2013June 2014


Post-IPO
Gross IPO performance
raised pricing (as of
Company Location Product type (disease) (US$m) range 30 June 2014)
Tandem Diabetes Care Southern California Therapeutic devices (hematology/renal) 138 Within 8%
K2M Virginia Therapeutic devices (orthopedic) 132 Below 1%
Foundation Medicine Massachusetts Non-imaging diagnostics 122 Above 50%
TriVascular Technologies Northern California Therapeutic devices (cardiovascular/vascular) 90 Below 30%
LDR Holding Texas Therapeutic devices (orthopedic) 86 Within 67%
VeraCyte Northern California Non-imaging diagnostics 65 Within 32%
Vital Therapies Southern California Therapeutic devices (hematology/renal) 62 Below 127%
Inogen Southern California Therapeutic devices (respiratory) 56 Within 41%
TransEnterix North Carolina Therapeutic devices (non-disease-specific) 56 Within 26%
Agile Therapeutics New Jersey Therapeutic devices (women's health) 55 Below 45%
Corium International Northern California Therapeutic devices (multiple) 52 Below 3%
Quotient Biodiagnostics Connecticut Non-imaging diagnostics 40 Below 4%
Amedica Utah Therapeutic devices (orthopedic) 21 Below 22%
Biocept Southern California Non-imaging diagnostics 19 Within -40%
Semler Scientific Oregon Non-imaging diagnostics 10 Below 41%

Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.

The Massachusetts and Southern Capital raised by leading US regions excluding debt, July 2013June 2014
California totals were buoyed by debt Northern California Southern California Massachusetts Minnesota
offerings in excess of US$1 billion. New Jersey New York Pennsylvania Texas
Medtronics US$2 billion offering,
meanwhile, made up the majority of
2
Minnesotas financing. When removing
Total equity capital raised (US$b)

the impact of debt, Northern California


took the honors as the region attracting 1.6
the most non-debt capital (US$1.4
billion) and the most venture capital 1.2
(US$1.1 billion).

As has been true in years past and is 0.8

consistent with regional financing trends


in the biotechnology sector, Northern 0.4
California, Southern California and
Massachusetts dominated the financing
0
scene, accounting for 56% of the total 0 200 400 600 800 1,000 1,200 1,400
non-debt financing and 64% of the total
venture capital raised. Venture capital raised (US$m)

Size of bubbles shows relative number of financings per region.

Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.

52 EY | Pulse of the industry


Financing EU

Europe
Financing

Total funding of European medtech companies soared 81% to US$5.1 billion in the 12-month period ending 30 June
2014. Although the amount represented just a quarter of what US-based medtechs raised during the same period,
it was the largest sum procured by the industry since 2003-04 and was fueled by year-over-year growth across all
four funding categories. Debt financing spiked 81% from 201213 to US$3.2 billion and made up 63% of Europes total
annual financing. Meanwhile, venture funding jumped 60% to just over US$1.0 billion, and followon offerings increased
21% to US$414 million, a fiveyear high. As in the US, IPOs made big headlines in Europe. As of 30 June 2014, funds
raised through IPOs made up 9% of the 201314 financing dollars, jumping 789% yearoveryear to US$444 million.

In contrast to the US venture market, European financings by year


which has typically seen much more Debt Follow-on and other IPO Venture
dramatic funding highs and lows, 6
there hasnt been a tail-off in Europes
venture financing. Indeed, in 2013-14, 5
European VCs committed US$1.0 billion
to privately held medtechs. Thats 4
28% more than the annual average
3
they spent during the prior six years.
US$b

In another bit of welcome news, deal


2
sizes also increased, with the average
financing round growing from US$3.9 1
million in 2012-13 to US$5.2 million
in 2013-14. Thats slightly above the 0
Jul 2007 Jul 2008 Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
average deal size of US$4.5 million that Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014
European medtechs commanded from
Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.
July 2008 to June 2014.

Overall, early rounds accounted for European venture capital achieved levels not seen since the financial crisis
Total amount raised Average deal size
approximately 45% of all European
venture rounds and 33% of the venture 1,200 6
dollars. In terms of deal volume, that
1,000 5
compares well to 2007-08, when
Average deal size (US$m)
Total amount raised (US$m)

48% of the venture rounds involved 800 4


early-stage commitments. In terms
of total venture dollars, in 2013-14, 600 3
early-stage investments make up a
400 2
smaller percentage of the medtech
financing pie than they did in 2007-08, 200 1
when 47% of VC investment went to
early-stage rounds. 0 0
Jul 2007 Jul 2008 Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014

Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.

Medical technology report 2014 53


EU Financing

Top European venture rounds, July 2013June 2014


Gross raised
Company Location Product type (disease) (US$m) Quarter Round stage
JenaValve Technology Germany Therapeutic devices (cardiovascular/vascular) 73 Q3 2013 Late stage
Oxford Nanopore Technologies UK Research and other equipment 63 Q3 2013 Late stage
GC Aesthetics Ireland Therapeutic devices (aesthetics) 60 Q1 2014 Early stage
Advanced Accelerator Applications France Imaging 56 Q1 2014 Late stage
InSightec Israel Therapeutic devices (oncology) 50 Q2 2014 Late stage
Peters Surgical France Therapeutic devices (non-disease-specific) 33 Q1 2014 Late stage
Withings France Non-imaging diagnostics 31 Q3 2013 Early stage
Invendo Medical Germany Imaging 28 Q1 2014 Late stage
CeQur Switzerland Therapeutic devices (hematology/renal) 27 Q3 2013 Early stage
Sequana Medical Switzerland Therapeutic devices (multiple) 26 Q2 2014 Late stage
Definiens Germany Other 21 Q2 2014 Late stage
Sensible Medical Innovation Israel Imaging 20 Q4 2013 Late stage
Pixium Vision France Therapeutic devices (ophthalmic) 20 Q4 2013 Early stage
SteadyMed Israel Therapeutic devices (non-disease-specific) 20 Q2 2014 Late stage

Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ

Sixteen European medtechs went public European IPOs by year


in 2013-14, generating US$444 million, Capital raised Number of deals
the largest dollar total since 2007-08,
when European medtechs raised more 700 21
than US$500 million via IPOs. While
the deal flow kept pace with the US, the 600 18
capital generated was less than half what
Capital raised in IPOs (US$m)

500 15
US-based companies raised through

Number of deals
their IPOs. As in the US, most of the IPO 400 12
activity occurred in 2014, with 11 of the
16 companies debuting in the six months 300 9

ending 30 June 2014.


200 6

100 3

0 0
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14
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IPOs made big


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Source: EY, Capital IQ, BioCentury and Dow Jones VentureSource.

headlines in
Europe.
54 EY | Pulse of the industry
Financing EU

Only one of the 16 European companies that went public, Lumenis, priced below its expected range. In the aftermarket, eight
companies have seen their share prices decline, including nine of the 11 that debuted after 1 January 2014.

