Competitive Hurdles

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Competitive Hurdles
Copenhagen, Denmark November 4, 2009 Schuyler
Ritter Senior Vice President, Co-founder
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Competitive Hurdles
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CONFIDENTIAL
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Why?

• US Medical Device Market
• approximately dkk 427.1Billion (85.6B USD)
• Growth of roughly 4.4 annually through 2013
• US Diagnostics Market
• Approximately dkk 184.6Billion (37.0B USD)
• Growth between 5 - 9 over the next 5 years
• Molecular Diagnostics segment projected to grow
  14 per year

Sources www.researchandmarkets.com , Freedonia
group, IVD Technology
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FDA
FDA Responsibilities
The FDA is responsible for protecting the public
health by assuring the safety, efficacy, and
security of human and veterinary drugs,
biological products, medical devices, our
nations food supply, cosmetics, and products
that emit radiation.  The FDA is also
responsible for advancing the public health by
helping to speed innovations that make medicines
and foods more effective, safer, and more
affordable and helping the public get the
accurate, science-based information they need to
use medicines and foods to improve their health.
http//www.fda.gov/AboutFDA/WhatWeDo/default.htm
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FDA

• Collaborative
• Pre-IDE process
• Get to know your key contacts at FDA
• Join trade associations (AMDM)
• Attend seminars like this one
• Think of FDA as a partner in the process rather
  than an barrier to be overcome

CONFIDENTIAL
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FDA
Traditional Views
The Black Box
The Gatekeeper
CONFIDENTIAL
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Accessing the US Market
Traditional View 1
FDA

• Problem This is not complete. FDA clearance
  does not mean you have achieved market access

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Accessing the US Market
Traditional View 2
FDA

• Problem You reach the top of the mountain and
  then realize you are just getting started..

CONFIDENTIAL
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A walk in the park
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CONFIDENTIAL
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Deer in the headlights
Reimbursement
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CONFIDENTIAL
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Deer in the headlights
Distribution
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CONFIDENTIAL
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Deer in the headlights
Sales Marketing
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CONFIDENTIAL
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Accessing the US Market
Traditional View 3
Sales Marketing
Distribution
Reimbursement
FDA

• Problem The market and/or can FDA moves too
  quickly.
• Problem This approach leads to unnecessary
  spending. If you cannot achieve success in any 1
  area, you can better deploy resources to either
  solve the issue or stop spending resources.
• Fallacy This view assumes that the stakeholders
  are guarding access. Reality is that this is a
  collaborative approach with most parties wanting
  you to succeed because they have a vested
  interest.

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Accessing the US Market
Reality
FDA
Reimbursement
Distribution
Sales Marketing
Other
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Reimbursement

• CMS Centers for Medicare and Medicaid Services
• The Agency of the US Federal Government that
  determines if and how much insurers will pay for
  your product
• Why is this so important?
• Will it be coded? Is there a market?
• How will it be coded? Are there profit margins
  to be made?
• Reimbursement is a complicated field and you
  should seek appropriate guidance.

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Distribution

• How will you get your product to the consumer?
• The US Market is quite large.
• 7,569 Hospitals
• 165,000 outlets including hospitals, pharmacies,
  clinics and nursing homes
• 819,000 Physicians and Surgeons
• Land area of 8,080,467 square km in the
  continental US

US Census Bureau (2005 Census)
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CONFIDENTIAL
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Distribution

• Characteristics / Trends
• Dominated by 3 distributors (90 95 of the
  market) and they dont make anything
• McKesson dkk 468B (93.6B)
• Cardinal Health dkk 442B (88.4B)
• Amerisource Bergen dkk 330.5B (66.1B)
• Owens Minor dkk 34B (6.8B)
• Henry Shein dkk 30B (6.0B)
• Patterson dkk 14B (2.8B)
• Increasing consolidation
• The top three distributors completed 57
  acquisitions in the past decade alone

Fortune Magazine
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CONFIDENTIAL
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Distribution

• Increasing consolidation in hospitals as well
• 72 of all hospital purchases are made through
  Group Purchasing Organizations (GPOs)
• 97 of hospitals are members of at least one GPO
• Independent purchasing decisions are disappearing
  with the increase in GPOs and Integrated Health
  Networks (IHNs)
• Approximately 600 GPOs exist with 30 deemed very
  large controlling the market
• US Governments role is significant and will
  likely increase under any version of health care
  reform
• www.higpa.org

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CONFIDENTIAL
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Distribution

• Consolidation makes it increasingly difficult for
  anyone outside of the largest companies to access
  the market.
• How do you get a seat at the table?

