Orthopaedic Market and Contract Manufacturing trends Market Implants 2011 A. Madani… · KNEE HIP SPINE European Market 2010 in M€ 1.250M€ 24% of WW market 1.030M€ 23% of WW

Information for growth

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Orthopaedic Market

and

Contract Manufacturing trends

Ali MADANI General Manager



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Table of contents

Worldwide Orthopaedic Market 2010 figures

2009/2010 growth

European Orthopaedic Market Hip, Knee, Extremities, Spine, Trauma and Orthobiologics

Drivers and limiters impact on the market growth Drivers: Volume growth, Demographic, Obesity, Innovations, New products

Limiters: Regulations, Certification

New Products: The main drivers Custom Cutting guides, Ceramics, Minimally invasive

Orthopaedic Contract Manufacturing heavy trends

Orthopaedic Contract Manufacturing market shares

Take home messages

Implants 2011, May 12th - 13th, 2011


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Worldwide Orthopaedic markets in 2010:

~32 B$

Knee

7 B$ +6%

Hip

5.9 B$ +4%

Spine

7.4 B$ + 6%

*Not included : Operating room Equip, Endoscopy, Power tools, Arthroscopy


HIP

19%

KNEE

23%

EXTREMITIES

3%SPINE

24%

TRAUMA

17%

ORTHOBIOLOGICS

15%

OTHERS

1%

WW Orthopaedic market in 2010

Source: AVICENNE compilation- May 2011in blue 2009-2010 growth


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The Orthopaedic market

10,5%

13,5%

11,5%

11,5%

0% 5% 10% 15%

HIP

KNEE

SPINE

AVERAGE

2000 - 2010 CAGR

4%

6%

6%

5%

0% 5% 10%

HIP

KNEE

SPINE

AVERAGE

2009 - 2010 Growth

Source: AVICENNE compilation- May 2011



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Worldwide Orthopaedic market in 2010

Depuy

13%

Zimmer

13%

Stryker

13%

Medtronic

11%

Synthes

11%Biomet

7%

S&N

7%

Others

25%

2010 Worldwide orthopaedic Market 2010 Revenues of the Major Orthopaedic

companies (B US$)



2,2

2,2

3,6

4,0

4,3

4,3

3,5

0 5 10

S&N

Biomet

Synthes

Zimmer

Stryker

Depuy

Medtronic

B US $

Ortho products Other Medical devices

Depuy +

Synthes

25%

Zimmer

12%

Stryker

13%

Medtronic

11%

Biomet

7%

S&N

7%

Others

25%


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Worldwide Implants market in 2010

in value (B$)

7,0

5,9

7,4

3

3,5

4

4,5

5

5,5

6

6,5

7

7,5

8

Knee Hip Spine

Mar

ket

val

ue

(B$

)

Wo

rld

USA

56%

Europe

23%

Row

21%

USA

54%

Europe

23%

Row

23%

USA

79%

Europe

11%

Row

10%




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Worldwide Implants & Orthobio. market in 2010

in value (B$)

5,5

4,0

1,2

0

1

2

3

4

5

6

Trauma & CMF Orthobiologics Extremities

Mar

ket

val

ue

(B$

)

Wo

rld

USA

56%

Europe

29%

Row

15%

USA

70%

Europe

21%

Row

9%

USA

61%

Europe

24%

Row

15%




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Implant market in Europe in 2010

in volume (units)

882 000

674 000

60 000

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

900 000

1 000 000

Hip Knee Shoulder

Nu

mb

er o

f p

rost

hes

is (

un

its)

France

18%

Germany

28%UK

14%

Italy

13%

Spain

6%

Others

21%

France

14%

Germany

29%UK

19%

Italy

10%

Spain

9%

Others

19%

France

27%

Germany

27%

UK

13%

Italy

11%

Spain

4%

Others

18%

Eu

rop

e




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Implant market in 2010 in Europe & growth

(2009-2010) in value (M€)

1 0301 250

1000

200

400

600

800

1000

1200

1400

Hip Knee Shoulder

Mar

ket

val

ue

(M€

)

