Accelerating Growth through Principled Market Opportunity Accelerating Growth through Principled Market Opportunity

Evaluation and Entry Strategy DevelopmentEvaluation and Entry Strategy Development

GROWTH PROCESS OVERVIEWGROWTH PROCESS OVERVIEW

20132013

Vertical Market Vertical Market Expansion Expansion

Vertical Market Spotlight – Healthcare Technology

Why Vertical Market Expansion?

One path an organization

might take to growing the

top line is to take an existing

product or service into a

After cutting expenses to

the bone in the recent

recession, most companies

now recognize that they

CEOs are therefore

refocusing on growing the

top line.

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product or service into a

new market.

now recognize that they

can’t cut their way to

growth.

Three Critical & Gated Questions for Evaluating Vertical Markets:

1 – Is Vertical Market Expansion appropriate for your company and is the timing right?

2 – If the answer yes, which vertical markets are most appropriate/feasible to pursue?

3 – Finally, what is the optimal go-to-market strategy?

Vertical Market Expansion Risks

For every successful market entry, four fail.

95% of all vertical entries in the aerospace & defense industry

fail to take hold.

Winners and losers all look like winners at the outset – so why

do so many companies head down ill-advised paths?

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do so many companies head down ill-advised paths?

•Assuming vertical market expansion will deliver expected growth

•Entering multiple vertical markets simultaneously

•Moving into markets not adjacent to your core

Where Companies Go WrongNumerous pitfalls can derail even the most well-intentioned executive

Vertical Market Expansion Best Practices

Key Principles:

Pursue only one or two verticals at a time

Vet all opportunities for strategic fit before committing to market entry

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Understand that the better the assessment of market size, competitors,

market share, revenue, costs, and other factors, the better their odds of

making good vertical market entry decisions

Vet all opportunities for strategic fit before committing to market entry

The Opportunity in Vertical Market The Opportunity in Vertical Market Expansion into Medical Expansion into Medical

TechnologyTechnologyTechnologyTechnology

Who Will take the Lead in Advancing Healthcare Technology this Century?

• Information technology?• Robotic surgery?• Virtual reality?• Cryogenics?• Genetic engineering?• Artificial intelligence?

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The Challenges and Opportunities in Healthcare are Too Great for Any One Company or Industry to Address

� Healthcare increasingly data driven and

customized

� Healthcare more like other service

industries

� Globalized care delivery

� New care models focused on

collaboration, information

exchange/awareness, achieving health

� Increased leveraging of tech and non-

physicians

� More “generics” – technologies providing

same value at lower price, stripped down

feature sets

� Increased use of analytics to define care

pathways

exchange/awareness, achieving health

outcomes, especially with chronic

disease care

� Increased development of standards of

care and incentives to adopt them

� Personalization of treatment,

interaction, coverage

� Increased patient engagement to

manage disease via remote monitoring

and mobile apps

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Unique Qualities of Healthcare Industry to Consider When Assessing a Potential Expansion

� Highly-regulated and data-driven = longer, more expensive development timelines

� Life-and-death decisions = high liability and risk

• Strong U.S. manufacturing base, net positive trade surplus

• Strong demand, but strong downward pricing pressure as well high liability and risk

� Privacy considerations

� Complex distribution and purchasing processes

� Biocompatibility considerations

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as well

• Lower product volumes but higher margins

• A service industry first, technology second

• Highly diverse customer and user population

• Achieving major advances in

healthcare will require innovation

and resources from outside the

established industry players

• Frost & Sullivan’s CEO’s 360

Degree Visionary Perspective™

provides a framework to

understand how companies can

identify and evaluate

Using a 360 Degree Perspective to Evaluating Vertical Market Expansion Opportunities in Medical Technology

identify and evaluate

opportunities to grow in the

medical technology field

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Competitive Analysis

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Healthcare Attracting New Competitors into the Market but Business Models Will be Challenged

