Medical Device & Supplies_feb03_shs

Outsourcing piggybacks growth in U.S. medical-device market.(Special Report) Plastics News Plastics News; 1/9/2006 Byline: Steve Toloken True to form as a market known for stability and strict performance requirements, the medicaldevice market in 2006 has a prognosis much like that of previous years: solid growth and continued opportunities for outsourcing. Projections say the device market generally is growing 8-12 percent a year, although some observers said high raw material costs inflate that figure somewhat. On the high end, consulting firm Frost & Sullivan of Mountain View, Calif., projects the device market will grow from $71.6 billion in 2005 to $79.9 billion in 2006, or about 11.5 percent. Of course, the market continues to have high entry barriers, and processors involved in medical manufacturing said cost pressures from the health-care industry continue. But industry officials said opportunities for plastics processing continue to grow, along with outsourcing. One of the larger contract medical manufacturers, Accellent in Newton, Mass., said studies show that outsourcing will grow 14 percent a year through 2009, faster than the overall medical-device market. Currently, about 30 percent of U.S.-based manufacturing in cardiology, endoscopy and orthopedic devices - Accellent's main markets - is outsourced, said marketing director Greg Audu. "We're seeing steady, consistent growth,'' said Jay Policastro, president of Classic Industries Inc. in Latrobe, Pa. "We continue to see the big companies outsource subassemblies and components. There is still quite a bit of pressure on costs.'' Classic, which focuses almost entirely on medical molding, is seeing annual growth of 10-12 percent, Policastro said. The firm, with $50 million in sales, has been beefing up engineering and design for manufacturing services, he said. "I see more outsourcing in general, because the small to midsize [medical-device] companies don't have the ability to hire more full-time staff, so they hire manufacturers,'' said Len Czuba, president of product development firm Czuba Enterprises Inc. in Lombard, Ill. Czuba, whose firm specializes in the medical industry, was twice chairman of the Society of Plastics Engineers' medical division and is currently SPE president. Those smaller medical-device makers are often more creative in product development than larger firms, creating opportunities for smaller plastics processors to partner, Czuba said. "There is still a lot of business being done by the small to midsize molders,'' he said. The picture can be contrary. Medical is also a market where big firms are getting bigger: Some of the larger medical plastics processors, including Tech Group Inc. and Precise Technology Inc.,

were acquired in 2005, and analysts expect more of that as medical-device makers trim their supply bases. Nypro Inc.'s medical-related business has grown more than 30 percent in its fiscal year that began July 1, though that is a spike, said Bill Partridge, health-care business unit manager. Nypro's longterm sustainable medical growth is closer to 15 percent a year, he said. "It's the fastest-growing market segment for Nypro,'' Partridge said. "Everybody is going global, and I'm also seeing [medical-device makers] refocusing on their core competencies. Everybody is rationalizing what they are manufacturing, and the result is more outsourcing.'' COPYRIGHT 2006 Crain Communications, Inc

US demand for disposable medical supplies to grow.(Markets) Medical Textiles Medical Textiles; 11/1/2005 US demand for disposable medical supplies will increase by 5.6% a year to US$71. 1 billion in 2009, according to a study from The Freedonia Group. Demand for nonwoven medical disposables is forecast to rise by 3. 7% annually to US$7. 0 billion, from US$4. 7 billion in 1999. The growth in the US market will result from a number of trends, including an expanding number of treated patients, heightened concerns about nosocomial [originating in hospitals] and related infections, and the upgrading of infection prevention safeguards in hospitals and other healthcare facilities. The company of Cleveland, Ohio, USA, says home healthcare will be the fastest growing market for disposable medical supplies as consumers broaden self-treatment and preventive medicine activities, while medical providers increase the range of services available to home patients. However, hospitals will remain the largest and most diverse market based on the complexity and product-intensive nature of inpatient procedures and strong need for infection prevention safeguards. Based on performance and infection prevention benefits, the fastest growing disposable wound management supplies will include: * prefilled staplers; * bioengineered tissue adhesives and sealants; * collagen, foam and alginate dressings; * growth factor healing agents. Freedonia adds that Class IV surgical drapes and gowns will generate the best sales gains among nonwoven medical disposables as surgical infection prevention safeguards are upgraded by hospitals and ambulatory surgery centres. Disposable Medical Supplies (published August 2005, 414 pages) is priced at US$4, 300.

Market for Surgical and Trauma Wound Care to Surpass $6 Billion by 2009. M2 Presswire; 9/12/2005 M2 PRESSWIRE-12 September 2005-MarketResearch.com: Market for Surgical and Trauma Wound Care to Surpass $6 Billion by 2009(C)1994-2005 M2 COMMUNICATIONS LTD RDATE:12092005 New York - The worldwide market for products to treat surgical and trauma wounds will surpass the $6 billion mark by 2009, according to a study released today from Kalorama Information. Wound closure products, such as sutures and staples, dominate the sector which is currently displaying approximately 7% annual growth. The new study, Wound Care Markets, Volume III: Surgical and Trauma Wounds, predicts that despite a general slowdown in growth in the next few years, several segments will outperform the sector as a whole. Biological dressings will continue to display double-digit annual growth despite limited use in these types of wounds. Meanwhile, sealants, adhesives, and glues have been catapulting forward at over 30% annually. The introduction of scores of these new, innovative products has put pressure on marketers and clinicians to standardize product categorizations and indications, adding a new level of complexity to the successful commercialization of wound products. "There is a decided shift in clinical decision making about dressings, moving toward the drug model-the specific interactions, indications, side effects, etc.-rather than categorizing products by components," notes Mary Anne Crandall, RN, the author of the final report. "This new way of thinking about and labeling products is something marketers need to begin positioning themselves for sooner rather than later." The study examines 6 broad categories of products and more than 15 subcategories, detailing market size and growth through 2009, presenting competitive market share, and providing a thorough understanding of the environment in which these wound care manufacturers operate. Wound Care Markets, Volume III: Surgical and Trauma Wounds, the third volume in a series that includes skin ulcers and burns, can be purchased directly from Kalorama Information by clicking http://www.kaloramainformation.com/pub/1099233.html. It is also available at MarketResearch.com. About Kalorama Information Kalorama Information, a division of MarketResearch.com, supplies the latest in independent market research for the life sciences. For more information, contact Steven Heffner at 212-8072634 or [email protected], or visit www.KaloramaInformation.com.