European IPOs, July 2013June 2014


Post-IPO
Gross raised IPO pricing performance (as of
Company Location Product type (disease) (US$m) range 30 June 2014)
Oxford Immunotec Global UK Non-imaging diagnostics 74 Within 40%
SuperSonic Imagine France Imaging 75 Within 6%
Lumenis Israel Therapeutic devices (multiple) 75 Below -19%
Pixium Vision France Therapeutic devices (ophthalmic) 54 Within 1%
NetScientific UK Non-imaging diagnostics 47 Within 6%
MedTech France Therapeutic devices (non-disease-specific) 27 Within 19%
Mainstay Medical Ireland Therapeutic devices (neurology) 25 Within 20%
Crossject France Therapeutic devices (non-disease-specific) 23 Within 23%
Implanet France Therapeutic devices (orthopedic) 19 Within 14%
Theraclion France Therapeutic devices (ear, nose and throat) 15 Within 18%
ScandiDos Sweden Imaging 3 Within 23%
Ortoma Sweden Therapeutic devices (orthopedic) 2 Within 61%
Dentware Scandinavia Sweden Therapeutic devices (dental) 2 Within 28%
BrainCool Sweden Therapeutic devices (neurology) 1 Within 101%
Alteco Medical Sweden Therapeutic devices (hematology/renal) 1 Within 19%

Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.

A country-by-country analysis of Europes Capital raised by leading European countries excluding debt,
2013-14 funding shows France led the July 2013June 2014
continent in total funding with US$2.3 billion.
Finland France Germany Israel
The Netherlands (US$761 million) and Germany
(US$471 million) rounded out the top three. Netherlands Sweden Switzerland UK

700
Israel once again enjoyed the top spot as
the country attracting the most venture 600
dollars, raising US$241 million, more than
Total capital raised (US$m)

double what it received in 2012-13. France 500


(US$225 million) and Germany (US$158
million) claimed the second and third spots, 400
respectively. In contrast to 2012-13, when
only Israel broke the US$100 million VC 300
funding threshold, four countries (including
the UK) eclipsed this barrier in 2013-14. 200

Removing debt offerings from the financing 100


totals in 2013-14, France (US$539 million) still
attracted the most investment of the European 0
countries; Israel (US$457 million) and the UK 50 100 150 200 250 300
(US$388 million) closed out the top three in Venture capital raised (US$m)
this category. Size of bubbles shows relative number of financings per region.
Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.

Medical technology report 2014 55


Industry performance
3 | Mergers and acquisitions

56 EY | Pulse of the industry


Mergers and acquisitions

Seeking scale
In 2013, all signs pointed to increased medtech merger and acquisition activity. With venture
dollars scarce and the public markets only beginning to rebound, smaller players looked for exits via
acquisitions. Meantime, larger medtechs indicated their belief in M&A as the most expedient route to
revenue expansion, even as the pool of potential buyers continued to multiply.

Promise became reality in the 12-month M&As in the US and Europe by year
period ending June 2014. The total
Megadeals (>US$10b) Other M&As Number of M&As
value of M&A involving a US or European
medical technology company jumped 90 180
135% to US$85.6 billion, reaching a
five-year high. Admittedly, just one 75 150
deal Medtronics mammoth take-out of
Total deal value (US$b)

Covidien accounted for at least 50% of 60 120

Number of deals
the total deal value. Excluding megadeals,
dollars spent on medtech M&A increased 45 90

28% to US$29.3 billion from June 2013


30 60
to June 2014.

While the 2013-14 sum did not eclipse the 15 30


amounts acquirers paid in the 2010-11 and
2011-12 periods (excluding megadeals), 0 0
Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
its worth noting that in the aftermath of Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014
the recession, many of those deals arose
Chart includes deals with disclosed values.
because companies had to sell themselves
Source: EY, Capital IQ and Thomson ONE.
due to suboptimal financial considerations.
That wasnt generally the case in 2013-14,
especially for earlier-stage privately held
companies who for the first time since
2007 had an alternate exit path to M&A returned to shareholders exceeding the it will create future value. Certainly,
thanks to the wide-open window for initial cash spent on acquisitions, both in dollar in innovation-driven industries, it is
public offerings. terms and as a percentage of cash from unusual to see the cash returned to
operations. As we show in the chart on shareholders exceed investment in R&D
Still, while medtech merger activity page 58, the gap widened even further in and M&A. Again, it speaks to the difficult
heated up in 2013-14, an analysis of how 2013: medtechs returned US$16.7 billion commercial environment that medtechs
companies chose to spend their net cash to shareholders (56% of their net cash now inhabit.
from operations further underscores M&A from operations) while spending just
hasnt yet reached a full boil. From 2008 US$9.0 billion in cash on acquisitions. One reason the M&A dollars seem to
to 2011, medtech firms annually spent (Note, we anticipate this trend will have slipped may be that medtechs
an average of US$13.6 billion in cash on reverse in 2014 given the size of and believe their internal R&D efforts will
acquisitions and another US$11.0 billion cash associated with the Medtronic/ provide them with sufficient future
on share repurchases and dividends. Covidien merger.) growth. That hasnt been the industrys
Expressed as a percentage of net cash modus operandi historically, however.
from operations, medtech as an industry These findings closely track the R&D Indeed, most big companies have used
spent about 48% of cash from operations investment trends highlighted in the acquisitions as the primary means of
on acquisitions during this period, while Financial performance chapter. As such, accessing new innovation, which is why
returning another 39% to shareholders. they are another important indicator the recent statistics are so arresting.
In 2012, this trend reversed with cash of how the medtech industry believes

Medical technology report 2014 57


How medtechs are spending their cash, 200813 The return of the public markets
Cash acquisitions Cash returned to shareholders R&D expenses
in 2013 could be another reason
medtech M&A from July 2013 to
June 2014 wasnt even stronger.
20,000
During this period, the share prices
of medtechs, like other health care
16,000 companies, outpaced the broader
indices in both the US and Europe.
Annual spend (US$b)

Strengthening share prices, particularly


12,000 for companies in the research and other
equipment and non-imaging diagnostics
categories, would have made it
8,000
significantly more expensive to acquire
companies that a year prior might have
4,000 been undervalued.

Moreover, the thawing of the market


0 for IPOs could also have contributed. In
2008 2009 2010 2011 2012 2013
the 12-month period ending 30 June
Data shown for US and European public pure-play companies for which data were publicly disclosed.
Cash returned to shareholders includes total dividends paid and stock repurchased.
2014, 31 companies floated on US and
European exchanges, raising nearly
Source: EY, Capital IQ and Thomson ONE.
US$1.5 billion. (See Financing the
future on page 42.)

An analysis of how companies chose to


spend their net cash from operations
further underscores M&A hasnt yet
reached a full boil.