France

17%

Germany

24%UK

16%Italy

17%

Spain

6%

Others

20%

France

12%

Germany

25%

UK

23%Italy

11%

Spain

11%

Others

18%

France

24%

Germany

23%UK

14%

Italy

14%

Spain

5%

Others

20%

Eu

rop

e




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Top 576%

Others24%

Top 579%

Others21%

Top 572%

Others28%

Knee, Hip & Spine Implant markets in

Europe: Big 5 and Challengers market shares

KNEE HIP SPINE

European Market

2010 in M€

1.250M€24% of WW market

1.030M€23% of WW market

600M€11% of WW market

Growth per year

2009/2010+4% +2% +4%

Top 5* and

Challengers market

shares

*Top 5 hip & Knee: Zimmer, Depuy, Stryker, Biomet, Smith & Nephew Top 5 Spine: Medtronic, Synthes, Stryker, Depuy, Zimmer



1 € = 1.32 $


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THE MARKET DRIVERS (1)

0

1

2

3

4

5

6

7

8

9

10

1960 1980 2000 2020 2040

Bill

ion

Worldwide population in Billion(source: ONU)

0%5%

10%15%20%25%30%35%40%45%

1960 1980 2000 2020 2040

Inhabitants > 65 years

example of France (Source: Insee)

USA

France

UK

0%

5%

10%

15%

20%

25%

30%

35%

1980 1990 2000

Obesity in developing countries % of

inhabitants(Source: OCDE)

USA

France

UK

0%2%4%6%8%

10%12%14%16%18%

1965 1975 1985 1995 2005

% G

DP

Health expenses: % of GDP(Source: OCDE)



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Low value hip

High value hip

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Mix products impact:

Example of high value hip (in volume)

-3% -2% -1% 0% 1% 2% 3% 4% 5%

Volume growth

Price erosion

Mix products impact

Value growth

The volume growth and mix products growth

balancing the price erosion

The volume growth and mix products impact balancing the price erosion




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Innovation & new products

Customized instruments

Minimally Invasive Implants and

Instruments

Cementless products

Orthobiologic products

High end materials (Ceramic, …)

…..

In the past 9 years, BIOMET introduced more

than 800 new products in the market

83

86

88

90

80

82

84

86

88

90

2005 2006 2007 2008

Ne

w p

rod

ucts

lau

nch

/ye

ar Number of new products launched per year


Zimmer Patient Specific Instruments


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Main Driver: Innovation & new productsModular THP (2004-2010) in volume cemented, cementless, hybrid

0%

10%

20%

30%

40%

50%

60%

70%

2004 2005 2006 2007 2008 2009 2010

% o

f m

od

ula

r T

HP

Cemented, cementless & hybrid ratio

(% of modular THP)

Cemented Cementless Hybrid

98

327

131

0

100

200

300

400

500

600

2004 2005 2006 2007 2008 2009 2010

Nu

mb

er

of

pro

sth

esis

(x 1

000 u

nit

s)

Cemented, cementless & hybrid modular THP

In volume (x 1 000 units)

Hybrid Cementless Cemented

Eu

rop

e




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Cementless Modular THP (2004-2010) in volume

M/Pe, Ce/Pe, Ce/Ce, M/M

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2004 2005 2006 2007 2008 2009 2010

% o

f m

od

ula

r cem

en

tless T

HP

M/Pe, Ce/Pe, Ce/Ce & M/M ratio (% of cementless modular THP)

M/Pe Ce/Pe Ce/Ce M/M

99

113

85

30

0

50

100

150

200

250

300

350

2004 2005 2006 2007 2008 2009 2010

Nu

mb

er

of

pro

sth

esis

(x 1

000 u

nit

s)

M/Pe, Ce/Pe, Ce/Ce & M/M cementless modular THPIn volume (x 1 000 units)

M/M Ce/Ce Ce/Pe M/Pe

Eu

rop

e




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Hip market structureMore Partial prosthesis -> negative impact on mix product

More Revision prosthesis -> positive impact on mix product

0%

5%

10%

15%

20%

25%

30%

35%

2003 2004 2005 2006 2007 2008 2009 2010

Partial prosthesis rate(% of the global market)

France

Germany

UK

Italy

Spain

EUROPE

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2003 2004 2005 2006 2007 2008 2009 2010

Revision prosthesis rate(% of the global market)+-

- Negative impact on mix products + Positive impact on mix products

Eu

rop

e




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THE MARKET LIMITERS (1)