An interview with Ron Sparks, president and CEO, Accellent Inc.: considered the world's largest medical device contract manufacturer, Accellent offers design and engineering services, precision component

production, finished device assembly, and supply chain management. This month's 'View From The Top' offers a look at the man in charge of this one-of-a-kind organization.(View From The Top)(Interview) Medical Design Technology Medical Design Technology; 6/1/2005; Arrigo, Lisa The combination of UTI Corp. and MedSource Technologies late last year created an organization of unprecedented scale. The new company, Accellent Inc., announced it had become the world's largest medical device contract manufacturing firm. In fact, the company can boast of a double-digit market share in the $3.9 billion outsourced medical device market, making it about three times the size of its nearest direct competitors. At the helm of this dynamic organization is Ron Sparks, president and CEO. Sparks, who became president and CEO of UTI Corp. in 2003, has spent almost a quarter century working in the medical industry. Prior to joining UTI, he was with Smith & Nephew plc for 20 years, where he served as president of the endoscopy division from 1998 to 2003 and as president of the wound management division from 1995 to 1998. In his position at Accellent, Sparks oversees a company that serves all the top medical device companies and has a workforce of more than 3,900 employees. The majority of the company's facilities are in the U.S., including a headquarters in Newton, MA. It also has facilities in the UK, Germany, Ireland, and Mexico. Medical Design Technology asked Sparks recently about the changes he has seen in the contract design and manufacturing field. He shared his thoughts on this subject as well as on many topics affecting medical device makers today. Here is what he had to say. Q: How has the role of the contract design and manufacturing provider changed? A: Five years ago, contract design and manufacturing providers were viewed more as a vendor or supplier. Our customer relationships now are more like partnerships. We're part of their team because we're generating such significant value for them. We improve products for our customers by improving process. Q: How have your customers changed? A: What has changed over the last five years is that increasingly our customers need to provide more innovation to their customers and patients quicker than ever before. They are involving us early in the design process as strategic partners in order to shorten the overall cycle time from concept to delivery to the patient. Our customers want to shift resources to areas such as clinical selling, research and development, marketing, and clinical research. We can handle everything else from start to finish. Q: Hew has the formation of Accellent changed the contract design and manufacturing marketplace? A: The power of two industry leaders, MedSource and UTI, has been combined to leverage all the strengths. The acquisition has positioned us as the clear leader in a highly fragmented, competitive industry that has lacked one. We now command the largest market share. The acquisition also provided us with core competencies that we didn't have before. We are focused

on three key areas to better align with our customers' needs: endoscopy, cardiology, and orthopedics. Q: What's the best way for an OEM in the medical device market to approach a contract services company to ensure successful product development? A: At the very early stages of the development process, when the idea is just a concept, if contract services companies can be engaged at that point, it's much easier to take it to a design mode before everything gets set in stone. The earlier we're involved in the concept, design, and development stage, the greater chance we will have to add significant value to the process. Q: Once an OEM in the medical device market has finalized a device concept, what's the most efficient way to obtain reliable quotes for design, development, and manufacture from a potential outsourcing partner? A: OEMs should be sure to relay the design intent of their device and its function in the clinical application in addition to the standard drawings, prints, etc. OEMs should also provide their voice-of-customer data and critical-to-quality attributes. In addition, we tend to ask for our customers' quantifiable acceptance criteria for the product or service to ensure that we have a specific goal to work toward. This may include taking the prototype product into the lab for proof of principle. Q: How can the OEM go about monitoring the outsourced product development process to make sure his budget and time restrictions are being met? A: When we're working with our customers, we like active participation from them rather than working in isolation. Whenever possible, we like a member of their staff to be a part of the "team." We work very closely alongside a product/program champion from our customer, who is accountable at the customer's location to be responsible for the outsourcing activity. We establish agreed-upon project metrics with our project champions. We have weekly calls and weekly/monthly reviews. Q: What's the ideal structure of a product development team? A: The ideal structure of a product development team varies by project complexity. Typically, our team will include a program manager, a quality engineering resource, a design engineering resource, materials experts or scientists as needed, and a manufacturing engineering resource. On the customer side, ideally there is a product champion, quality or regulatory representative to work with periodically, and if possible, access to their marketing resource. These teams are scaled up or down as appropriate, based on needs. Q: Typically how much money can an OEM save by working with a contract design and manufacturing provider? A: It varies, but we've been told by our customers that our involvement in their projects have provided them with a savings of 20 to 40 percent, as compared to if they had done it themselves. As an example, we completed a Design for Manufacturability & Assembly-DFMA-which led to a total timeline from concept to production of 12 months. The project included three devices, assembled from 50 different components, and included a 30 percent reduction in cost from original expectations.

Q: What advice would you give an OEM design engineer of medical devices who is looking for a contract manufacturer? A: Look for a breadth of services, including design and development, which can be leveraged and incorporated into the actual engineering and manufacturing of the product. Many of the products we design for our customers are manufactured with us, which puts a whole different perspective on developing the products. We have a high level of responsibility and ownership of the designs we do because it often goes beyond design. Something we design will likely be manufactured in one of our facilities, so it's important for us to design for innovation as well as manufacturability. Q: What's one example of a success that changed how your company approaches the product development process? A: In a product start-up for a biopsy device we reduced manufacturing time from greater than 30 minutes per assembly to less than seven minutes, the number of components by 50 percent, and the cost reduced by greater than 75 percent. The tools used to produce the successful biopsy device were incorporated into the "Accellent Design and Development" offering as our standard practice. We use very clear templates and tools for design inputs and outputs, design intent, quality plans, validation plans, etc. Q: What's one example of a mistake that changed how your company approaches the product development process? A: A customer brought us a product to manufacture, which had been designed by someone else without any manufacturability input, which Accellent could have easily supplied had we been brought in earlier. The cost-to-manufacture result was prohibitive, resulting in the product not being marketed and sold. As a result of this lesson, we incorporated several project metrics, which are monitored and reviewed with our engineering management hi-weekly and communicated to our customers during team meetings. The project metrics we incorporated include "budget vs. estimated budget," "timeline vs. estimated timeline," "COGS vs. target price," and "project risks." By monitoring and managing these metrics proactively throughout the entire design cycle, we can make decisions that affect the progress of the program using all three key customer deliverables: speed, device cost, and budget.

Lab supplies will lead the way in price hikes.(Price Forecast) Hospital Materials Management Hospital Materials Management; 2/1/2005 Cardiology supplies, including drug-eluting stents, will generally maintain their 2004 pricing levels this year, except that catheter prices will jump 5%. But other medical-surgical products, from gloves to bandages, will become much more costly, with 15% hikes not out of the question. Computers, not surprisingly, will be cheaper than ever, but food will cost more, and prices of laboratory supplies and equipment will soar uniformly. These are among the findings of contract specialists at Consorta, Schaumburg, Ill., released in the group purchasing organization's annual market survey of inflation indicators. Representative products and estimated price changes are shown below with Consorta's permission.