58 EY | Pulse of the industry


Mergers and acquisitions

In medtech M&A, scale matters


As we catalog in this years Point of view, geographically and therapeutically, in emblematic of one path medtechs aim
medtech companies are responding to their product offerings. This potentially to use to set the stage for future growth.
the difficult commercial environment in biases medtechs to certain kinds of With annual revenues rivaling Johnson &
a variety of ways. One mechanism that acquisitions: more expensive mergers Johnsons medtech division, a combined
was widely employed in 2013 and 2014: that align two complementary portfolios Medtronic/Covidien will be one of the
deals greater than US$1 billion to add on the one hand, and smaller tuck-in leading distributors in multiple hospital
capabilities en masse. Consider there were acquisitions that create one-stop purchasing categories. Its executives
two deals worth more than US$10 billion solutions providers in a particular believe this will give the merged entity
each and another six transactions that disease segment on the other hand. the scale required to improve its contract
exceeded the US$1 billion threshold in the In both cases, the goal is to create negotiations with health care buyers at a
year ending 30 June 2014. In contrast, sufficient critical mass to fundamentally time when those purchasers are looking to
only four deals topped the US$1billion change the conversations medtechs streamline their vendor relationships. (See
mark in the prior 12-month period. have with health care purchasers. Medtronic/Covidien: emblematic of what
medtech is buying now on page 68.)
Given health care reform and the In terms of its size and scope, the
consolidation in the provider marketplace, Medtronic/Covidien tie-up was the most
certain larger medtechs are making the notable deal in the 2013-14 time frame.
argument that they must have scale, both Equally important, the transaction is

Selected M&As, July 2013June 2014

Acquiring company Location Acquired company Location Value (US$m)


Medtronic US Minnesota Covidien Ireland $42,900

Zimmer Holdings US Indiana Biomet US Indiana $13,350

Carlyle Group US District of Columbia Johnson & Johnson (Ortho-Clinical Diagnostics) US New Jersey $4,150

Essilor International France Transitions Optical US Pennsylvania $1,855

Smith & Nephew UK ArthroCare US Texas $1,700

Grifols Spain Novartis (transfusion diagnostics unit) Switzerland $1,675

Stryker US Michigan MAKO Surgical US Florida $1,650

Cooper Companies US California Sauflon Pharmaceuticals UK $1,200

Covidien Ireland Given Imaging Israel $860

Ansell Australia BarrierSafe Solutions International US Illinois $615

Merz Aesthetics US California Ulthera US Arizona $600

Fresenius Medical Care Germany Sound Inpatient Physicians US Washington $600

Domtar Canada Laboratorios Indas Spain $565

CareFusion US California GE Healthcare (Vital Signs) US Connecticut $500

Kinetic Concepts US Texas Systagenix Wound Management UK $485

Source: EY, Capital IQ and Thomson ONE.

Medical technology report 2014 59


Mergers and acquisitions

Depth and focus matter, too


Other notable medtech mergers signed in products. Company executives believe this If Zimmers acquisition of Biomet was
the 12-month period ending in June 2014 kind of therapeutic depth may provide the about creating an orthopedic powerhouse,
include Zimmer Holdings US$13.4 billion same advantages as the scale seen in the Johnson & Johnsons tie-up with Carlyle
acquisition of Biomet and Carlyle Groups Medtronic/Covidien union. The hope is that Group was about extracting additional
US$4.2 billion purchase of Johnson & health care buyers will look to Zimmer as shareholder value from a business unit
Johnsons Ortho-Clinical Diagnostics a one-stop shop that can offer them a full that didnt afford the same revenue growth
division. Whereas the Medtronic/Covidien spectrum of orthopedic solutions. opportunities as the medical device giants
merger signified the importance of breadth other divisions. It took roughly a year for
in todays health care environment, these As such, a newly bulked up Zimmer Johnson & Johnson to find the right buyer
two deals underscore the importance, could trigger even more deal-making for Ortho-Clinical Diagnostics, which ranks
respectively, of depth and focus. in orthopedics, which has long been a as the fifth-largest in vitro diagnostics
hotbed of merger activity. Since 2012, manufacturer but has struggled to position
Zimmers take-out of Biomet is the second there have been at least 24 orthopedic itself as a market leader. For Carlyle
orthopedic-focused megadeal since 2011 deals worth more than US$18 billion. In Group, the acquisition is just the latest in
when Johnson & Johnson scooped up addition to the Zimmer/Biomet deal, two a string of health care investments, which
Synthes in a transaction valued at nearly other orthopedic mergers eclipsed the include its purchases of the clinical drug
US$20 billion. With worldwide revenues of US$1 billion mark during the 12-month testing company Pharmaceutical Product
US$8 billion, the combined Zimmer/Biomet period ending June 2014: Strykers Development and the health care services
entity will boast a sizeable portfolio in both acquisition of MAKO Surgical and Smith & play ManorCare.
joint and non-reconstructive orthopedic Nephews purchase of ArthroCare.
The emphasis on focus is hardly surprising
given that the current business climate
rewards firms that are clearly and
Portfolio rationalization consistently able to distinguish their
products from the competition. The reality
Acquired business unit Acquiring company Month Value
(US$m) is medtechs have less upside to gain from
Johnson & Johnson Carlyle Group January 2014 $4,150 business units that dont closely align
(Ortho-Clinical Diagnostics) across revenue, profitability or therapeutic
Novartis (transfusion diagnostics unit) Grifols November 2013 $1,675 area priorities. As a result, there is an
increasing push to take advantage of the
Becton Dickinson (Discovery Labware) Corning Life Sciences April 2012 $720
pool of well-funded acquirers and unlock
GE Healthcare (Vital Signs) CareFusion November 2013 $500
value via portfolio rationalization.
Medtronic (Physio-Control) Bain Capital November 2011 $487
Bayer (Interventional unit) Boston Scientific May 2014 $415 Based on the 2013-14 data, medtech
Wright Medical Group (OrthoRecon) MicroPort Scientific June 2013 $290 firms are taking advantage of this
opportunity: in addition to the Johnson
Johnson & Johnson (DePuy trauma unit) Biomet April 2012 $280
& Johnson/Carlyle Group deal, other
C.R. Bard (Bard Electrophysiology) Boston Scientific June 2013 $275
examples of portfolio rationalization
Kinetic Concepts Getinge August 2012 $275 include Bayer Internationals deal with
(Therapeutic Support Systems)
Boston Scientific for the conglomerates
GE Healthcare Merit Medical Systems November 2012 $167 Interventional unit, GE Healthcares
(Thomas Medical Products)
agreement to sell its consumable
Johnson & Johnson (Codman & Schurtleff Symmetry Medical December 2011 $165
medical products group Vital Signs to
surgical instruments business)
CareFusion and Endo Pharmaceuticals
Select listing of divestitures that occurred between July 2011 and June 2014. sale of its HealthTronics division to Altaris
Source: EY, Capital IQ and Thomson ONE. Capital Partners.

60 EY | Pulse of the industry


Mergers and acquisitions

A stable pool of medtech acquirers


In addition to the Carlyle Group, the US and European M&As by type of buyer (excluding megadeals)
private equity firm Blackstone Group
Other Private equity Pharma Conglomerate Medtech
and the conglomerate Danaher were
also reportedly interested in Johnson &
Johnsons diagnostic unit, a reminder 100%

that there is competition for well-


structured medtechs. The industrys 80%
Share of total deal value

diverse nature and its potential for


growth due to demographic shifts (e.g.,
60%
an aging population in mature markets
and a stronger middle class in emerging
markets) mean medtech remains an area 40%
of interest for a variety of buyers, from
traditional device firms to conglomerates
20%
to private equity and, increasingly,
pharmaceutical companies.
0%
Since 2008, traditional medtechs have Jul 2008Jun 2010 Jul 2010Jun 2012 Jul 2012Jun 2014
been the primary acquirers of other players Chart excludes megadeals (>US$10b).
in the space. From 2008 to 2010, medtech
Source: EY, Capital IQ and Thomson ONE.
acquirers played a role in 46% of the M&A
transactions (excluding megadeals), as
measured by share of total dollars spent.
That percentage jumped to 58% for the
The industrys diverse nature and its
two-year period ending 30 June 2014,
partly as increased pressures forced pure-
potential for growth due to demographic
play medtechs to use M&A as one means
of bolstering the bottom line. (Including
shifts mean medtech remains an area of
megadeals, traditional medtech acquirers
accounted for 25% of the total acquisition
interest for a variety of buyers.
dollars in the 2008-10 period and 82%
between July 2012 and June 2014.)

