Uncertain Elements of Structure in the U.S. Medical Device Industry FDA’s stance on approval process of new medical devices,

specifically for screening, early detection, diagnostics – double edged sword, might increase threat of new entrants or add significant barrier to new entrants depending on position

New medical device innovations increase threat of entrants, which increases buyer power (more products to choose from, potentially lower prices) which might fragment industry

New endoscopic medical devices for early cancer detection may not integrate into existing diagnostic/imaging platforms increases learning curve, reduces overall industry profitability

Sixth Force - Government

• Component manufacturers (U.S. & foreign)

• Start-ups• Cross over from manufacturers of non-endoscopic medical devices• Electronics manufacturers• Information technology

• Hospitals• Group Purchasing Organizations• Specialty clinics• Outpatient surgery centers• Medical equipment distributors

• Drug therapies• Preventative healthcare• Pathological study of samples• Genetic screening

Medical Device Industry

• Power to influence the entire industry

Sixth ForceFDA Potential

Entrants

Buyers

Substitutes

Suppliers

Industry Competitors

Olympus, Pentax, Storz, Smith &

Nephew, Resellers

Force LevelBargaining Power of Suppliers Low

Bargaining Power of Buyers Medium

Threat of Substitutes Medium

Intensity of Rivalry Among Competitors Medium

Threat of New Entrants Low

Sixth Force – US Government, FDA High

Industry Attractiveness: Attractive

Medical Device Industry

Industry SituationCertainties of this Industry Competitors

Endoscopic medical devices used in the healthcare industry are sold through medical device suppliers to certified medical professionals

Buyers include hospitals, surgeons and specialists (GI, ENT, OB/GYN), outpatient surgery clinics, and imaging/diagnostic service providers

The FDA determines what medical devices can enter the market (PMN 501(k) and PMA)

Karl Storz Imaging Olympus Americas Pentax Medical Smith and Nephew Siemens Medical Imaging BD Ventures Tripath Imaging * Cambridge Research &

Instrumentation , Inc. * Lucid Inc. * TeraRecon *

Economics and Demographics Cancer is detected more frequently than in the past due to medical

innovations

Significant increase in funding for research to cure, prevent, and detect cancer through government, NGOs and non-profits

Healthcare private insurers, Medicare and Medicaid evaluating policy on reimbursement of medical diagnostic procedures (cancer screening and early detection) to reduce total cost of healthcare

Medical devices for cancer screening, early detection and diagnosis create economies of scale and scope for medical device manufacturers AND healthcare industry

Medical device industry trending towards early detection and diagnostics through nanotechnology, miniaturization, and in-vivo imaging combined with Information Technology (computation data sets) to yield real-time results

Driving Industry Structural Change

Information technology impact – medical research data stored in databases, new IT innovations used with diagnostics, imaging (MRI, CT), simulation tools

High costs everywhere - medical device R&D and FDA approval, medical malpractice, health insurance

Buyers of the medical devices depend on accuracy, quality, and reliability of the equipment they procure

Healthcare professionals that use endoscopic medical devices must be trained and certified to operate and use these systems

Uncertain Elements of Structure

New Entrants – questions to ask…

Will the FDA change stance on approval process of class II and III medical devices?

Will medical device innovations fragment the industry?

Will the perception of endoscopic diagnostic procedures continue to be viewed as invasive?

Uncertain Elements of Structure

Buyer Power – questions to ask…

• Will buyers prefer certain medical device brands that already dominate the market?

• Will fiber optic technology be the perceived as enhanced means of collecting information versus ultrasound technology?

• Will healthcare insurance reimbursement changes increase buyer demand for screening and diagnostic medical devices/solutions?

• Will distribution be regulated through the government or a new healthcare institution?

Uncertain Elements of Structure

Supplier Power – questions to ask…

• Will the supplier base be willing to acquire new skills for manufacture and assembly of new fiber optic technology in existing endoscopic medical devices already sold through narrow channels?