These predictions are based on opinions of contracting staff, suppliers and published industry and government projections, and apply to the U.S. health care market as a whole. Consorta also released a separate set of projections for members, based on contract prices it has negotiated. Based on the national market survey, the average annual price change for operating room supplies will be + 4%. For general medical-surgical supplies, the average price change will be +5%. The average for laboratory supplies will be + 16%, thanks primarily to a potential increase of up to + 125% for blood bank reagents. Product

[Price] Change

Cardiology Catheters Electrophysiology Grafts Guide Wires Intra-Aortic Balloons and Pumps Implantable Pacemakers Implantable Defibrillators Perfusion PTCA Balloons Thermodilution Catheters Drug Eluting Stents

0% 0% 3% 0% 0% 0-3% 0-3% 0% 0% 0% 0%

Diagnostic and Interventional Radiology Catheters Guide wires PTA Balloons

5% 5% 5%

Diagnostic Imaging Barium 2% Brachytherapy Seeds 0% Imaging Equipment (modality specific) 0-3% Contrast Media Ionics 5-7% Non-Ionics 0% Radiopharmaceuticals 27-44% Injector Consumables 0% X-Ray Film 0% Analog Film 0% Laser Film 0% Medical & Non-Medical Equipment

Anesthesia Equipment 3% Breast Pumps 2-3% Copiers and Faxes 1-2% Defibrillators 3-5% Exam Room Furniture Wood 3% Steel 4-6% Furniture (Steelcase, Kimball, KI) 5-7% IV Pumps 2-4% OR Lights and Tables 2-4% Patient Beds 0% Pulse Oximetry -3-0% [negative to zero; not good] Sterilizers 2-3% Stretchers 3-6% Ventilators 0-5% Computer Equipment -2-0%

Laboratory Products Analyzers; Chemistry and Immunoassay, Reagents 5-10% Analyzers; Coagulation Instruments, Reagents 3-10% Analyzers; Hematology Instruments, Reagents 3-7% Analyzers; Microbiology Systems (Automated) 5-10% Blood Bank Reagents 30-125% Blood Gas Equipment and Supplies 3-7% Blood Glucose Monitoring 3-5% Controls 0-3% Diabetes Products 3-5% Kits, Reagents, General 0-3% Laboratory Supplies, General 1-4% Microbiology Media 0-3% Microscopes 0-4% Rapid Diagnostic Tests: Strep, Preg, HIV 0-5% Reference Laboratory Services 3-7% Specimen Collection 2-8% Urinalysis 10-50% General Medical Surgical Adhesive Tapes and Closures closure supplies] Anti-Embolism Hose Briefs and Underpads Casting Materials Chart Paper Durable Medical Equipment Electrodes Gloves, Exam, Latex

3-5% [US Surgical – Tyco owned - makes wound 2-3% 5-7% -2-0% 5-6% 0-5% 3-5% 10-15%

Gloves, Exam Non-Latex Hyper and Hypothermic Products Electrosurgical Grounding Pads IV Catheters Safety Catheters IV Pumps IV Solutions and Sets Needles and Syringes Ostomy Products Patient Plastic Products Personal Protective Equipment Rehabilitation Equipment Respiratory Therapy Supplies Sharps Disposal Sterilization Wrap Suction Products Utensils, Disposable Urological Supplies Specialty Urological Supplies Vascular Compression Wound Care, Advanced Wound Care, General

7% 0% -2-0% -2-0% 3-5% 2-3% 2-3% 2-5% 2-4% 5-7% 0-2% 2-3% 3-5% 3-5% 2-3% 0-3% 10-15% 2-3% 2-3% 0-3% 1-3% 8-15%

Operating Room Accessories, OR Endo-Mechanical Products Gloves, Surgical Gloves, Surgical, Powder-Free Instrument Repair Kits, Sterile, clean Kits, non surgical Orthopedic Bone Cement Orthopedic Implants, Hips Orthopedic Implants, Knees Orthopedic Instruments Orthopedic Products for Spine Orthopedic Softgoods Prep Products Packs and Gowns Surgical Blades Surgical Masks Surgical Instruments Suture Trauma

0% 4% 8% 8% 2-3% 3% 0% 3-5% 9% 9% 3% 5-8% 3-5% 4-5% 0-3% 2% 2% 3% 4% 3-5%

Global medical device and equipment market continues to be led by USA. M2 Presswire; 9/15/2004 M2 PRESSWIRE-15 September 2004-Research and Markets: Global medical device and equipment market continues to be led by USA(C)1994-2004 M2 COMMUNICATIONS LTD RDATE:09152004 Research and Markets announces the addition of The World Medical Market Report 2004 Current Trends & Future Prospects to their offering. The global medical device and equipment market is expected to grow steadily by around 4.6% over the next 5 years. The market continues to be led by the USA where demand will be strong. However this will be tempered by poor economic performance and cost containment in Europe and Latin America. Many Asian markets have fully recovered from the economic crisis and are now performing strongly, as are leading central and east European countries as they enter the EU. So what, practically, does that all mean? For planners, marketers, sales and general management, being able to plan effectively requires a detailed knowledge of which markets and market sectors are growing, and the national/regional context of that growth. This report will be of interest to everyone operating or analysing international medical device and equipment markets. It provides difficult-to-source data from hundreds of national and panregional governments and organisations. Easily answer questions such as: What is the estimated size of the global device industry in 2009? Which Asian countries offer the best opportunities in terms of market growth and in what sectors? What are the prospects for syringes, needles and catheters in India, China and Thailand? What growth can be expected in the central European economies? How did the Mexican orthopaedic market perform in 2001, and what is its estimated value in 2006 & 2009? The report provides: - Market size and growth for the whole medical device and equipment market as well as detailed figures for 16 product sectors, 2004-2009: - Medical supplies - Medical X-ray film - Surgical gloves - Medical & surgical sterilisers - Wheelchairs - Contact lenses Medical equipment ---Electromedical ---Syringes, needles & catheters ---Dental instruments & appliances ---Ophthalmic instruments and appliances ---Other instruments and appliances Therapy apparatus - Orthopaedic/prosthetic goods - X-ray apparatus - Medical furniture Plus: - Global & regional overviews of the market - Analysis of the performance of 100 leading medical device companies - Key demographic data For a complete index of this report click on http://www.researchandmarkets.com/reports/224765 About Research and Markets Ltd.

And then there were three; With consolidation leaving three major players in each sector of the medical device industry, what happens to competition? Modern Healthcare Modern Healthcare; 5/16/2005; Becker, Cinda Byline: Cinda Becker The medical device industry is engaged in a feeding frenzy, gobbling up competitors in an effort to shore up market share, reinvigorate sales forces and resupply product pipelines. Though it's likely a cyclical, evolutionary moment, similar to what happened in the pharmaceutical industry several years ago, consolidation creates an opportunity for large, diversified healthcare companies to offer hospitals a Chinese-menu style of choices in supplies-all bundled into one supposedly discounted price. But will they be such great deals? Mergers and acquisitions in the medical device industry may not be bad for hospitals, some industry insiders say, but that doesn't mean they will be good either. Among high-profile public companies such as Johnson & Johnson and Guidant Corp., consolidation predictably sparks fevered speculation on Wall Street and scrutiny from federal regulators. When successful, such deals also frequently beget more deals among rivals. Yet while mergers and acquisitions in the healthcare industry are often seen as an opportunity for shareholders, it can be unsettling for hospital customers, who are suddenly negotiating with a bulked-up sales force and product line. Newly consolidated companies offer a wider range of products and greater opportunities for vendors to market their disparate lines in one big package. The practice, known as bundling, has a spotty reputation. Big vendors love to bundle because it gives them one convenient platform on which to market their varied product lines. Small vendors loathe it for shutting their products out of the marketplace. Providers frequently sign on to it without really understanding all the consequences. "Bundling is a strategy that multidivisional suppliers (use to) entice hospitals. But when you examine it closely, it actually results in hospitals paying much higher costs, although it leads the unsophisticated buyer to think they have a good deal,'' said David Ricker, chief operating officer of Broadlane, a group purchasing organization. "Suppliers do not employ programs that result in margin erosion; they only employ programs that result in more sales and higher margins. That's what they are directed to do.'' By far the most prominent deal unveiled in recent months was J&J's $25.4 billion proposal late last year to acquire Guidant Corp., a marriage that will bring Guidant's highly lucrative and fastgrowing electrophysiology business under J&J's massive umbrella. Guidant shareholders approved the proposal on April 27. Regardless of the Federal Trade Commission antitrust investigation it spurred in February, and the decision by the European Commission last month to open a second phase review, officials at both companies said they are confident the deal will close as expected in the third quarter. Guidant and J&J officials declined to comment for this story.

