Can consolidation in the medical technology industry improve healthcare

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Can consolidation in the medical technology
industry improve healthcare?

• Dr. Laurent LeksellPresident CEOElekta AB

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Elekta global leader in radiation oncology and
neurosurgery

• Global medical technology Group with HQ in
  Stockholm, Sweden
• Clinically effective and cost-efficient solutions
  and services for
• improved management of cancer
• minimally and non-invasive treatment of brain
  disorders
• Net sales of USD 600 M and 1,700 employees
• Listed on the Stockholm Stock Exchange with a
  market cap of USD 1.200 M
• History of numerous acquisitions recently IMPAC
  Medical Systems Inc.

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Key questions

• Will consolidation in the medtech industry
  continue?
• Which factors drive consolidation? Which factors
  drive fragmentation?
• Is medtech industry consolidation beneficial for
  providers and patients?
• Case study Elektas experience in cancer
  management

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Medtech industry overview

• The medtech industry has combined sales exceeding
  200 billion per year
• Global growth rate of 10
• Medical equipment expenditure is a small share,
  only 3-6, of health care costs
• For example, radiation therapy is an capital
  intensive practice, still equipment is only 10
  of total cost for radiation therapy

Source UBS
5
Global medtech industry trends

• Strong fundamentals
• Favorable demographics, life style changes and
  predictable demand
• Compelling clinical utility
• Readily demonstrable savings
• Focus on new cutting-edge technologies and new
  markets
• Strong new product pipelines despite RD
  spending at only 10
• Focus on integrated solutions
• Vertical and horizontal integration
• Information technology advances
• Intelligent device management and Electronic
  Medical Records (EMR)
• Continued consolidation

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The European medtech industry remains fragmented

• The industry is consolidating
• Despite recent MA activity, the European market
  remains fragmented - the ten largest companies
  together control 33 of the market
• Leverage on resources and economy of scale
• Transition from equipment deliveries to total
  solution providers

Source UBS
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Consolidation vs. Fragmentation
Factors Spurring

• Fragmentation
• Diversity of medtech market
• Small companies at the forefront of innovation
• Synergies in product development are scarce
• Distribution is highly specialized
• Technological changes
• Specialization and changes in clinical practice

• Consolidation
• Globalization of markets
• Increasing demand for one partner solutions
• Increasing RD cost and risk
• Product bundling opportunities
• Regulatory matters and reimbursement coverage
• Often rewarded by thestock market

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Rationale for medtech consolidation

• 1. Bolt-on acquisitions
• Improvement in distribution and technology
• Often represent the most attractive corporate
  development for medical device companies
• Elekta/IMPAC, Roche/Disetronic, Synthes/Spine
  Solutions, Straumann/Biora
• 2. Consolidation within industry niche
• Cost reduction and larger scale
• Risk of revenue losses from sales force
  integration
• Improved ability to fund RD
• JJ/Guidant, Synthes/Mathys, Zimmer/Centerpulse,
  Sorin/Carbomedics

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Rationale for medtech consolidationcont.

• 3. Business expansion
• Increasing growth opportunities / risk reduction
• Rare amongst pure play European companies
• Limited direct impact on distribution or product
  portfolio enhancement
• GE/Amersham, Getinge/Siemens LSS, Elekta/Philips
  Radiotherapy
• 4. Vertical integration
• Expanding from products to services
• Particularly relevant for dialysis and hearing
  aid market in Europe
• William Demant/Avada, Fresenius

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Medtech consolidation some pros and cons for
providers and patients

• Cons
• Less customer choice
• Vendor dependency and loss of bargainingpower
• Slower technology change and innovation
• Higher price due to monopolistic markets
• Lack of customer focus and corporate flexibility

• Pros
• Lower costs transferred to customers
• Expansion of RD investments
• Improvements in customer service
• Corporate sustainability- long-term partnership
• Simplified purchase and logistics

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Case study Elektas role in cancer management

• Cancer is the second most common cause of death
  after cardio-vascular disease

• Higher age and better diagnostics leads to an
  increased number of cancer cases
• gt 10 million cases worldwide diagnosed every
  year - estimated to increase to gt15 million by
  2020
• 24 of all patients with malignant cancer
  develop brain metastases

Source WHO, Cancerfonden US National Cancer
Institute
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Elektas strategy in cancer management Focus on
radiation therapy

• Approx. 50 of patients diagnosed with cancer
  needs radiation therapy
• Increased rate of tumor control through new,
  advanced methods
• Highly cost-effective compared with surgery and
  chemotherapy
• Less traumatic for the patient compared to
  alternatives
• Small share of costs high share of treatments
• Only 5-10 of total cancer care costs

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How to improve cancer care in a fragmented care
environment?