REGULATIONS, CERTIFICATION,… R

egu

lati

on

REFERENTS DETAILS IMPACT ON THE MARKET

European

Directive

93/42

ISO 13 485

• CE mark

• Clinical tests

• Sales autorization

• Medical devices

vigilance system

• Certification of « whole

production line »

• Additional costs

• Longer time to market

• Concentration of the product

range

• Limitation of new product

launches

• Longer time to market

• Shared risks

• Additional Insurance costs

• Change in contract

manufacturing practice




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THE MARKET LIMITERS (2)

REIMBURSEMENT AND PRICING REGULATION

USA Germany UK Sweden Italy Belgium Switzerland France

Launch date

& extension1983 2003-2010 2002-2007 1992-1994 1994-1998 1984 2002 2003-2012

Classification

systemDRG

G-DRG (derivate

from Australien)

system

HRG (derivate

from US

system)

Nordic DRG

ROD (derivate

from US

system)

APR-DRG

(derivate from

US system)

DRG(US system)GHM (derivate

from US system)

Targets

Coverage

of all

Medicare

budgets

75% of C-DRG in

2007

Target of

100% HRG in

2006

Coexistence 50%

DRG, 30% global

dotation & 20% de

reimbursement

Coexistence of

80%-90% ROD,

6-7%

planification

funds , & 3-

14% extra

funds

Main application:

every day

expenses

Investments

supported by the

“cantons”

50% T2A in

public hospitals

& 100% in

private and

public in 2012

For more than 20 years, a general concern for controlling health expenses has started in the

Developing countries with the introduction of the DRG type systems




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Trend of Orthopaedic

Contract Manufacturing



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CONTRACT MANUFACTURING

SEGMENTATION

HIP KNEE SHOULDER SPINE &

TRAUMA

INSTRUMENTS CASES

FORGING

CASTING

MACHINING

FINISHING

SINTERING

COATING

MARKING, PACKAGING

STERILIZATION

FORGING

13%

CASTING

5%

MACHINING

40%

FINISHING

2%

COATING

4%

SINTERING

14%

MPS*

3%

CASES

19%

ORTHOPAEDIC CONTRACT

MANUFACTURING MARKET

BY SERVICES




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ORTHOPAEDIC CONTRACT

MANUFACTURING RATES FOR THE MAJORS

The rates of Contract Manufacturing depends highly on the

Products, Services, Competitors


VERY HIGH

VERY HIGH

VERY HIGH

VERY HIGH

HIGH

FORGING

CASTING

MACHINING

FINISHING

MPS

CONTRACT MANUFACTURING RATE

CONTRACT MANUFACTURING RATE FOR

INSTRUMENTS

HIGH

HIGH

LOW

LOW

HIGH

ALMOST

100%

MEDIUM

FORGING

CASTING

MACHINING

FINISHING

COATING

SINTERING

MPS

CONTRACT MANUFACTURING RATE

CONTRACT MANUFACTURING RATE FOR

IMPLANTS




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Contract Manufacturing market:

2,8 Billion US$ in 2010

715 805 905 1 005880 933

295325

360400

350371

950

1 065

1 200

1 345

1 4001 484

0

500

1000

1500

2000

2500

3000

2005 2006 2007 2008 2009 2010

M$

Contract Manufacturing market 2005-2010

Instruments Cases & trays Implants




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MOUVMENTS AND SIGNALS FOR CONTRACT

MANUFACTURING MARKET: OEM side

September 2010 -> STRYKER sold his Herouville facilities to LISI Group

February 2008 -> DEPUY sold Chaumont facility in France to

Greatbatch

February 2008 -> Medtronic sold his manufacturing operation in

Memphis to Sandvik

“We are selling off the specialty instrument operation because we

feel someone else can do it better…“

December 2007 -> DEPUY: New Bedford facility sold to Symmetry

December 2007 -> IN’TECH acquired Wright Medical Facility in Toulon,

France



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MOUVMENTS AND SIGNALS FOR CONTRACT

MANUFACTURING MARKET: OEM side

2010-> SMITH & NEPHEW New Beijing Facility 11.000 m2

o Smith & Nephew announced new plant in Beijing (11.000 m2) for instruments and parts of implants. Smith &

Nephew maintaining operation capacity in Memphis and Switzerland and the Beijing plant is dedicated to

provide added capacity to supply local market and orthopaedic instruments for export.

o Smith & Nephew Linhe in operation since 2008 for orthopaedic instruments (will be closed in 2011)

2009-> BIOMET: Jinhua Facility 9.600 m2, 400 employees,

Dedicated to instruments (hip, knee & Trauma)

2008-> DEPUY: Suzhou Facility in China (100 M $ investments)

o Depuy has started operations at its first Chinese facility in the Suzhou Industrial Park in Eastern China

(Instruments) 500 employees and 11.000 m2.