J&J's buying spree Still, that huge deal did not seem to diminish J&J's usual appetite for acquiring smaller companies. Last month, the healthcare conglomerate acquired TransForm Pharmaceuticals, Lexington, Mass., a privately held drug discovery and development company, for approximately $230 million. J&J first announced plans to buy it in March, just one week after announcing a deal to acquire Closure Medical Corp., Raleigh, N.C., for about $370 million. Closure Medical, which makes biomaterial-based adhesives, has worked closely with J&J's Ethicon unit since 1996 on the development of topical adhesives. Closure Medical's board approved the sale on April 25, and the FTC terminated its review earlier this month. The deal is expected to be completed soon after Closure Medical's stockholders meet on June 2. Also in April, J&J announced an agreement to acquire Peninsula Pharmaceuticals, Alameda, Calif., a privately held biopharmaceutical company focused on developing antibiotics to treat infections, including hospital-acquired infections, for approximately $245 million. The deal is expected to close this quarter. More recently, German conglomerate Siemens purchased CTI Molecular Imaging, Knoxville, Tenn., in a deal valued at approximately $1 billion. Siemens officials said the acquisition was the natural progression in the companies' long association, which in 1987 spawned CTI PET Systems-a joint venture combining CTI's expertise in PET with Siemens' global distribution network. Siemens' May 5 acquisition of CTI's portion of the joint venture as well as all of its other businesses will accelerate and strengthen its position in the fast-growing area of molecular imaging, said Michael Reitermann, president of the nuclear medicine group at Siemens Medical Solutions. The rash of activity in the medical device industry is not really "any more rampant now than at other times in the recent past,'' said Kem Hawkins, president of Cook Group, the world's largest privately held medical device manufacturer, in an e-mailed response to questions. "Most of it seems to follow the pattern of small, emerging technology companies being acquired by bigger public corporations that need fresh technology to fill their product pipelines and have the capital and equities to pay for it and the marketing or sales power to drive those technologies to the marketplace.'' Meanwhile, GPOs, many of which are transforming their business practices under pressure from the Senate Judiciary Committee's antitrust subcommittee, are watching the activity with caution. Concerns about bundling "I think the latest spate of merger activity is certainly an opportunity for great bundling, but it's too early to tell what the impact will be,'' said John Strong, president and CEO of Consorta, a GPO that primarily services Roman Catholic hospitals. "I know that providers are concerned about the ability of manufacturers to bundle bigger and bigger product'' categories. Large deals like the J&J and Guidant proposal, frequently unleash speculation that similar deals will follow, said Jason Wittes, senior medical device analyst for Leerink Swann & Co., a healthcare equity research and investment banking firm. Wall Street is now rife with predictions that Boston Scientific Corp., J&J's only competitor in the surging drug-eluting stent market, will now have to make a move. One candidate for acquisition by Boston Scientific or another

company would be St. Jude Medical in St. Paul, Minn., a prominent player in the electrophysiology space, Wittes said. In reality, the medical device industry has been on a consolidation roll for at least the past five years, part of the natural cycle of smaller fish getting swallowed by larger competitors. "Any small company, when it reaches a certain level of sales, usually gets acquired,'' he said. "I would say it is just a constant drumbeat.'' The J&J agreement with Guidant stands out among the normal ebb and flow of deals in that Guidant already commands considerable size and market share in its own right. But with its single-minded focus on cardiology, Guidant's business has matured after 10 years of "tremendous growth,'' Wittes said. "Once a market reaches maturity, management has to figure out a way to reinvent themselves or sell themselves.'' That's good for shareholders but not necessarily for hospitals, Wittes said. Consolidation "means more power to suppliers, and they try to leverage their strength,'' Wittes said. "At the same time this does open the door to more bundling. So J&J can now bundle stents with orthopedics and everything else. ... I think bundling is a fact of life. It's not always effective, but it's always attempted.'' Three seems to be the magic number for consolidating healthcare sectors, said Mike Hildebrandt, director of materials management for 338-bed High Point (N.C.) Regional Health System. Several years ago, Hildebrandt said he had as many as nine different players to choose from when buying orthopedic implants for the hospital. That has been whittled down to three. If J&J acquires Guidant, he will be left with only three major players in the cardiovascular arena, including Boston Scientific and Medtronic, he said. Even medical device distribution has consolidated to just three: McKesson Corp., Cardinal Health, and Owens & Minor, he said. Likewise, GE Healthcare, Philips Medical Systems and Siemens dominate diagnostic imaging. "It certainly has limited the choices we have in purchasing,'' Hildebrandt said. "But as long as there are three out there, I don't think it is going to be a particularly bad thing or punitive thing. We're not seeing a huge effect on pricing as long as there are three.'' Searching for the sunny side James Thrall, chairman of the radiology department at Massachusetts General Hospital, Boston, sees a sunny side to consolidation in the big-ticket diagnostic imaging sector of the healthcare supply industry. All three of the major imaging companies have jump-started many product lines through acquisition, Thrall said. The Siemens acquisition of CTI fills in "an important component of its product line,'' he said. "Frankly, it's always been somewhat confusing to have two organizations bidding against each other who are selling the same devices, so I particularly welcome this consolidation and think it is a very wise move on the part of Siemens because of the growing importance of the PET scan.'' With at least two other strong competitors in the marketplace, "that will keep pricing honest,'' Thrall said. Consolidation in the industry is "a natural phenomenon and in the long run, healthy for us as long as there are three or four major global competitors,'' he said. Without the consolidated global players, companies with interesting technologies but no capital would "languish in a sort of

