Industry View of the Future of Orthopaedics

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Industry View of the Future of Orthopaedics
Friday, November 10, 2005

• Indiana The State of Innovation in Orthopaedics
  Summit

The Montage at Allison Pointe Indianapolis, IN
Richard (Dick) Tarr President Executive Director
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The Orthopaedics Universe
Industry Device Manufacturers Suppliers/OEM Distr
ibution and Logistics Pharmaceuticals/Biologics
Payors CMS Insurance HMO PPO
Patients Chronic Patient Acute Patient Care
Givers
Providers Orthopaedic Surgeons Hospitals Out
Patient Surgery Centers Clinics Physical Therapy
Research Universities Institutes Foundations
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The Future

• Those who cannot remember the past
• are condemned to repeat it.
• George Santayana
• .
• Orthopaedics HistoryLessons Learned
• (form OrthoKnow by John Englehardt January 2006)
• 1983 - In ten years, all solutions will be
  biologic. There will be no metal and plastic in
  orthopaedics.
• 1985 - Titanium will eliminate cobalt chrome in
  joint replacement.
• 1985 - Disc replacement will eliminate fusion
  -spine.
• 1996 - Interbody fusion devices will eliminate
  traditional hardware in
  spine.

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The Future

• Those who cannot remember the past
• are condemned to repeat it.
• George Santayana
• Orthopaedics HistoryLessons Learned
• (form OrthoKnow by John Englehardt January 2006)
• 1996 - Chondrocyte transplantation will
  eliminate the need for knee replacement.
• 1999 - Synthetics will destroy the allograft
  business.
• 2001 - Drugs and hyaluronic acid will be the
  death of our industry.
• 2004 - In ten years nearly all hip replacement
  will be minimally invasive.

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The Future

• Those who cannot remember the past
• are condemned to repeat it.
• George Santayana
• Orthopaedics HistoryLessons Learned
• (form OrthoKnow by John Englehardt January 2006)
• Still the hype continues
• Dynamic Stabilization
• Minimally invasive surgery
• Computer Assisted Surgery
• History suggests some key things in order to
  remain a consistent success
• If it sounds too good to be true, it probably is.
• Keep your head down and focus on bringing value
  to your customers.
• Seek information from objective sources
  (and multiple
  ones.)

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The Medical Device Industry Today

• Model in the Medical Device Industry
• Small companies bring innovation, Big companies
  dominate marketing and distribution.
• Pharmaceutical (biologics) industry focuses on
  research with less product development.
• Medical device industry spends less time in the
  research phase, but uses more resources on
  product development.
• David Cassack

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The Medical Device Industry Today

• Investors beginning to show much more interest in
  medical device companies
• Straight-forward business model
• Quicker product turn around
• Incremental innovation
• VCs willing to invest
• Innovation rate will still likely be slowed by
  the adoption rate of physicians
• Training takes time
• Conversion slower due to current successful
  treatment
• Conservative Mind Set/Comfort Zone
• David Cassack

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Orthopaedic SegmentUnderlying Fundamentals

• Favorable Growth and Strong Profitability
• Aging demographics provide a constant source of
  patients
• New Technology continues to expand the patient
  base among both younger and older populations
• Critical role of surgeon preference in product
  selection
• Source InVivo

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Orthopaedic Trends

• Industry Growth slowing (pricing), but
  demographics are completely compelling.
• Key Issues affecting both surgeons and industry
• Medical Legal Liability
• Intellectual Property
• Obesity continues to drive and confound
  orthopaedics
• In Canada, 90 of TKA and 70 of THA patients are
  overweight
• Overweight children
• Break more bones
• Have more joint problems
• Have more spine related disorders
• Small bone and joint products and treatments
  gaining the attention of surgeons and industry
• Biologics continues to expand
• Regulatory requirements increasing worldwide
  (U.S.,
  Europe, Japan and China)

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Major Drivers of Rising Health Care Costs

• How rapidly Americans embrace new drugs and
  technology
• Rising costs for medical services
• Hospital costs
• Labor costs
• Waste
• Inefficiency
• Fraud
• Obesity
• Source USA Today

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Orthopaedic Industry Revenue
Revenues (Billions)
Growth 16 15
12 14 16
16 16 CAGR
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Source Healthpoint Capital
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Another Take on Forecasting the Orthopaedic Market