• Will US companies outsource or require custom in-house assembly/testing/validation to ensure accuracy and reliability?

• How will these medical devices by sold from supplier to any buyer or strictly specialized buyers?

Scenario VariablesMost Important Variables Least Important Variables

FDA policy stance medical device approval process (class II and III)

Adoption of new technology into existing endoscopic medical devices

Medical device packaging

Compatibility/integration of new medical device technology into current screening/diagnostic solutions

The perception of fiber optic endoscopic diagnostic procedures as being invasive

The regulation from the government on distribution of medical device products

Requirements for certification for use of fiber optic endoscopic diagnostic devices

Patient demand of preventative medical devices

Causal FactorsDetermining Uncertainty

Scenario Variable Causal Factors Demand shift caused by FDA change

in medical device approval process

Adoption rate of new technology into existing endoscopic medical devices

Medical device packaging

Compatibility of medical device technologies which can easily integrate into current user IT systems

• External: The threat of new entrants may be increased by FDA process change• Internal: Limited number of product options

• External: Prices of medical devices may drop• Internal: Cost of marketing preventative devices

•External: Main competitors dominate through brand recognition, reliability, accuracy• Internal: Alliances, marketing and advertising costs

• External: integration with buyer IT systems• Internal: R&D costs to develop platforms that can vertically integrate into current IT systems

Primary Activities that Determinants of Future Industry Structure

Inbound Logistics Manufacturing of

endoscopic medical devices inbound

Production The FDA expedites approval of medical

devices

Outbound LogisticsSuppliers increase

Marketing and Sales

Costs of brand awareness

Early detection and diagnosis of cancer decreases latency and costs in the

healthcare industry

Range of AssumptionsScenario Variable Range of Assumptions

Demand shift caused by FDA change in medical device approval process

Adoption rate of new technology into existing endoscopic diagnostic medical devices

Medical device packaging (modular components, whole product solution)

Compatibility of medical device technologies which can vertically integrate into current user IT systems

Low Medium High

Slow Fast

Brand name modular components

Brand name whole product solution

High short termshift for new technology

Proprietary software

Openintegratedsoftware

Eliminate Implausible Scenarios

Low Medium High

Slow

Fast

Adoption rate of new technology in existing endoscopic medical devices

Demand shift FDA change in medical device

Eliminate Implausible Scenarios

Medical device packaging

Demand shift FDA/Adoption Rate

Low/Slow

Med/Slow

High/Fast

High/Fast

Brand name modular components

Brand namewhole product solution

High short term shift for new technology

ConsistencyLow/Slow

Med/Slow

High/Fast

High/Fast

1 2

Proprietary software 3 4 5

Open Integrated software

6 7 8

Proprietary software 9

Open Integrated software

10

Brand namemodular components

Brand name whole product solution

High short term shift for new technology

Demand shift FDA/Adoption Rate

Product Set

Analysis of Scenarios

Scenario 2 Scenario 7

Future

Industry

Structure

Structural

Attractiveness

Sources of

Competitive

Advantage

Competitive Behavior Scenario 7FDA fast tracks, rapid demand, brand name whole product integrated solutions

Scenario 2

FDA no change status quo

Key Uncertainty in Competitive Behavior

Alternative Competitive Behavior

Intermediate StrategyScenario 9

Rapid entrance , potentially disruptive

Future

Industry

Structure

Structural

Attractiveness

Competitor Behavior

Sources of

Competitive

Advantage

Still

attractive

Entry

barriers shift

Rapid gains

Race is on!

Crush, kill, destroy

Play nice

Licensing

Strategic alliances

Pentax

Optimal Strategy Scenario 9

Rapid entrance

potentially disruptive Scenario 7

FDA fast tracks, rapid

demand, brand name,

whole product,

integrated solutions

Scenario 2

FDA no change, status quo

Today vs. Future