perpetual undercapitalized state,'' Thrall said. "So there's a natural phenomenon of a new company getting started, demonstrating it has a viable and novel technology and growing to a certain point and then getting purchased by a larger company that's in a position to leverage global marketing and economies of scale.'' Bundling does not pose a problem for large academic medical centers such as Massachusetts General because no one vendor offers the best product in every product line, he said. Like Hildebrandt, Thrall noted that various sectors of the diagnostic imaging business have consolidated in recent years: film companies, equipment manufacturers and pharmaceuticals. But one category is still ripe for consolidation, he said-information technology. "That's the newest category, and interestingly, it's the one with the most companies active and successful right now, so it speaks to the concept of a natural process of consolidation,'' Thrall said. "I think it's quite possible that all the major imaging companies will try to have enterprise information solutions.'' Erich Reinhardt, president and chief executive officer of Siemens Medical Solutions, said Siemens was the first of its competitors to move into IT with its acquisition of Shared Medical Systems. "We assume we will see more global players in IT,'' he said. Siemens' overall strategy is to integrate its vast array of services and equipment "to improve the efficiency of healthcare in a patient-centered system'' that will ultimately improve quality and reduce costs, he said. As a global company, Siemens is able to summon the resources needed for research and development. The large conglomerate can take bundling even beyond the reaches of its medical company, offering hospitals other Siemens products such as telephones, electrical power and security, he said. "One of the advantages of a large company is there are more company solutions that you can offer to a customer,'' Reinhardt said. But J&J's acquisition of Guidant poses a more troubling scenario for hospitals. FTC investigators have solicited comment from Consorta, said Nancy Walsh, the GPO's senior director of medical supplies. "Irrespective of who the players are, our concerns come into play when there are fewer players in the market,'' Walsh said. "We think the most competitive opportunities exist when you can go to multiple sources for products and negotiate. When you eliminate a player from the market, you are obviously removing competition.'' Walsh said she doesn't believe there is ever a situation in which there are too many companies in a marketplace. The more competitors there are, the more prices are driven down, she said. But "anytime you have these monopolies continuing to grow, it becomes more difficult for smaller manufacturers to do business with GPOs or hospitals because of all the bundling that occurs.'' The Senate Judiciary Committee's antitrust subcommittee, which has been scrutinizing GPOs for three years, has been sharply critical of bundling, and nearly every GPO has forsaken the practice in individual codes of conduct. But manufacturers still bundle, going around the GPOs to negotiate directly with hospitals, she said. "That's the only way you can get more aggressive pricing. If you want a price concession, you really have to commit much more to the manufacturer than a single product category,'' Walsh said. Since Consorta doesn't bundle, "that eliminates our ability to negotiate,'' she said, leaving hospitals on their own to haggle with vendors. Making it worse, some companies will bundle completely disparate products, cutting across physician practices, she said.

Bundling possibilities As a result of the Guidant acquisition, J&J potentially could begin bundling drug-eluting stents and implantable cardioverter defibrillators-products that cut across different physician practices, making hospital purchasing decisions even more complex. "I don't see why they wouldn't'' bundle the two vastly different product lines, Broadlane's Ricker said. "I would expect them to. Both Cordis (the J&J company that makes drug-eluting stents) and Guidant do so. It's a course of practice that has served J&J very well.'' Since most GPOs no longer engage in the practice, vendors are offering bundled discount packages to hospitals individually. Though the bundled price tag might seem attractive to an unsuspecting hospital, it can be deceiving, Ricker said. For example, it might seem like a sizable discount if hospitals used to paying $2,500 for drug-eluting stents and $5,000 for pacemakers are offered $250 discounts on the stents in a bundled deal. But hospitals would be locked into both prices, and thus lose the discount if pacemaker prices were to sharply decline, which is very possible in today's market, he said. Bundling "locks (hospitals) up on so many product categories, it keeps (hospitals from benefiting) from normal price degradation,'' Ricker said. Jeff Rooney, vice president and chief financial officer at 177-bed Rush North Shore Medical Center in Skokie, Ill., said consolidations always raise concerns about cost, but the situation in the device industry does not seem to have gotten "to the point where we feel vendors have extraordinary pricing power. I still think there is sufficient competition that prices are remaining reasonable.'' The hospital's supply costs of approximately $28 million increased about 8% from 2003 to 2004 and went up about 7% this past year, but that was driven by increases in certain drugs, which vary by patient mix, he said. "Consolidation seems to be much more about companies' internal needs than about any way it affects their customers,'' Rooney said. On the positive side for hospitals, vendors bulked up by acquisitions are able to bring new technologies to the market more quickly, said Hawkins of the Cook Group. "Dealing with larger companies also usually offers providers better access to product information and training, and one-stop shopping across product lines, which can help contain costs.'' But Patrick Flaherty, service line coordinator in corporate purchasing for the University of Pittsburgh Medical Center, said he has concerns with any consolidation that removes a competitor from the field, even Siemens' seemingly logical acquisition of CTI. "It is disproportionately stratifying for people like me to successfully negotiate on PET/CT when I only have four (vendors) to begin with and then it is diminishing to three,'' Flaherty said. J&J's acquisition of Guidant is of even more concern as J&J's "business model and approach tend to be that of a drug company, and drug companies are notorious for having high margins,'' he said. "It's a bellwether change for us. We do a lot of business with Guidant,'' Flaherty said. "J&J is saying it is a great opportunity for taking the best and moving forward to a more beneficial future. I sincerely hope that's true. I'll reserve judgment on that. I have no reason to doubt their sincerity, but I work on one side of the equation.'' What do you think? Write us with your comments. Via e-mail, it's [email protected]; by fax, 312-280-3183. CAPTION(S):

Thrall sees industry consolidation as "a natural phenomenon." * A Siemens' scan, above, shows an unknown patient's PET scan. Siemens officials think their recent acquisition will make them stronger in the area of molecular imaging. * Reitermann: CTI buy will strengthen Siemens' position. * Ricker: J&J and Guidant probably will bundle product lines. * Walsh: Fewer market players is cause for concern.

The Home-Healthcare Marketplace The rapidly growing home-healthcare segment represents win-win potential for both consumers and manufacturers. Originally Published MX January/February 2005 Alpesh Gandhi

One of the fastest growing—and most opportunity filled—sectors of the healthcare marketplace is that devoted to home healthcare. As a product-generating sector of the medical device Sidebar: industry, the key segments of the home-healthcare market Major Players in the are those for respiratory devices, infusion-therapy devices, Respiratory and durable medical equipment (DME). But the range of Segment devices now being developed for home use is extremely diverse, including such varied products as infusion pumps and syringes, rehabilitation equipment and bedside monitors, beds and wheelchairs. In 2003, the U.S. home-care medical devices market generated revenues of approximately $53.1 billion (see Figure 1). Growth of this market has slowed somewhat over the past few years as a result of requirements in the Balanced Budget Act of 1997, which directed the Centers for Figure 1. Revenue forecast for the homeMedicare and Medicaid Services (CMS, when it was healthcare segment of still the Health Care Financing Administration) to test the U.S. medical device market, 2002–2008. competitive bidding for some types of durable Source: Frost & Sullivan. 1 medical equipment. Nevertheless, the market for (click to enlarge) home-use medical devices is forecast to increase at a compound annual growth rate (CAGR) of approximately 9.1% through 2008. And shortly thereafter, it is expected to take off at a steady rate and reach double-digit growth rates. It is projected that this market will double in size by 2011. This article looks at some of the key trends that are influencing the direction of this growing sector, as well as the challenges and opportunities the sector presents to medical device manufacturers. The Aging Trend The aging of the U.S. population has had a greater impact on the development of the home-care market than on any other sector in the