From 200814, private equity buyers Although the dollar values are small, and bundled payments require them
were consistently in the mix, spending the buyer category that has grown to look beyond the pill for innovation.
12% to 14% of the total medtech M&A the fastest from 2008 to 2014 is the Neurostimulation, especially to treat
dollars on acquisitions. Conglomerates, pharma category. The dollars spent by conditions such as epilepsy, migraine
meantime, have retreated from the pharmas on medtech acquisitions from pain and depression, which are
deal-making table at least relative July 2012 to June 2014 have increased frequently resistant to medication, is
to their activity in the 2008-10 time more than 900% compared to the same one area commanding the attention
period, when 35% of merger dollars came two-year period beginning in 2008. Just of pharmaceutical companies. So are
from this buyer category. Still, recent as medtech has come under pressure to diagnostic capabilities. Of the 10 pharma-
deals like Danahers two dental-focused identify new mechanisms of growth, so has medtech transactions announced during
acquisitions (Dux Dental and Vettec) and pharma. Certain pharma companies are the 12 months ending 30 June 2014, four
Bayer HealthCares bid for Conceptus responding by expanding into therapeutic involved non-imaging diagnostics players.
show conglomerates remain interested in devices or diagnostics, arguing the rise
medtech acquisitions. of comparative effectiveness research

Medical technology report 2014 61


Mergers and acquisitions

Pharmas are not the only ones pushing Top deal-making by disease area and market segment
for this convergence of business models.
Certain medtech players are also looking To assess which medtech categories purchase of Covidien and Zimmers
to adjacent sectors for opportunities. were associated with the greatest take-out of Biomet, therapeutic devices
In June 2014, Fresenius Medical Care number of deals, we also analyzed share of the total M&A dollars increased
announced its US$600 million buyout of deal flow by disease area and market to 92% in the 12-month period ending
Sound Inpatient Physicians, a provider segment. Unlike our deal value analysis, 30 June 2014. Thats an increase of 29
group representing 1,000 physicians where only deals with disclosed values percentage points from the 2009-13 time
practicing at more than 100 hospitals were included in the data set, this data period. The totals for these megadeals
and acute care centers in the US. The set includes all publicly announced also meant no other medtech category
dialysis player also announced its mergers, whether or not a dollar value garnered more than 3% of the total M&A
acquisition of MedSpring Urgent Care, for the acquisition was disclosed. dollars during the 12 months ending
which operates 14 urgent care centers 30 June 2014.
in Illinois and Texas. These deals show With 105 acquisitions from 1 July 2013
how Fresenius Medical Care aims to to 30 June 2014, the therapeutic device Within the therapeutic device category,
extend its service model beyond its core sector once again took top honors as the orthopedic deals dominated in terms
businesses of dialysis clinics, vascular medtech category with the most deals. of total deal value as a result of the
care centers and renal pharmaceutical Deal volume in therapeutic devices has aforementioned Zimmer/Biomet
products to gain additional expertise in remained constant: since July 2009, megadeal. Cardiovascular mergers were
arenas such as care coordination and roughly 50% of all the mergers have also numerous. With 21 acquisitions
patient-centered care, which have become been in this space. Thanks to Medtronics from 1 July 2013 to 30 June 2014,
important in the post-health care reform
environment. (See To improve medtech
R&D, take a system-wide approach on
page 11.) Analysts had been expecting Selected M&As by segment
Fresenius to make a move like this since
Jul 2009Jun 2013 Jul 2013Jun 2014
mid-2012, when DaVita, a competing
dialysis services provider, acquired the Segment Number Value % of total Number Value % of total
of deals (US$m) deal value of deals (US$m) deal value
physician group HealthCare Partners for
Therapeutic devices 457 $120,149 63% 105 $67,315 92%
US$4.4 billion.
Ophthalmic 29 $42,902 22% 5 $1,674 2%
Medtronics US$200 million acquisition of Orthopedic 81 $22,842 12% 21 $15,719 21%
the disease management firm Cardiocom Cardiovascular 70 $16,748 9% 21 $2,433 3%
in August 2013 is another example of how
Respiratory 17 $1,147 1% 3 $10 0%
medtech business models are shifting. The
Non-disease specific 77 $4,922 3% 16 $826 1%
all-cash deal helped position Medtronic
as a player in monitoring and caring for Multiple 27 $2,476 1% 11 $44,686 61%

chronically ill patients who may not need Hematology/renal 19 $6,939 4% 3 $286 0%
the device companys costly implants. Wound care 31 $10,520 6% 5 $664 1%
Oncology 11 $1,229 1% 1 $15 0%

Deal volume
All others 95 $10,424 5% 19 $1,002 1%
Research and other 91 $37,338 20% 26 $1,225 2%

in therapeutic
equipment
Non-imaging diagnostics 168 $23,060 12% 39 $1,557 2%

devices has Imaging


Other
79
96
$4,474
$6,044
2%
3%
14
28
$936
$2,296
1%
3%

remained constant. Source: EY, Capital IQ and Thomson ONE.

62 EY | Pulse of the industry


cardiovascular tied orthopedic as the value, life sciences tools companies testing, especially for infectious diseases,
most active therapeutic device sector in have focused recently on acquiring can improve health outcomes. In June
terms of deal number. Certain acquirers, additional capabilities in order to offer 2014, St. Jude Medical exercised its
particularly Frances Essilor International, their customers more comprehensive option to acquire the 81% of CardioMEMS
set their sights on ophthalmology firms biopharmaceutical research platforms. it didnt already own. The deal, worth
as well. There were five ophthalmology Meantime, the twin forces of precision US$375 million, gives St. Jude Medical
device mergers in the 12 months ending medicine and home-based health care full ownership of CardioMEMS recently
30 June 2014, including two deals valued have made diagnostics companies approved wireless implant device for
at greater than US$1 billion: Essilors strategically more important to a range of monitoring and preventing heart failure.
US$1.9 billion acquisition of Transitions potential acquirers.
Optical, a division of PPG Industries, and Increasingly, health care providers are
Cooper Companies purchase of Sauflon Two 2014 mergers Roche Holding/ trying to shift care for chronically ill
Pharmaceuticals for US$1.2 billion. IQuum and St. Jude Medical/ patients from the hospital or clinic to
CardioMEMS illustrate the potential the home. Monitoring devices like the
Outside therapeutic devices, there were breadth of technologies that buyers find one from CardioMEMS enable early
26 mergers in the research and other interesting. Roches US$450 million treatment of congestive heart failure and
equipment sector worth US$1.2 billion, purchase of IQuum shows how leading could prevent costly hospital admissions
and 39 deals valued at US$1.6 billion in in vitro diagnostic players are trying to or readmissions.
the non-imaging diagnostics category. As bolster their capabilities in the molecular
we wrote in Beyond borders: unlocking point-of-care testing space, where rapid