• Organizationally scattered too many
  independent cancer care providers
• Highly complex care process with large number of
  inter-dependencies
• Need for increased use of IT for improved
  work-flow and productivity
• Higher clinical effectiveness needed through
  integration
• How to accomplish?

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Elektas response to the need of improved cancer
care

• Development of new technology
• Acquisition of Philips Radiotherapy in 1997 to
  provide an industrial platform
• High level of RD investments (e. g.
  introduction of IGRT)
• Integration with diagnostics
• Acquisition of Neuromag in 2003 to introduce
  functional brain imaging for Leksell Gamma Knife
• Development of common industry standards and
  interfaces
• Development of the clinical process and IT
  support
• Acquisition of IMPAC Medical Systems Inc. in 2005
• Open connectivity and workflow improvements

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Elektas response to the need of improved cancer
care, cont.

• Customer collaborations and joint improvements
• Funding of clinical research, e.g. epilepsy and
  pain management
• Development of Elekta Synergy and new technology
  for stereotactic radiation therapy (SRT)
• Sharing of know-how and best practice
• Extensive user training and service
• Leksell Gamma Knife Society
• Elekta Synergy Consortium
• IMRT Consortium
• Support cancer management expansion in developing
  countries

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Customer benefits of Elektas consolidation
efforts

• Clinical Startup
• Clinical Partnerships
• Education Training
• Service Support
• Facilities Planning
• Site Marketing Guidance
• Reimbursement Guidance

Leading solution service provider in therapy
management of cancer and brain disorders
Product offerings with optional add-on services

• Improved usage of clinical resources by expansion
  of clinical indications
• Better quality of care by more advanced
  technology
• Higher clinical efficiency by integration of
  technologies

• Cost reductions by outsourcing and investments in
  scale
• Development of the full cancer management process
• Improved workflow by increased use of medical IT

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Our vision

• We believe that by working together
• we can fight serious disease and enhance
  quality of life

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Extra slides
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Key success factors in medtech
Maintain a large diversified portfolio of
high-technology,high content products
Maintain a conversative balance sheet with
ample financial flexibility
Consistently demonstrative abilityto introduce
innovativenew products
Aggressively assert IPrights to support core
product lines
Keys to Success
Successfully managegovernment regulatoryapproval
and reimbursement
Employ a large and effective sales force
Maintain adequate and low-cost manufacturing
capacity
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Key success factors in medtech- Driving
consolidation
Maintain a large diversified portfolio of
high-technology,high content products
Maintain a conversative balance sheet with
ample financial flexibility
Consistently demonstrative abilityto introduce
innovativenew products
Aggressively assert IPrights to support core
product lines
Keys to Success
Successfully managegovernment regulatoryapproval
and reimbursement
Employ a large and effective sales force
Maintain adequate and low-cost manufacturing
capacity
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Elekta and IMPAC will create a One Partner
oncology solution

• Forms most comprehensive cancer management
  company
• Continued commitment to open architecture and
  multi-device connectivity
• Combining two world class RD platforms
• Broadest product offering in industry
• Worlds largest provider of oncology software
• Global penetration
• Combined installed base of more than 3,000
  hospitals and cancer centers world-wide
• Responds to increasing customer demand for
  integrated systems

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Integrated clinical solutions through
consolidation

• A holistic view on cancer care and disease
  management brings significant benefits
• to society
• to patients
• to health systems
• Improvements in cancer management
• Integration of the treatment process
• Integration between radiation therapy,
  chemotherapy surgery
• Continuous cost reductions through scale and
  innovation

Attract Patients
Patient Diagnosis
Patient Release Follow-up
Research Development
Operations Setup
Patient Treatment

• Increased use of IT
• Today, US hospitals typically dedicate about 2
  of their annual budgets to IT, far less than
  many other industries

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A new strategy for therapy management based on

• Shift in customer purchase behavior
• Purchase decisions based on treatment
  efficiency, not technology
• Customer focus on core activities
• Demand for solutions with lower costs,
  flexibility and high up-time
• Increasing complexity in therapy
• Therapy becoming complex and specialized
• More difficult for health care institutions to
  allocate sufficient internal competence
• Partnering as a business management model
• Partnering and strategic outsourcing becoming a
  basic management principle
• Full responsibility for a substantial part of the
  value chain
• A mind set to see companies as a partner rather
  than just a supplier of hard ware and software
  products

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The healthcare challenge supply vs. cost vs.
quality of care!

• Increased demand and rising costs spurred by
• Demographics
• Education and diagnosis
• New treatment alternatives
• Demand tends to outgrow supply
• Health care expenditure as percentage of GDP
  grows when standard of living increases

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Healthcare cost is increasing its share of GDP
Source WHO
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The medtech market is highly diverse and
specialized
Numbers in boxes represent estimated worldwide
market size and growth rates
Source UBS