healthcare marketplace. By 2011, approximately 78 million Americans (one-third of the U.S. population), will have reached age 65. This rising tide of retirees belonging to the baby boom generation is a trend of increasing importance for the home-care market. The baby boom generation is unlike any other that this market has experienced. Baby boomers are much more health-conscious and better informed than previous generations, highly aware of the products and services available to them, and willing to take an active role with their healthcare providers. Their desire for technologically advanced medical products—along with the growing availability of such devices to meet their demand—is one factor that has led to the emergence of a viable and thriving home-healthcare market. Coping through Technology In many respects, the U.S. healthcare system is highly fragmented and inefficient. Helping patients deal with such inefficiencies is a great business opportunity for home-care providers, and represents one of the strongest drivers for the market. Home-care providers customize their services to the needs of each individual, enabling the prescribing provider to remain in control of a patient's care while eliminating the waste of extra services not needed by a particular individual. This practice increases the number of patients who can benefit from home-care services and drives market growth. The technological advances of the past two decades represent another strong driver for the home-care market. Not so long ago, home care was pretty much limited to daily feeding and bathing. Today, a wide variety of services are available at extremely professional levels to patients wishing to be treated in the home. Although many services provided by home-care providers are not dependent on technology, new technologies that can be used to monitor and treat patients in the home environment represent a major area of potential market growth. For instance, a number of manufacturers are developing home-use technologies such as software-driven infusion pumps that can minimize medication errors. These automated medication safety pumps incorporate drugadministration protocols that reduce the possibility of human error— the cause of 66% of medication errors. And because they are more expensive than earlier models, their adoption will gradually increase revenues in the home-care market. Restrained Adoption

Although the adoption of new home-use technologies has distinct advantages for both providers and their patients, many home-care providers are small entities that cannot afford the costs required to implement high-tech solutions in the home-care environment. This limitation is hampering efforts to expand the services available to patients in the home, and has also retarded the growth of the market. The most effective home care involves seamless coordination among the physician who prescribes a plan of treatment, the home-care provider who executes the plan, and the patient. In the current market, however, communication breakdowns frequently lead to coordination problems, causing physician dissatisfaction with home-care services and patient frustration with inadequate care. The key to the seamless coordination of care is greater application of information technologies. Because the implementation of such technologies is costly, however, their penetration into the home-care market has been slow. The absence of mechanisms for coordinating care limits the number of patients using home-care services, and continues to be a restraint on market growth. Challenges for Manufacturers Because the home-care market is highly fragmented, penetrating the market can be fairly costly and requires considerable market knowledge. In most cases, lack of resources prevents manufacturers from entering this market directly. Except for companies that occupy a specialized niche in the home-care market, most small manufacturers shy away from direct-to-consumer marketing. The home-care market is very volatile with respect to reimbursement issues. A single change in reimbursement policy can cause a company to lose market share in the blink of an eye. Although reimbursement trends are therefore very important to the viability of products in the home-care market, most manufacturers do not follow such trends very well. Companies that intend to do business in the home-care market should identify resources that will enable them to track such pertinent trends. One example of such reimbursement-related volatility is the market for power wheelchairs and scooters. In 2003, Medicare payments for power wheelchairs and scooters totaled $1.2 billion. But at the beginning of 2004, after an investigation revealed that two counties in Texas had filed fraudulent claims, CMS halted all reimbursement payments for power chairs and scooters. Billing scrutiny faced by dealers has forced suppliers into bankruptcy. In spite of this collapse, however, significant growth in the market for power wheelchairs is still expected in the future.

By far the fastest-growing area in home-care—and the one that offers the greatest opportunities for device manufacturers—is the respiratory-care segment, which includes oxygen-therapy products (oxygen concentrators, liquid oxygen, and compressors), nebulizers, continuous positive airway pressure (CPAP) equipment, ventilators, and sleep apnea therapy products (see Figure 2). Although CPAP products represent the third-largest group, they are also the fastest- growing area, experiencing growth rates of 15–18%.

Figure 2. The market for respiratory products is the fastest-growing subsegment in home healthcare. The market for such respiratory devices currently totals approximately $822 million. Source: Frost & Sullivan. (click to enlarge)

Medicare Modernization Act The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) will have major short- and long-term effects on the home-healthcare market.2 Major changes initiated by the act include a five-year CPI freeze on several DME products, which took effect at the beginning of 2004, and a round of competitive bidding in the nation's top-10 metropolitan areas beginning in 2007. Near-Term Impact. Home-care providers are expecting a revenue decrease of as much as 20% as a result of MMA. To make up for such losses, providers are planning to reduce acquisition costs and operating expenses, and they may also reduce the level of services they provide. Providers will also be asking the manufacturing community to share the burden of the cuts. Between 2004 and 2007, MMA cuts will lead to a much more consolidated DME market than the one that is currently in place. Many small local and regional providers will be looking to exit the market because they will not be able to survive. Long-Term Impact. MMA will take a toll on manufacturers by way of increased pressure to reduce pricing and slower acquisitions from providers. In turn, manufacturers may offset such losses by reducing their investment in R&D. The end result may be to further slow the introduction of innovations for the home-use market—such as those in information technologies—while manufacturers attempt to hold down expenses. Conclusion The medical device industry is one of the largest and most stable in healthcare, but it is undergoing important changes that providers and manufacturers will need to understand in order to succeed.

In the home-healthcare market, manufacturers will do best by building strong relationships with providers that emerge as market leaders. They may also seek to take advantage of the shakeout caused by MMA by acquiring ownership of distribution channels. To capture the double-digit growth that is expected in the future, manufacturers should invest in technologies such as CPAP, which present high-growth and high profit margin opportunities. Finally, manufacturers will need to find ways to address the marketplace directly. Building brand and product awareness among patient populations that are likely customers—such as those suffering from obstructive sleep apnea or chronic obstructive pulmonary disease —will pay dividends when the home-healthcare market begins its rise to prominence.