Medical technology report 2014 63


Mergers and acquisitions

Structuring the deal


In 201314, acquirers were not just play a smaller role in such acquisitions, calculated. As a result, the de-risking that
consistent in the kinds of companies they because the companies being acquired might be done via milestones is already
purchased. They also adhered to a given are of sufficient size and maturity factored in to the actual purchase price of
pattern when designing their deals. Since that commercial risks are more easily a company or division.
the global financial crisis, buyers have
tried when possible to curb their M&A
While the number of deals using milestone payments holds steady ...
risk by structuring their acquisitions via
Number of M&As with milestones Number of M&As with milestones/total number of M&As
milestones. In essence, these milestones
allow acquirers to delay paying full value 40 40%
for a product or technology until it has

Percentage of M&As with milestone payments


proven itself, for instance by reaching
an agreed-upon sales threshold. In 30 30%
200910, the percentage of medtech
Number of M&As

acquisitions involving milestone payments


was just 19%; for every 12-month period
20 20%
thereafter, the same metric has hovered
at around 29%.

If acquirers are interested in hedging some 10 10%


of their M&A risk, analysis of the 201314
data suggests they were spending more up
front to buy desirable assets than in prior
0 0%
12-month periods. Thus, even though Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
the percentage of medtech acquisitions Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014
involving milestones held steady during
201314, the dollar value associated with
... the value of milestone payments continues to fall.
those milestones fell from US$3.7 billion in
June 2013 to US$1.2 billion in June 2014. Total value of milestones Total value of milestones/total value of all M&As with milestones

Moreover, milestones share of total deal


2.5 50%
value has also continued to fall. For the
past two years it has hovered around 33%,
off from the peak observed in June 2012, 2.0 40%
when milestones accounted for 45% of the
Total deal value (US$b)

total deal value.


Share of total value

1.5 30%
The decreasing value in milestone
payments could be due to a variety of
factors. Given rising medtech market 1.0 20%
capitalizations and a strong field of
acquirers, would-be buyers have less
0.5 10%
negotiating power and may have to pay
closer to full value up front to bring
desired assets in-house. In addition, 0 0
Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
acquirers during the 201314 period
Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014
have looked to create economics of scale
via bigger deals. Milestones typically Source: EY, Capital IQ and Thomson ONE.

64 EY | Pulse of the industry


Mergers and acquisitions

The geography of medtech M&A


United States US M&As by year
The total value for deals involving the Total deal value of megadeals (>US$10b) Total deal value of other M&A Number of M&As
acquisition of a US-based medtech
50 100
climbed 32% (US$30.6 billion) during the
12-month period ending 30 June 2014. In
dollar terms, this was the second-largest
40 80
total amassed in the past five years,
ranking behind only the 2010-11 period,
Total deal value (US$b)

when the J&J/Synthes merger drove the

Number of deals
30 60
deal total up to US$47.4 billion.

Excluding the Zimmer Holdings/Biomet


megadeal, US medtech mergers in 20 40

2013-14 generated US$17.3 billion in


potential dollars. Thats 79% higher than
the year before, when US medtechs pulled 10 20
in US$9.7 billion thanks to mergers. Still,
its also US$10 billion less than the annual
average spent from 1 July 2009 to 0 0
Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
30 June 2012. Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014

In terms of deal volume, the number Chart includes deals with disclosed values and in which the acquired entity is a US medtech company.
of mergers involving a US medtech Source: EY, Capital IQ and Thomson ONE.
increased from 63 to 72 in 2013-14.
Thats largely in line with the previous
four-year average of 74 mergers. With
European M&As by year
seven deals during the 12 months ending Total deal value of megadeals (>US$10b) Total deal value of other M&A Number of M&As
30 June 2014, Stryker was the US most
active buyer. For the five mergers for 60 60
which deal terms were disclosed, the
orthopedic firm spent US$2.3 billion.
40 40

Europe
Total deal value (US$b)

Number of deals

The total value of acquisitions of


20 20
Europe-based companies soared 584%
to US$50.1 billion in 2013-14, thanks
to Medtronics purchase of Covidien.
It was the second-largest total since 10 10
2009-10 when Novartis acquired the
ophthalmology-focused Alcon division of
Swiss firm Nestl in a transaction worth 0 0
Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013
US$45.9 billion. Normalizing the data for
Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014
megadeals, the merger total in 2013-14
reached US$7.2 billion. Thats 2% lower Chart includes deals with disclosed values and in which the acquired company is a European medtech company.

than the year before, but in line with the Source: EY, Capital IQ and Thomson ONE.

Medical technology report 2014 65


Mergers and acquisitions

previous four-year average of US$8.1 shows just how important markets like bid for Trauson Holdings commanding
billion. The number of M&A transactions China, India, Brazil and Turkey have price tags of US$816 million and
with announced deal terms declined 8% become for medtechs based in the US and US$764 million, respectively.
year-over-year in 2013-14, but remained Europe. There were just 35 mergers from
higher than the previous four-year 2008 to 2011 in South America, Asia and Both the Medtronic/China Kanghui
average of 39. Russia, and the largest publicly disclosed Holdings and Stryker/Trauson Holdings
deal was Hospiras purchase of Indias mergers took place in the 12-month
Outside Covidiens purchase by Orchid Chemicals & Pharmaceuticals. period ending 30 June 2013 and
Medtronic, notable acquisitions of Europe- In contrast, from 2011 to 2014, there underscore how leading orthopedic
based medtechs included Covidiens were 80 deals in these regions of the players hoped to expand their footprint in
deal for Given Imaging, Grifols purchase world, with the two largest publicly China. Although the total dollars spent on
of Novartis diagnostics division and disclosed deals Medtronics purchase China-based medtechs fell considerably in
Cooper Companies acquisition of Sauflon of China Kanghui Holdings and Strykers 2013-14 there was just one merger with
Pharmaceuticals.

Emerging markets
In our 2013 Pulse report, we discussed Medtech company acquisitions in select developing markets
how market pressures in the US and Jul 2008Jun 2011 Jul 2011Jun 2014
Europe have pushed Western medtechs
to look for growth in other geographies, 50
most notably China. As we write in this
years Pulse report, the commoditization
of devices means, increasingly, that 40

reverse innovation coming from emerging


Number of deals

markets may also represent a threat to 30


Western-based medtechs. (See Sea
change in Chinas medtech industry
on page 20.) 20

In response to these simultaneous


10
opportunities and pressures, it is hardly
surprising that Western-based medtechs
have prioritized deal-making in emerging 0
markets. A comparison of deal volume in Brazil China India Turkey
two periods (200811 versus 201114) Source: EY, Capital IQ and Thomson ONE.