2008-> BIOMET: New Facility in China in Changzhou High-tech District The company

began production in Jinhua, China 4 years ago (Instruments)-> 200 employees, 7.400 m2, 18 M$

investments

o “I won’t tell you that all of our instrumentation (production) is going to China,” said Jeff Binder. “But a significant

percentage of it is being transferred to China for a significant cost savings.”

2010-> SANDVIK: New facility in India Poona

2010-> The Contract manufacturers following the OEM: PARAGON (in Changzhou)



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Estimated % of instruments made in BRIC

countries by certain major OEMs

20%

10%

5%

3%

0%Source: Avicenne data compilation, May 2011

Only few

%

in 2011

?


2010

2015

2020


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The Orthopaedic suppliers are relatively small,

compared to OEM


Source: AVICENNE estimations- May 2011

2 200

2 200

3 600

4 000

4 300

4 300

3 470

0 2 000 4 000 6 000 8 000 10 000 12 000 14 000

S&N

Biomet

Synthes

Zimmer

Stryker

Depuy

Medtronic

M US$

2010 Major OEM revenues : M US$

Orthopaedic products Other Medical devices

0 100 200 300 400

Intech

ATS

Marle

Lisi

Avalign

Accellent

Greatbatch

Paragon

Orchid

Sandvik

Symmetry

2010 Contract manufacturers revenues : M

US$

M US$

X 10

X 100


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Contract manufacturing market

Competitor trends

-9%

-4%

-20%

-7%

-11%

-13%

-30% -20% -10% 0%

2008-2009 orthopaedic revenues

decrease

Source: AVICENNE estimations, May 2011


5%

1%

4%

13%

7%

-1%

-10% 0% 10% 20%

2009-2010 orthopaedic revenues

increase

http://www.paragonmedical.com/main.html

http://www.orchid-orthopedics.com/index1.html

http://www.sandvik.com/

http://www.greatbatch.com/default.aspx?s=home


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Contract manufacturers expecting more

concentration and a critical size

CONCEPTION

FORGING

OR

CASTINGMACHINING FINISHING COATING MARKING PACKAGING STERILIZATION

MARKETING

SALES

SymmetrySandvik

Orchid

Paragon

Greatbatch

Accellent

Others

CONTRACT MANUFACTURING MARKET1 IN 20102.8 B US$

DEPUY

ZIMMER

STRYKER

MEDTRONICSYNTHES

BIOMET

S&N

OTHERS

ORTHOPAEDIC MARKET IN 2010: 32 B US$

(1) Note: Excluding Sintering




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THE ORTHOPAEDIC CONTRACT MANUFACTURING