The Future of Wound Care Active products represent an area of huge potential growth for medical device manufacturers. Stuart Jackson and Jeffrey Stevens Originally Published MX January/February 2006

Wound care costs the U.S. healthcare system more than $20 billion each year, including more than $4 billion spent on wound Sidebar: management products. Chronic and severe wounds, the most Thoughts for difficult wounds to heal, have been the focus of significant Smaller Companies product innovation in recent years. Yet despite this innovation, unmet clinical and commercial needs persist. Physicians and patients are looking for improved treatment options that heal wounds effectively, Figure 1. The potential minimize complications, and shorten hospital stays. for advanced and active wound care therapies in The potential to reduce overall costs to the the U.S. wound care healthcare system is a further motivating factor. market. Percentages indicate the implied Now, a new class of products is emerging to better penetration rate of the address these unmet needs. Active wound care therapies. (click to enlarge) products, many of which combine the advantages of medical devices with those of pharmaceuticals, promise to redefine "best medicine" for treating chronic and severe wounds. Active wound care products are used to treat approximately 2 million wounds in the United States annually (see Figure 1). This is less than 20% of the wounds that they could treat. New product introductions,

greater physician awareness, expanded third-party reimbursement, greater regulatory clarity, and continued proof of safety and efficacy will drive growth of 23% for the active wound care segment through 2009 (see Figure 2). The increasing popularity of active wound care products will have many winners: the medtech industry will benefit from market expansion, doctors will have enhanced treatment options, patients will gain better outcomes, and payers will see lower overall costs due to reductions in hospital stays. But although the rewards in this market could be substantial, there are also strategic challenges. Figure 2. Projected sales Given the nature of active products, medical device of traditional, advanced, companies will likely need to share the spotlight with and active wound management products in pharmaceutical and biotechnology firms. This may the United States, 2004require creative partnerships in research and 2009. Percentages indicate the compound development, manufacturing, and sales and annual growth rate of each sector. marketing, as well as new, coordinated approaches (click to enlarge) to regulatory affairs, reimbursement, and intellectual property. In the end, if the pace of innovation continues and strategic challenges can be addressed, active wound care will be the next big growth area in medical devices. An Evolving Market The market for wound care products has evolved in three overlapping phases (see Figure 3), with caregiver techniques generally keeping pace. Today, treatment options include traditional, advanced, and active products.

Traditional Products. Traditional products—those that treat wounds with dry bandages and dressings —account for more than 50% of the chronic and severe wound care market today. Since many wounds can be healed with products that do nothing more than cover and protect the wound from infection, traditional products will remain an important alternative in the physician's arsenal.

Figure 3. The evolution of the wound care product market from traditional dry dressings to active products that treat wounds and promote healing. (click to enlarge)

On the whole, the traditional wound care segment is mature, and total sales are expected to decline by 2% per year through 2009. Part of this decline will be attributable to a lack of new product innovation. The features and benefits of tomorrow's sponges, nonadherent and conforming bandages, abdominal pads, and other traditional products will be virtually indistinguishable from today's dressings.

From a competitive standpoint, large suppliers such as Johnson & Johnson's Ethicon Inc. (Somerville, NJ), Bristol-Myers Squibb's ConvaTec (Skillman, NJ), Smith & Nephew (London), Tyco International's Kendall Co. (Mansfield, MA), 3M (St. Paul, MN), and others are largely focused on improving product quality and increasing product line breadth. In addition, products are becoming increasingly commoditized and price points are generally expected to fall. For medium and smaller suppliers, these dynamics suggest a bumpy road ahead (see sidebar). While consolidation is likely, there is little fear of a dramatic market shakeout. Most competitors can survive, but margins will be under pressure and excess profits will be difficult to achieve. While traditional products will remain important, evolving medical practice is shifting the market toward newer alternatives. Advanced Products. Advanced products promote a moist environment, thereby accelerating healing of many difficult-to-treat or chronic wounds. Substances that help provide ideal moisture conditions include hydrogels, hydrocolloids, foams, and alginates. Unlike the traditional segment, the advanced segment is far from mature. Total sales in the advanced wound care segment are expected to grow more than 10% annually through 2009. Many of the large players in traditional wound care are also active in the advanced segment. Alongside them are more than 200 smaller companies, approximately 40% of which have annual revenues of less than $15 million. Large and small competitors alike stand to reap substantial benefit from double-digit market growth over the next several years. Some of this growth will come from market expansion, which will be driven by the treatment of patients who historically could not be treated with traditional products. Beyond this, growth will come at the expense of traditional products, as advanced products are increasingly used as first-line therapy. In the past, physicians might only have turned to advanced products after traditional products failed. Now, advanced products are being used earlier and more often. Understanding how such clinical pathways will evolve and predicting the impact on specific products and suppliers should be a focus of all companies in this market. Underlying patient demographics will accelerate the trend toward advanced products. The rising incidence of diabetes, for example, will translate into more diabetic ulcers and amputations, the wound types for which advanced products have seen greatest market penetration to date. Similarly, the aging U.S. population will yield more cases of venous ulcers, which tend to occur in older people with poor lowerextremity circulation, and pressure ulcers, which are most common in the bedridden elderly. With age, decreased cellular function lessens the

body's natural ability to close and heal wounds, so wounds in the elderly are often better candidates for advanced products. As patient demographics change, suppliers may need to shift their sales and marketing efforts to better target clinical decision makers and decision influencers, both by practitioner type and by site of care. Why won't advanced product segment growth be even greater? One medical challenge with advanced products is that a precise level of moisture must be maintained to prevent the problem of excess exudate interfering with the healing process. This requires a lot more work to treat the wound, hence increased immediate cost of patient care. Another factor limiting growth for advanced products is that traditional products are adequate for many wounds. If a simple dry bandage or dressing can heal a wound, practitioners may prefer that less laborintensive and cheaper option. In these cases, payers find it difficult to justify the higher prices of advanced products. For other wounds, suppliers need to educate the healthcare community on advanced products' long-term value proposition, including significant savings from reduced hospital visits. Especially useful would be compelling data on cost per quality-adjusted life year.1 Finally, growth in the advanced segment is expected to be constrained by the next and newest phase of wound care evolution: active products have emerged onto the scene. Active Products. The active wound care segment is anticipated to grow 23% per year through 2009. Active products administer substances to the wound that contribute to repair either by delivering bioactive compounds or by utilizing materials that facilitate the body's own ability to heal. This is a step beyond providing a moist healing environment. The substances used range from relatively low-tech collagen to high-tech artificial growth factors that catalyze the wound healing process, and biosynthetic materials that act as scaffolds for delivery. One of the most advanced active wound care techniques is tissue engineering, the ultimate goal of which is the replacement of tissue, whole or cellular. Other technologies, such as "living" stem cell bandages, are in development. Today, companies such as LifeCell Corp. (Branchburg, NJ) are leading the pack with active tissue-regeneration products, including a deconstructed version of human skin that can be transplanted without fear of rejection. LifeCell has established sales and marketing partnerships with Boston Scientific (Natick, MA), Stryker Corp. (Kalamazoo, MI), Wright Medical Group (Arlington, TN), and BioHorizons (Birmingham, AL).