66 EY | Pulse of the industry


Mergers and acquisitions

a disclosed deal value of US$3.2 million of Orchid Chemicals & Pharmaceuticals, France-based eye company was the most
the number of deals in this market kept other notable deals in India included active of the US and European medtech
pace with prior 12-month periods. There Smith & Nephews 2013 deal for Adler acquirers. (PerkinElmer, which acquired
were five China-based deals in 2013-14, Mediequip Private and its suite of four medtechs based in emerging
down from eight the year prior. Indeed, orthopedic trauma assets and William markets during this same time period,
of the emerging markets analyzed, China Demant Holdings 2012 acquisition of was the next-most active buyer.) Essilor
remains the hot spot for deal-making Otic Hearing Solutions Private. Essilor International currently holds 40% of the
activity, with 42 acquisitions signed since International was the most active acquirer market for prescriptive corrective lenses,
July 2008. (Note, more than half that of Turkish companies during the six-year making it the global leader in this product
deal volume 26 acquisitions occurred time span, inking five deals. Notable category. Expanding to emerging markets
since July 2011.) Essilor transactions included its 2012 has been a key part of the companys
partial acquisitions of Yeda Tora Optik business strategy: having penetrated
Deal activity in Brazil was also robust and Opak Optik. most of the Western-based markets, it has
from 2008 to 2014. There have been actively sought to purchase distributors
35 acquisitions of Brazilian medtechs Essilor International wasnt only focused in other parts of the world where a rising
since July 2008, with 71% of the volume on Turkish medtech acquisitions. With middle class and the need for vision
coming in the past three years. Since 21 acquisitions in various emerging correction offer the opportunity for
2011, numerous acquirers have sought markets over the preceding six years, the double-digit revenue growth.
deals in this South American country,
including Essilor International (four deals)
and General Electrics GE Healthcare
division (two deals). In emerging markets,
deal terms arent often publicly disclosed.
The largest publicly announced deal
of a Brazilian medtech was Straumann
Holdings partial acquisition of the dental
implant maker Neodent for US$277.4

Reverse innovation coming


million in 2012.

Outside China and Brazil, India


(16 acquisitions) and Turkey (nine from emerging markets may
acquisitions) also commanded significant
interest from Western-based medtech also represent a threat to
Western-based medtechs.
buyers from 2008 to 2014. In addition
to Hospiras aforementioned acquisition

Medical technology report 2014 67


Mergers and acquisitions

Case study

Medtronic/Covidien
Emblematic of what medtech is buying now
The scope and scale of the Medtronic/ hospital purchasers remains to be seen. Many company executives (in medtech
Covidien transaction make it impossible to If the combined companys additional heft and other industries) argue the American
ignore. But its also worth understanding improves its contracting capabilities, it is tax code should be overhauled to level the
as a signpost of future medtech M&A and highly likely the deal will put pressure on playing field for multinational companies
the ways in which device companies see other medtechs to pursue mergers with headquartered in the US, as they face a
deal-making as a key strategy in creating equals as a relatively quick way to gain competitive disadvantage compared to
entities that are well positioned to meet the scale required to remain competitive firms headquartered in countries with
the demands of the rapidly changing in the marketplace. lower tax rates. However, as Pulse went
health care climate. to press, the U.S. Treasury Department
issued new guidance to make it harder
One of the largest medtech-specific A financial rationale and less profitable for companies to
deals ever announced, the Medtronic/ In addition to showcasing the strategic accomplish these so-called inversions. The
Covidien merger, which is valued at imperative of scale, the Medtronic/ new rules, issued 22 September 2014,
US$42.9 billion, surpasses Novartis 2010 Covidien deal also highlights the were effective immediately and applied
purchase of Alcon and Boston Scientifics importance of financial considerations in to all transactions including Medtronic/
2005 acquisition of Guidant. The tie-up an environment where it is increasingly Covidien that hadnt yet been finalized.
joins two leading medtechs to create difficult to demonstrate regular top-line Its unclear how Medtronic will respond.
a new entity with combined revenues growth. (See page 27 for Holding steady, A clause in its contract the Covidien
nearing US$27 billion, rivaling Johnson & which reviews the medical technology material adverse effect clause appears
Johnsons medtech division in annual industrys 2013-14 financial performance.) to allow Medtronic to end the deal in
sales. (Analysts estimate nearly half that exchange for a break-up fee. In public
revenue will be generated outside the US.) As a result of its purchase of Covidien, statements, the company has only said
Medtronic will be domiciled in Ireland, that it is studying Treasurys actions.
Based on company press releases, and the combined company will be able to
strategic and financial concerns, not lower its overall corporate taxation rate. It
the potential for cost-savings, were will also be able to access cash generated
Future priorities
the primary drivers of the deal. The from overseas operations to make Prior to the merger, both Medtronic
companies offer complementary product additional US-based investments without and Covidien were active acquirers,
portfolios: Medtronic supplies a range incurring taxes there. especially of start-ups with promising
of devices for the cardiology, neurology technologies. In the near term, it
and diabetes markets, while Covidien Medtronic is hardly the first life sciences seems likely that the combined entity
specializes in hospital supplies. Together company to pursue a deal target based, will prioritize integrating the various
the combined entity will be one of the in part, on the potential tax advantages businesses. That said, Medtronic has
leading medtech distributers in multiple of an inversion, in which companies publicly stated its intention to spend an
hospital purchasing categories. This reincorporate overseas in order to additional US$10 billion over the next 10
means it will have the scale required to reduce the tax burden on income years on US-based investments, including
improve its contract negotiations with earned abroad. Other mergers driven acquisitions and R&D. Moreover, despite
health care buyers at a time when those at least partly by the this strategy have the scale of the transaction, bolt-on
purchasers are looking to streamline their included AbbVies proposed purchase acquisitions that further deepen the
vendor relationships. of Shire, Mylans acquisition of Abbotts combined entities commercial offering in
Developed Markets branded generic a given therapeutic sector or geography,
Just how a newly bulked up Medtronic/ pharmaceuticals business and Pfizers especially in rapidly growing emerging
Covidien engages with providers and recent bid for AstraZeneca. markets, shouldnt be ruled out.