• U.S.
• Knees
• Primary Procedures 3.48 MM in 2030 (8 CAGR over
  24 yrs.)
• Revision Procedures Same Growth Rate
• Hips
• Primary Procedures 0.572MM in 2030 (2.3 CAGR
  over 24 yrs.)
• Revision Procedures 3.5 CAGR over 24 yrs
• Exponent, Inc.
• Latin America
• Orthopaedic device market290MM in 2005
• CAGR at 10 over next 5 years
• India
• May be the answer to challenges of drug/device
  trials
• Cost savings of 40-60
• Large, ethnically diverse population (English
  speaking)
• Regulatory environment more lax

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Orthopaedic Economics

• 1991-2006
• DRG 209-544 19
• Implant list price 171
• Average Implant selling price 117
• 2007
• Doctor Reimbursement 5.1
• 1995-2003
• Surgical Specialist Income 8.2
• Gain sharing ?
• Consultancy ?
• Surgeon Priority
• 1st Best patient outcome
• 2nd Hospital economics

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Are Costs Limiting Total Joint Replacement?

• Hip replacement was the most cost-effective
  intervention when compared to a number of other
  surgical and medical interventions.
  --Cecil Rorabeck, MD
• Results of hip and knee arthroplasty are
  sustainable over time.
• --Cecil Rorabeck, MD
• Patient thanks us for giving them their life
  back. --William Maloney, MD
• Study Finds Medical Spending Worth The
  Investment --New England Journal of
  Medicine
• ISSUE Awareness/Education
• Patients take orthopaedic care
  
  for granted!

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Health Care Economics

• Patients Perspective
• Healthcare Entitlement
• Unease with rising costs
• Confusion about causes
• Desire for reform
• BUT
• Distaste for giving anything up
• Source USA Today

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Goal of Musculoskeletal Care

• Relieve Pain
• Return Function/Mobility
• Minimize Surgical Trauma

Musculoskeletal Research
? Innovative Discoveries ? Better
Materials ? New Treatment Options ?
Biologic Solutions ? Economic Benefits
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Holy Grails in Orthopaedics

• Low Back Pain
• Molecular Medicine-Mechanisms of Degradation
• Cartilage
• Tendon
• Regenerative Medicine Tissue Engineering
• Scaffolds
• Cells
• Total Joint Arthroplasty (including disc)
• Kinematics
• Performance
• Biologic Interaction
• Multidisciplinary Approach

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InMotion a Partnership / Collaboration for
ResearchHospitals Clinics Universities -
Industry
Translational Research Model
Patient Care
Fundamental Research
Applied Research
Clinical Research
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The Patient of the Future

• Baby Boomers (78 million Americans born between
  1946-1964) and Boomeritis
• Increasingly Aging Population
• Impact of Direct to Consumer Advertising
• Easy access to Medical Information

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Global Orthopaedics

• Geographic Product Development
• North America
• Europe
• Japan
• China/India
• Geographic Regulatory Environment
• US/FDA
• Europe/CE Mark
• China/SFDA
• Japan/MHLW
• Regional Reimbursement

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Can Indiana Maintain and Grow Its
Musculoskeletal Industry?
Innovation
Entrepreneurship

• Idea Commercialization
• Established Industry
• Angel Investors
• Venture Capital
• SBIR/STTR Funding
• Entrepreneurs
• Leading Clinicians

• Idea Creation
• NIH Research Grants
• Medical School
• Engineering School
• Industry Funding
• Patents Licensing

Two Pillars of Biomedical Economic
DevelopmentSource Brookings Institution,
Center on Urban and Metropolitan Policy
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The Future The Bottom Line

• Orthopaedic HistoryLessons Learned
• (from OrthoKnow by John Engelhardt January 2006)
• With almost no exceptions, technology in the
  orthopaedic space doesnt happen in those types
  of gigantic leaps and bounds, but generally in
  slow and systematic creeping substitution.
• What will happen is that a multitude of devices
  will exist alongside each other in an extensive
  product matrix, with each product serving a
  particular niche in design philosophy, pathology,
  activity level, etc.

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The Future

• Orthopaedic Opportunities
• Blood, Sweat Tears