Not all active wound care products involve cell engineering or biotechnology agents. Therapies such as Kinetic Concepts' (San Antonio, TX) vacuumThe VAC Instill system by assisted closure technology, a noninvasive wound Kinetic Concepts Inc. closure system that uses controlled, localized (San Antonio, TX) promotes healing negative pressure to promote healing, are also through vacuum-assisted 2 helping to transform wound care. Advances in closure technology, an example of active wound related fields such as nanotechnology are further care. (click to enlarge) accelerating innovation. Nanocrystalline silver-based wound care products, one of the world's first medical applications of nanotechnology, broaden and extend the decades-old use of silver to include antiinflammatory activity. The overall drivers of growth in active products are similar to those in advanced products. By taking wound care to a new level of efficacy and treating wounds that could not be treated before, these products will grow the overall market. Further market expansion will come as physicians employ active products in treatment regimens that include traditional products, advanced products, or other active products, thereby increasing the total number of treatments for a given patient base. Evolving clinical pathways and underlying patient demographics will also contribute to active product growth. If the full potential of active products is to be achieved, targeted sales and marketing efforts, peer-reviewed literature, and other initiatives will be required to improve physician awareness and convince the medical community that these products offer unique clinical benefits. Pharmaceutical and medical technology companies will need to work together to achieve this. Collaboration will also be important in research and development for medical technology companies that lack biologics capabilities. Pharmaceutical companies are an option, as are biotechnology startups hungry to access the marketing savvy, operational infrastructure, and capital they lack. Collaborators will need to carefully address issues such as sharing of intellectual property rights, and will need to allow for a coordinated approach to sales and marketing. Ultimately, because many active products combine drugs with devices, the historically separate evolution of these therapeutic modalities needs to converge on a common future path. From a regulatory standpoint, the combination of two distinct components—medical device and active healing agent—that would normally be regulated under different authorities has complicated the situation. Determining the primary regulatory jurisdiction and subsequent authorities for hybrid products is done on a case-by-case basis. Of particular interest to regulators are products that comprise

living cells or tissues. Further, the outcome of clinical trials for wound care can fluctuate substantially. Because wounds vary in size, depth, and complications, truly controlled trials are elusive. Companies in the active wound care segment will need to clarify what data constitute approvable clinical trial endpoints. Active wound care market participants also face uncertainty regarding existing reimbursement structures, and will need to work with thirdparty payers and managed-care entities to prove favorable cost-benefit profiles relative to other alternatives. Into the Future Despite significant wound care advances, unmet needs remain. Many wounds cannot be optimally healed even with the latest products and clinical techniques. All wound care market participants must stay focused on the ever-advancing technology horizon. Future innovations, particularly drug-device combinations, will create expansion opportunities for some and obsolescence risk for others. The newest active products promise cross-talk in the wound environment to dynamically control which growth factors and wound-regulatory elements are activated, and at what time. The future of wound healing is a directed process that provides moreeffective tissue regeneration than has ever before been possible. As the wound care market continues to evolve, active products will remain at the forefront of best medicine, redefining patient care and garnering substantial market growth. It is interesting to compare the outlook for wound care with the evolution that the cardiovascular market has undergone. The direct and indirect costs of cardiovascular disease and stroke have expanded from $60 billion in 1997 to approximately $400 billion today. With these spiraling costs have come larger market opportunities for many suppliers. Underlying patient demographics and better diagnosis have played a role, but pharmaceutical and medical device company innovations have also been critical to expanding their respective segments. Entire new product classes have been created, often at the expense of those that came before. One lesson to be taken from this is that market growth can total more than the sum of separately evolving segments. This is largely because physicians tend to employ overlapping drug and device therapies for a given patient. Research conducted by L.E.K. Consulting shows that anticoagulants and angioplasty are used in 70% and 66% of coronary artery thrombosis cases, respectively—that's 136% usage, or almost 1.4 treatments per patient, not counting the myriad other therapeutic

alternatives employed. Another lesson is that drug-device convergence can create value for all market participants. Drug-eluting stents, for example, once a holy grail of the industry, are now a reality. Benefits to suppliers, physicians, patients, and payers are increasingly clear. Conclusion Wound care is big business—and it is only getting bigger. There are large companies in the market, but none has yet achieved clear market dominance. This is especially true in the advanced and active segments, where innovations are occurring at an accelerating pace. Competition will be increasingly price-based in the traditional segment, but in advanced products, differentiation will be the key to success. Manufacturers in the active product segment will need to be especially mindful of the importance of cross-disciplinary device-pharma-biotech collaborations, the risks inherent in choosing the wrong partner, and the rewards of partnering with the right company. In the intermediate to long term, increased merger and acquisition activity is likely as competitors seek to create a one-stop shop with traditional, advanced, and active wound care products under a single roof. Applying lessons from the evolution of cardiovascular devices to wound care underscores the prediction for overall market expansion and rapid growth in some segments. Volumes will trend upward as products heal wounds that could not be healed before and physicians employ multiple products to treat the same patient. The premium prices commanded by newer products will supplement volume growth, particularly when changing clinical pathways position these as first-line therapies. Ultimately, active device-drug combination products will be the biggest beneficiaries. At currently anticipated growth rates, active wound care will represent a more than $1 billion opportunity within the next five years in the United States. If even a couple of the more exciting innovations in the pipeline materialize, then the market's growth could easily surpass these expectations.

HPIS Market Highlight: Physician Market Trends & Forecasts: Sales to physician market increase 18.8% November 2005 Market Intelligence from HPIS™, a Neoforma® Company, indicated distributor sales to the physician market by its contributing distributors (representing between 50% and 60%

of the overall physician market) increased nearly 19% for the year ending September 2005. While all of the top 10 product categories grew over the past year, four grew faster than the overall market. Medical surgical products-durable* jumped 33.4% over the previous year to break into the top 10. The parenteral category was up 31.3%, increasing its share of the total market from 5.6% a a year ago to 6.2%. The wound sutures category was up 30.0% and now comprises 4.0% of all sales to the physician market. The electromedical category slightly exceeded market pace, growing 19.6%. Needles and syringes, the top distributed product category sold into the physician market, has experienced only moderate dollar growth in the last two years. The category grew 9.1% for the year ending September 2005, well below the market average, and 9.6% the previous year. As a result, the category makes up 7.8% of total market sales now versus 8.5% a year ago [Figure 1].

Figure 1

Although needlestick safety regulations have been in place since 2001, physicians have been slow to adopt them for at least two reasons. First, there are higher costs associated with safety products. Second, there has been little monitoring to enforce regulations. But what has been a stagnant market may be changing. Current sales trends suggest that physicians are more willing to adopt safety products in the face of new needlestick safety regulations. Many manufacturers are discontinuing the standard versions of these products, which is evident because their use almost has been phased out of the hospital setting. In addition, the growth of physician-owned infusion centers may fuel physicians' increased use of safety products. Among other products in the top 10, sales of point of care reagents and supplies moderated, growing 17.2%, from a 24.4% growth rate the previous year. The glove

category accelerated growth slightly, up to 14.3% from 10.3%, but still lagged behind overall market growth [Figure 2]. Figure 2

Some categories far outpaced the industry, even if they don't yet hold major market share. Respiratory products (36.6%), immunology reagents and supplies (32.2%), kits, packs and trays-custom (43.8%) and incontinence products (44.6%) are among the categories that experienced strond growth through September 2005. Other categories lagged behind the market, including metal/plastic/paper products (7.2%), orthopedic supplies (2.2%), hazardous waste control (8.1%) and patient restraints and supports (5.5%). *Other medical/surgical durable products include beds, cabinets, carts, chairs, containers, floor mats, face/eye wash fountains, hamper stands, hampers, identification tags, intravenous poles, kick buckets, examination and surgical lights, medical charts, scales, privacy screens, stools, stretchers, tables, timers, and training aids.