68 EY | Pulse of the industry


Part 3 | Appendix
Appendix
Part 3
Appendix

Scope of this report

Defining medical technology


Conglomerate companies
Except as otherwise noted, medical including products such as MRI
technology (medtech) companies are machines, computed tomography United States
defined for this report as companies that (CT) and X-ray imaging equipment and 3M: Health Care
primarily design and manufacture medical optical biopsy systems Abbott: Diagnostic and Vascular
technology equipment and supplies and Non-imaging diagnostics: companies Products
are headquartered within the United developing products used to diagnose Agilent Technologies: Life Sciences and
States or Europe. For the purposes of this or monitor conditions via non-imaging Diagnostics
report, we have placed Israels data and technologies, which can include Allergan: Medical Devices
analysis within the European market, and patient monitoring and in vitro testing Baxter International: Medical Products
any grouping of the US and Europe has equipment Corning: Life Sciences
been referred to as global. This wide- Danaher: Life Sciences & Diagnostics
ranging definition includes medical device, Research and other equipment: and Dental
diagnostic, drug delivery and analytical/ companies developing equipment Endo Health Solutions: AMS
life science tool companies, but excludes used for research or other purposes, GE Healthcare
distributors and service providers such including analytical and life science Hospira: Medication Management
as contract research organizations or tools, specialized laboratory equipment IDEX: Health & Science Technologies
contract manufacturing organizations. and furniture Johnson & Johnson: Medical Devices &
Therapeutic devices: companies Diagnostics
By any measure, medical technology is developing products used to treat Kimberly-Clark: Health Care
an extraordinarily diverse industry. While patients, including therapeutic medical Pall: Life Sciences
developing a consistent and meaningful devices, tools or drug delivery/infusion
classification system is important, it is Europe
technologies
anything but straightforward. Existing Agfa: HealthCare
taxonomies sometimes segregate Other: companies developing products Bayer HealthCare: Medical Care
companies into scores of thinly populated that do not fit in any of the above Carl Zeiss: Meditec
categories, making it difficult to identify categories were classified in this DSM: Medical
and analyze industry trends. Furthermore, segment
Drger: Medical
they tend to combine categories based In addition to product groups, this Eckert & Ziegler: Medizintechnik
on products (such as imaging or tools) report tracks conglomerate companies Fresenius: Medical Devices
with those based on diseases targeted by that derive a significant part of their GN Store Nord: GN ReSound
those products (such as cardiovascular revenues from medical technologies. Halma: Medical
or oncology), which makes it harder to While a conglomerate medtech divisions Jenoptik: Medical Therapeutics
analyze trends consistently across either technology could technically fall into Merck KGaA: EMD Millipore
dimension. To address some of these one of the product groups listed above Novartis: Alcon Surgical
challenges, we have categorized medtech (e.g., General Electric into imaging Philips Healthcare
companies across both dimensions and Allergan into therapeutic devices), Quantel Medical
products and diseases targeted. all conglomerate data is kept separate Roche Diagnostics
from that of the non-conglomerates. Sanofi: Genzyme Biosurgery
All publicly traded medtech companies
This is due to the fact that, while Semperit: Sempermed
were classified as belonging to one of five
conglomerates report revenues for their Siemens Healthcare
broad product groups:
medtech divisions, they typically do not Smiths Medical
Imaging: companies developing report other financial results for their
products used to diagnose or monitor medtech divisions, such as research and
conditions via imaging technologies, development or net income.

70 EY | Pulse of the industry


Appendix

Acknowledgments

Project leadership Strategic direction Editing assistance


Glen Giovannetti and Gautam Jaggi Special thanks to Patrick Flochel and Russell Colton brought his incomparable
once again acted as co-editors-in-chief John Babitt, who brought their years skills as a copy editor and proofreader to
for Pulse of the industry. Their strategic of experience to the identification and this publication. His patience, hard work
and thematic guidance were invaluable in analysis of industry trends. and attention to detail were unparalleled.
the production of this report and ensured
the reports content explored the major
themes affecting the industry. Data analysis Design
Iain Scott, Lead Analyst in EYs UIrike Trauth, Lisa-Marie Schulte This publication would not look the way it
Global Life Sciences Center, and Ellen and Nina Hahn compiled the data and does without the creativity of Mike Fine,
Licking, Contributing Writer, were conducted all the financing, financial who was the lead designer for Pulse this
the reports lead authors. Through a performance and M&A analyses. year the first in which he has been
series of external interviews, as well involved. Additional design assistance
as primary and secondary research, Amit Nayak, Tanushree Jain and was provided by Appu Sebastian, Liju
Iain and Ellen developed many of the Namrita Negi provided research and Abraham, Arun Kumar R, Sarath CV
themes and elements for this years analysis support to the Differentiating and Rohit Kumar S (chart design).
report. Iain was the lead author of the differently article and Industry
Differentiating differently article, while performance articles. Namrita also
Ellen was responsible for writing the authored the Sea change in Chinas PR and marketing
Industry performance articles, as well as medtech industry article.
providing editorial assistance with the Public relations and marketing efforts
Differentiating differently article and Samir Goncalves, Jason Hillenbach and related to the report and its launch were led
guest articles. Kim Medland conducted fact-checking by Angela Kyn and Sue Lavin Jones with
and quality review of the numbers the help of Greg Kelley from our external
As the project manager for Pulse of throughout the publication. PR firm, Feinstein Kean Healthcare,
the industry, Jason Hillenbach had and Katie Hanes from EYs Global Life
responsibility for the entire content Sciences Center marketing team.
and quality of this publication. He
was also directly accountable for the
primary analysis of the reports data,
and provided insights to the Industry
performance section.

Medical technology report 2014 71


Appendix

Data exhibit index

Hospitals pressures are shifting from simple cost-cutting to value 6

Physicians are becoming less important influencers of purchasing decisions 6

The reimbursement landscape 7

Differentiate differently or become commoditized? 8

Health care purchasers prioritize devices that reduce the total cost of care 8

Medical technology at a glance, 201213 27

Change in US and European therapeutic device companies revenue and net income by disease category, 2013 vs. 2012 28

US and European commercial leaders, 200913 29

US public medtech cash index, 201113 30

European public medtech cash index, 201113 30

Since 2010, medtechs are returning more cash to shareholders than they are investing in R&D 32

US market capitalization relative to leading indices, 201214 33

US market capitalization by product type, 201214 33

European market capitalization relative to leading indices, 201214 34

European market capitalization by product type, 201214 34

US medtech at a glance, 201213 35

US commercial leaders and other companies, 201213 35

Selected US medtech public company financial highlights by region, 2013 36

Selected fast-growing US medtechs by revenue growth, 200813 37

European medtech at a glance, 201213 38

European commercial leaders and other companies, 201213 38

Selected European medtech public company financial highlights by country, 2013 39

Selected fast-growing European medtechs by revenue growth, 200813 40

Capital raised in the US and Europe by year (US$m) 42

Driven by the resurgence of IPOs, innovation capital swelled in the US and Europe 43

Medtechs share of US venture capital continues to tumble 44

72 EY | Pulse of the industry


Appendix

The share of early-stage venture investment in the US and Europe reached its highest point in four years  45

VC rounds of US medtech companies with participation of corporate venture investors, by year  46

US and European IPOs by year  48

US and European IPO pricing by year  49

US financings by year  50

US venture capital by year  50

Top US venture rounds, July 2013June 2014  51

US IPOs by year  51

US IPOs, July 2013June 2014  52

Capital raised by leading US regions excluding debt, July 2013June 2014  52

European financings by year  53

European venture capital achieved levels not seen since the financial crisis  53

Top European venture rounds, July 2013June 2014  54

European IPOs by year  54

European IPOs, July 2013June 2014  55

Capital raised by leading European countries excluding debt, July 2013June 2014  55

M&As in the US and Europe by year 57

How medtechs are spending their cash, 200813 58

Selected M&As, July 2013June 2014  59

Portfolio rationalization  60

US and European M&As by type of buyer (excluding megadeals)  61

Selected M&As by segment  62

While the number of deals using milestone payments holds steady ...  64

... the value of milestone payments continues to fall.  64

US M&As by year 65

European M&As by year 65

Medtech company acquisitions in select developing markets  66

Medical technology report 2014 73


Appendix

Contacts

Global Life Sciences Leader Glen Giovannetti glen.giovannetti@ey.com +1 617 585 1998

Deputy Global Life Sciences Leader Patrick Flochel patrick.flochel@ch.ey.com +41 58 286 4148

Global Life Sciences Assurance Leader Scott Bruns scott.bruns@ey.com +1 317 681 7229