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CONFIDENTIAL
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Sales Marketing

• Develop a traditional marketing plan
• What is the market size assuming you can get
  clearance and reimbursement for your product?
• Product / Price / Placement / Promotion / People
  pick your model
• Sales Strategy how will you sell your product?
• Build a sales force from scratch
• Out-license the product entirely
• Partner with an existing companys sales force
• Jobbers
• Wholesalers (small business units exist within
  these groups)

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Other Hurdles

• Quality Systems
• Baseline (Gap) Assessment
• Review of Product requirements, Review of
  Existing Systems and Documentation
• Recommendations to close gaps or improve existing
  systems
• Implementation Support
• Development of Action Plans to improve or
  implement Quality Systems
• Guidance on or authoring of Quality System
  Documentation (Quality Manuals, Policies,
  Procedures, Work Instructions, Device Master
  Files)
• Training
• Auditing
• Corrective and Preventative Action
• Root causes analysis
• Risk Management
• Effectiveness Monitoring
• cGMP ? ISO
• Cautionary Tales Genzyme, Medtronic, Chiron

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Cautionary Tales

• Genzyme
• History
• October 2008 FDA 483 letter related to
  microbial monitoring, equipment maintenance, and
  process controls
• February 2009 FDA Warning Letter indicating
  problems still exist
• May 2009 FDA inspection indicated appropriate
  corrective actions not taken
• June 2009 plant shut down for 6 weeks
• Financial Results
• Projected revenues for Cerezyme in 2009 reduced
  from dkk 6.25B to dkk 3.75B (1.25B to 750M)
• FDA fast tracking 2 competitor products to fill
  shortfall

CONFIDENTIAL
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Cautionary Tales

• Medtronic
• History
• April 2004 Recall of 2 models of defibrillators
• May 2006 problems identified with Synchromed II
  Pumps
• October 2007 suspended sales of the Sprint
  Fidelis defibrillator lead
• Late 2008 FDA inspection lists violations of
  federal regs and GMPs
• failing to maintain process control procedures to
  make sure products conformed to their
  specifications, failing to ensure accurate
  records for each batch, lot or unit manufactured,
  failing to evaluate and investigate consumer
  complaints involving problems with the devices
• may be symptomatic of serious problems in
  Medtronics manufacturing and quality assurance
  procedures
• June 2009 FDA warning letter for Puerto Rico
  plant manufacturing insulin pumps
• Financial Results
• Large settlements throughout to address
  litigation associated with recalls (deflated
  earnings in a single quarter over 3B kr 600M
  or 90 decline from prior year)

CONFIDENTIAL
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Cautionary Tales

• Chiron
• History
• 1999 FDA identifies significant manufacturing and
  quality issues at a plant not owned by Chiron in
  Liverpool, UK
• June 2003 significant issues persist, Chiron
  finalizes purchase of plant
• August 2004 Chiron discovers contamination in
  Flu Vaccine
• September 2004 UK warning letter
• September 2004 Chiron assures markets that
  product will be released
• October 2004 manufacturing license pulled by UK
  authorities
• December 2004 FDA warning letter
• Financial Results
• March 2006 Novartis completes acquisition
  company available due to dramatic drop in share
  price caused by flu vaccine debacle

CONFIDENTIAL
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Other Hurdles

• Intellectual Property is it defensible?
• Pending healthcare legislation unknown impact
  on reimbursement, FDA, buying groups, etc.
• Raising Capital when will markets rebound? How
  will you fund your development process?
• Other

CONFIDENTIAL
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Summary

• In most instances, your primary hurdles are
  process not other products.
• Its not enough to solve one puzzle, you need to
  address all issues before accessing the market.
• Build your team to address all of the hurdles
• Outsourcing versus insourcing specific to your
  circumstances
• Be prepared!

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Beaufort Advisors LLC 500 East Main Street Suite
1301 Norfolk, Virginia 23510 1 (757)
383-6000 www.beaufortCRO.com
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