COMPETITOR RESPONSE : CONCENTRATION

SYMMETRY

PARAGON

ACCELLENT

DONCASTERS

PRECIMED

ORCHIDTECOMET

MARLE

OTHERS

CONTRACT MANUFACTURING MARKET1 IN 2006

CONTRACT MANUFACTURINGMARKET1 IN 2015



Symmetry

SandvikOrchid

Paragon

Greatbatch

Accellent

Others

CONTRACT MANUFACTURINGMARKET1 IN 2010

(1) Note: Excluding Sintering

CONCEPTION

FORGING

OR

CASTINGMACHINING FINISHING COATING MARKING PACKAGING STERILIZATION

MARKETING

SALES


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THE ORTHOPAEDIC CONTRACT MANUFACTURING COMPETITOR

RESPONSE: CONCENTRATION BY ACQUISITION

SANDVIKGREATBATCH

1977- Unique Instruments

1992- Stealth Technologies

2001HY-VAC

2003Stro Met Inc

2004- Unique Design

2005-Bio-Vac

2005-Bio-Coat

2006-McDee

2007-Anzon

2007-Keller

2007-MPS

2008-Azary

1977 – Wilson Greatbatch

1998 – HittmanMaterials

1998 – Medical Components

2001–Sierra-KD

2002–Globe Tool

2002–Manufacturing

2004–NanoGram

2007Biomec Inc

2007Enpath Medical

2007Intellisensing

2007Ouan Emerteq

2007EAC

2008PRECIMED

2008- DepuyFacilities


ORCHID

2006 Everest Metal

2007Clamonta

2008DePuy OEM

Bedford Facility

SYMMETRY

2007TNCO

2003 Symmety

2003 MettisOrtho

2006 Riley Medical

2007SSI/UCA

Fusion

SANDVIK

2007Doncasters

2007 JKB Medical Tech

2008Medtronic Memphis Facilities

2008 Eurocut

LISI MEDICAL

2007Seignol

2007Hugueny

2007Jeropa USA

2010Stryker

HerouvilleFacilities

2008INTERMED


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The heavy trends

2- Concentration in the Contract Manufacturing

market:• Symmetry: 7 acquisitions from 2004 to 2009

• Orchid: 10 acquisitions from 2005 to 2009

• Sandvik: 4 acquisitions in 2 years

• LISI: 5 acquisitions from 2007- ...

1- Concentration in the orthopaedic market:• Depuy acquired Synthes (2011)

• Depuy acquired Finsbury (2010)

• Zimmer acquired Abbott (2008)

• Medtronic acquired Kyphon (2008)

• Kyphon acquired St Francis (2007)

• Kyphon acquired Disc O Tech (2007)

• Zimmer acquired Orthosoft (2007)

• S&N acquired Plus Orthopedics (2006)

• …

3- Orthopaedic companies sold their facilities:• Stryker -> LISI Group

• Medtronic -> Sandvik

• Depuy (UK ) -> Symmetry

• Depuy (Fr) -> Greatbatch

• Wright Medical -> In’Tech

• ...

4- Private Equity interest for orthopaedic OEM and

CM:• GS-KKR-Blackstone: Biomet

• Weinberg Capital Partner: Amplitude

• Olympus Partner & others: SYMMETRY

• Churchill Equity & others: Orchid

• Charles Bank Capital Partners: Tecomet

• Seidler Equity Partners: Paragon

• KKR & Bain Capital: Accellent

• Carlyle Group: Marle SA• ...



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Take Home Messages (1)

The crisis impacted the orthopaedic market in 2009: the growth

decreased for few % for each product

The crisis impacted more the Contract Manufacturers

competitors. The leader revenues decreased drastically

In 2010, the orthopaedic market returned to the usual growth

rate

In 2010 revenues take off. Already, the competitors revenues

are showing a significant growth Vs 2009



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Concentration in the orthopaedic market continuing

Concentration in the Contract Manufacturing market continuing

The OEM sold their facilities to the contract manufacturers, we

are expecting this trend for the future

China is becoming the new investment place for manufacturing

instruments in short and mid term: Depuy, Smith & Nephew and

Biomet opened this way. India will be the next step?



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OEMs need structured suppliers ready to:

o Deliver within shorter time frames and enable flexibility

o Be efficient in terms of less waste and thus reducing manufacturing costs

o Share with them more responsibility and risk concerning regulatory constraints

OEMs believe today:

o They have to refocus production investments in the higher pay back solutions (OEMs core business: conception and marketing)



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OEM are looking for Contract Manufacturers who recognizing mutual

interdependancy and targeting common goals


RELIABILITY

ROBUST SUPPLYCHAIN

SHARING RISKS

LONG TERMPLANNING

SERVICES

COMMONIMPROVEMENTS

• VALUE ADDED PARTNERSHIP

• STRATEGIC PARTNERSHIP

• LONG-TERM PARTNERSHIP


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Are you ready?


AVICENNE Developpement

Litwin Bldg.

10; Rue Jean Jaurès

92 807 PUTEAUX

FRANCE

Tel.: +33 1 47 78 46 00

Fax: +33 1 47 78 46 01

Web: www.avicenne.com

Contact: A. Madani

E-mail: [email protected]


http://www.avicenne.com/

Documents

Orthopaedic Market and Contract Manufacturing trends Market Implants 2011 A. Madani… · KNEE HIP SPINE European Market 2010 in M€ 1.250M€ 24% of WW market 1.030M€ 23% of WW