Global Life Sciences Advisory Leader Kim Ramko kim.ramko@ey.com +1 615 252 8249

Global Life Sciences Tax Leader Mitch Cohen mitchell.cohen@ey.com +1 203 674 3244

Global Life Sciences Transaction Advisory Services Leader Jeff Greene jeffrey.greene@ey.com +1 212 773 6500

Australia Brisbane Winna Brown winna.brown@au.ey.com +61 7 3011 3343

Melbourne Denise Brotherton denise.brotherton@au.ey.com +61 3 9288 8758

Sydney Gamini Martinus gamini.martinus@au.ey.com +61 2 9248 4702

Austria Vienna Erich Lehner erich.lehner@at.ey.com +43 1 21170 1152

Belgium Brussels Dick Hoogenberg dick.hoogenberg@nl.ey.com +31 88 40 71419

Brazil So Paulo Frank de Meijer frank-de.meijer@br.ey.com +55 11 2573 3383

Canada Montral Sylvain Boucher sylvain.boucher@ca.ey.com +1 514 874 4393

Lara Iob lara.iob@ca.ey.com +1 514 879 6514

Toronto Mario Piccinin mario.piccinin@ca.ey.com +1 416 932 6231

Vancouver Nicole Poirier nicole.poirier@ca.ey.com +1 604 891 8342

Czech Republic Prague Petr Knap petr.knap@cz.ey.com +420 225 335 582

Denmark Copenhagen Staffan Folin staffan.folin@se.ey.com +46 8 5205 9359

France Paris Virginie Lefebvre-Dutilleul virginie.lefebvre-dutilleul@ey-avocats.com +33 1 55 61 10 62

Germany Dsseldorf Gerd Strz gerd.w.stuerz@de.ey.com +49 211 9352 18622

Mannheim Siegfried Bialojan siegfried.bialojan@de.ey.com +49 621 4208 11405

India Mumbai V. Krishnakumar krishnakumar.v@in.ey.com +91 22 6192 0950

M. Muralidharan Nair murali.nair@in.ey.com +91 22 6192 0380

Hitesh Sharma hitesh.sharma@in.ey.com +91 22 61920620

Ireland Dublin Aidan Meagher aidan.meagher@ie.ey.com +353 1 221 1139

Israel Tel Aviv Eyal Ben-Yaakov eyal.benyaakov@il.ey.com +972 3 623 2512

Italy Milan Gabriele Vanoli gabriele.vanoli@it.ey.com +39 02 8066 9840

Rome Alessandro Buccella alessandro.buccella@it.ey.com +39 06 67535630

Antonio Irione antonio.irione@it.ey.com +39 06 67535746

Japan Tokyo Hironao Yazaki yazaki-hrn@shinnihon.or.jp +81 3 3503 2165

Korea Seoul Jeungwook Lee jeung-wook.lee@kr.ey.com +82 2 3787 4301

Netherlands Amsterdam Dick Hoogenberg dick.hoogenberg@nl.ey.com +31 88 40 71419

New Zealand Auckland Jon Hooper jon.hooper@nz.ey.com +64 9 300 8124

74 EY | Pulse of the industry


Appendix

Norway Trondheim/Oslo Willy Eidissen willy.eidissen@no.ey.com +47 918 63 845

Poland Warsaw Mariusz Witalis mariusz.witalis@pl.ey.com +48 225 577950

Russia Moscow Dmitry Khalilov dmitry.khalilov@ey.com +7 495 755 9757

Singapore Singapore Swee Ho Tan swee.ho.tan@sg.ey.com +65 6309 8238

South Africa Johannesburg Warren Kinnear warren.kinnear@za.ey.com +27 11 772 3000

Sarel Strydom sarel.strydom@za.ey.com +27 11 772 3420

Spain Barcelona Dr. Silvia Ondategui-Parra silvia.ondateguiparra@es.ey.com +48 2 2557 7351

Sweden Uppsala Bjrn Ohlsson bjorn.ohlsson.uppsala@se.ey.com +46 18 19 42 22

Switzerland Basel Jrg Zrcher juerg.zuercher@ch.ey.com +41 58 286 84 03

Zrich Heinrich Christen heinrich.christen@ch.ey.com +41 58 286 3485

United Kingdom Bristol Matt Ward mward@uk.ey.com +44 11 7981 2100

Cambridge Cathy Taylor ctaylor@uk.ey.com +44 1223 394 490

Rachel Wilden rwilden@uk.ey.com +44 1223 394 496

Edinburgh Mark Harvey mharvey2@uk.ey.com +44 13 1777 2294

Jonathan Lloyd-Hirst jlloydhirst@uk.ey.com +44 13 1777 2475

London/Reading Ian Oliver ioliver@uk.ey.com +44 11 8928 1197

United States Boston Kevin Casey kevin.casey1@ey.com +1 617 585 1817

Michael Donovan michael.donovan1@ey.com +1 617 585 1957

Chicago Jerry DeVault jerry.devault@ey.com +1 312 879 6518

James Welch james.welch@ey.com +1 312 879 3827

Houston Carole Faig carole.faig@ey.com +1 713 750 1535

Minneapolis William Miller william.miller@ey.com +1 612 371 6984

New York/New Jersey John Babitt john.babitt@ey.com +1 212 773 0912

Dave DeMarco dave.demarco@ey.com +1 732 516 4602

Orange County Dave Copley david.copley@ey.com +1 949 437 0250

Kim Letch kim.letch@ey.com +1 949 437 0244

Philadelphia Howard Brooks howard.brooks@ey.com +1 215 448 5115

Steve Simpson stephen.simpson@ey.com +1 215 448 5309

Raleigh Mark Baxter mark.baxter@ey.com +1 919 981 2966

Redwood Shores Scott Morrison scott.morrison@ey.com +1 650 802 4688

Chris Nolet chris.nolet@ey.com +1 650 802 4504

Rich Ramko richard.ramko@ey.com +1 650 802 4518

San Diego Dan Kleeburg daniel.kleeburg@ey.com +1 858 535 7209

Medical technology report 2014 75


Appendix

Notes

76 EY | Pulse of the industry


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How EYs Global Life Sciences Center can help your business
Life sciences companies from emerging to multinational
are facing challenging times as access to health care
takes on new importance. Stakeholder expectations are
shifting, the costs and risks of product development are
increasing, alternative business models are manifesting, and
collaborations are becoming more complex. At the same time,
players from other sectors are entering the field, contributing
to a new ecosystem for delivering health care. New measures
of success are also emerging as the sector begins to focus
on improving a patients health outcome, and not just on
units of a product sold. Our Global Life Sciences Center brings
together a worldwide network of more than 7,000 sector-
focused assurance, tax, transaction and advisory professionals
to anticipate trends, identify implications and develop points
of view on how to respond to the critical sector issues. We can
help you navigate your way forward and achieve success in the
new health ecosystem.
2014 EYGM Limited.
All Rights Reserved.

EYG no. FN0173


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This material has been prepared for general informational purposes only and is
not intended to be relied upon as accounting, tax, or other professional advice.
Please refer to your advisors for specific advice.

The views of third party set out in this publication are not necessarily the views
of the global EY organization or its member firms. Moreover, they should be
seen in the context of the time they were made.

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