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Trends in Orthopedics. Brady R. Shirley. Introduction. IMDS President/CEO 14 months Stryker Corp 18 yrs – Sales/Mktg/R&D/GM Technical – Clinical/Electronics. INNOVATIVE MEDICAL DEVICE SOLUTIONS. Me. IMDS. Leader in Orthopedic Design Pre-clinical Testing

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Trends in Orthopedics


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    1. Trends in Orthopedics Brady R. Shirley

    2. Introduction IMDS President/CEO 14 months Stryker Corp 18 yrs – Sales/Mktg/R&D/GM Technical – Clinical/Electronics INNOVATIVE MEDICAL DEVICE SOLUTIONS Me IMDS • Leader in Orthopedic Design • Pre-clinical Testing • CMO – Orthopedic Implants/Instruments • InstrumentWorks™

    3. Historical Orthopedic Market 2009 Market Share • Key 2009 Observations • Top 5 represents 59% of the market. Top 10 represents 77%. • Stryker / Zimmer / Depuy represent 70% of RECON • Extremities growth largely outside of Big 5

    4. The Current Landscape…2010 • Increased FDA Scrutiny • DOJ Focus • Segment Trajectory Evolving • Price Pressures • Reprocessing of single use devices • Materials • VC Market Deterioration Orthopedic Market Trends

    5. The Current Landscape…2010 Increased FDA Scrutiny

    6. News

    7. The Current Landscape…2010 • Increased Audit Frequency/Intensity • 4 of Big 5 received warning letters in 2009-10 • Manufacturing Supplier Consolidation • R&D focus on remediation • Expanding 510k Approval Timelines • 2005=87 days 2008=113 days 2010=130 days • 510k moving towards PMA • Increased costs • Increased development time • Registration Requirements Escalating • Clinical outcomes tracking Increased FDA Scrutiny

    8. The Current Landscape…2010 • Big 5 Companies Settlement $350m in 2007 • Consulting practices challenged…anti-kickback • Limited interaction between HCP and OEM • Massachusetts Senate Bill No. 2863 • Code of Conduct • Meals • Entertainment • Grants • Cash • Sunshine Act • Documentation • Eight states, including Massachusetts, Vermont, Maine, Minnesota, and Washington, DC…42 to follow DOJ Focus

    9. The Current Landscape…2010 Segment Trajectory Evolving • Hip & Knee Growth Moderating • Extremities Leading RECON Growth • Spine Market in Decline • Procedures decreasing based on co-pay • Pricing pressures based on overall market • Outcomes • Trauma / Sports Medicine unfazed by economic challenges

    10. The Current Landscape…2010 • Employee Orthopedic HCPs have opened the door for C Level “control” of product selection • OUS Market Adjustments/Climates making a US impact • Japan • China/India • Low cost offerings in Asia are providing opportunity to expand consolidated market • Focus of In China/For China versus “low cost country” approach based on IP challenges and rising labor costs • Obama Care • Stifle innovation • Expand Consolidation • Expedite OUS strategies Price/Cost Pressures

    11. The Current Landscape…2010 • FDA Approval for SUD (single use devices) reprocessing in 2000 • The General Accounting Office (GAO) and the Centers for Disease Control and Prevention (CDC) have stated that there is no evidence that reprocessed devices harmed any patients within the last decade • Only about 2% of SUD's can be reprocessed • Generally 40-50% of the cost of new devices can be saved by reprocessing • If 1-2% of the disposable medical devices in the US today were reprocessed the healthcare system would save One Billion dollars a year • Stryker “validates” the market by acquiring Ascent in Nov 2009 Reprocessing of single use devices

    12. The Current Landscape…2010 • Based on combination of lack of innovation, outcomes of current forms and cost opportunities • Trends • Movement away from science project materials • Powdered metal growth based on porous opportunities • Continued Peek growth • Considerable focus on Titanium solutions from MIM to Casting. • Hard on hard but moving away from CC on CC. • Absorbable metals Materials

    13. The Current Landscape…2010 • Lack of capital in venture/start up environment • “Buyer” evolution in med-device space • Regulatory/Compliance proficiency required VC Market Deterioration

    14. What Next? • Increased FDA Scrutiny • Significant Supplier Consolidation • OEM Facility Reductions • Increased R&D Outsourcing Keys to success: • Expand quality and compliance infrastructure/capability • Enhance supplier base quality and compliance capabilities through audit/education • Manufacturing engineering talent expansion necessary to transfer legacy and manage the growth • AMT – Footprint / flexibility for manufacturer • DOJ Focus • Reduction in HCP interaction with OEMs Keys to success: • Organizational education is critical • Opportunities abound…if you are not an OEM Conclusions

    15. What Next? • Segment Trajectory Evolving • Spine market trajectory concerning but patient demos/demand will overcome • Sports Med growth to continue…more PIM • Trauma may surpass Spine by 2012 (more screws, etc) Keys to success: • First, don’t overreact , the market in total is a high single digit grower even in these “tough” times and the demographics for volumes are continuing to increase. • Understand the clinical aspects of the segments to provide value to the process. The mix alone calls for different technology than what has been deployed for the past 20 years. • AMT – Expanding segments same/similar to Spine so small products/narrow margin lights out technologies will continue to gain share within the footprint. • Price Pressures • OUS “low cost” focus will regain steam • Innovation/outcome synergy to strengthen • Low cost entrance is US market is likely Keys to success: • Larger players need trusted support in the OUS markets • AMT - Strengthen relationship with OUS players with potential entrance plans to US • AMT – Flexibility in systems similar to Med Device supplier to hospital Conclusions

    16. What Next? • Reprocessing of single use devices • Growth of 40%+ for foreseeable future • Opportunities abound for technology/process Opportunities: • Business segment opportunity • AMT - Technology to displace largely manual process of today • Materials • Proven materials will largely dominate the landscape • New approaches to same (PM, MIM, Casting) will be next evolutionary step • Drug eluding options of great interest Opportunities: • Win the Ti race in MIM/Casting • AMT - Automate powdered metals processes to enable volume • VC Market Deterioration • Proceed with caution! Conclusions

    17. 2011+ Projection 2013 Orthopedic Market $50.2B 6.8% CAGR 2009 Orthopedic Market $38.6B 6.4% Growth • Key Observations • Sports/Trauma growth continue to lead all segments • Spine projected to rebound to 2nd largest market • Greater than 75% Implants/Implants (Class I & II Devices) • Price erosion to continue at 1-2% per year or 5% during period

    18. Questions