New Entrants into Healthcare

� Materials, component and OEM manufacturers

� Finished goods manufacturers in non-healthcare sectors

� Service providers

What Value they Can Bring

• Develop or improve products

• Lower production costs and improve

operational efficiency

• Improve outcomes

• Synergies and co-promotion

opportunities� Service providers

� Information technology companies

� Contract manufacturers

� Consumer goods companies

� Distributors and retailers

� Government contractors

� Others

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opportunities

• Access to new distribution channels

• Access to new customers

• Value chain efficiencies

• Facilitating greater collaboration and

integration of care

• Support in global expansion

• Financing in a market where venture

capital has grown tighter

New Companies Entering Healthcare Will Force Existing Competitors to Respond

• Anticipate disruption in current

markets and creation of new

value pools, i.e. population

health management (PHM)

• Redefining “healthcare”

• New business models –

converting to a service/data

strategy

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strategy

• Expanding into new customer

segments and getting a greater

share of wallet

• New distribution strategies

• Joint ventures, partnerships and

investments will matter more,

but will they work?

• Lots of trial and error on

business models, but big

rewards for first movers

Realities of the New Market

Fail Fast

Product and tactical sales strategies are being evaluated for

quick return, resource limitations constrain a company’s ability

to support lagging business models.

U.S. from Exporter to

Importer of Med Tech

Currently one of few the markets where the U.S. has a

significant trade surplus with the rest of world, shifts seen in

other industries could play out as low cost manufactured

products supplant products currently made in the United States. Tech products supplant products currently made in the United States.

Deemphasize the Clinician

Deemphasize Products

Purchase decisions are moving away from clinicians to hospital-

based administrators for bulk low grade technologies and high

end capital equipment, and more individual emphasis for

implants and other patient-centric products.

As products increasingly become commoditized and the tax

burden is placed on medical product sales, companies are

increasingly looking to build revenue mix from service, software,

enhanced support, and other offerings.

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Economic Analysis

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Managing Costs of Chronic Disease Will Demand More Emphasis on Prevention and Wellness

Prevention/Wellness

Disease/Care Management

Siz

e o

f Im

pacte

d P

op

ula

tio

n Goal:

Keep People Healthy Longer

Goal:

Keep People Healthy Longer Goal:

Manage or Mitigate

Goal:

Manage or Mitigate

� Early identification and prevention

� Access to new forms of care delivery to improve patient

knowledge, self-help and health

� Connection to benefits design to increase coverage for

those services which prevent disease and improve health

over long term

� Reducing administrative and clinical waste

Management

Healthy/“Worried Well”

“At Risk” Undiagnosed Chronically IllManaged

Chronically IllUnmanaged

Endof Life

Continuum of Care

Siz

e o

f Im

pacte

d P

op

ula

tio

n

Manage or Mitigate Risk

Manage or Mitigate Risk Goal:

Diagnose and Reduce Treatment Delay

Goal:

Diagnose and Reduce Treatment Delay

Goal:

Manage

Goal:

Manage

Goal:

Move to More Interaction and Self-Mgmt

Goal:

Move to More Interaction and Self-Mgmt

Goal:

Informed Decisions

Goal:

Informed Decisions

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ROI and Clinical Outcomes Will be Critical to Technology Adoption

“As bundled payments become more

prevalent, I believe that how providers

evaluate the ROI for medical technology

will change, with more pressure on

physician preference items and greater

interest in those that can improve

efficiency and outcomes. In addition, as

A recent Frost & Sullivan survey of

70 hospital executives found:

• All but one respondent believed that

in the next five years it will be more

important to the economic health

of hospitals to deliver improved

clinical and financial outcomes than

in the past efficiency and outcomes. In addition, as

hospitals become part of accountable care

organizations (ACOs) there will be greater

demand for telehealth and other types of

technologies that can help keep patients

out of the hospital and prevent

readmission.”

- Edward Prunchunas, senior vice president and

CFO for Cedars-Sinai Medical Center

• 49% believed it would be

significantly more important to

deliver outcomes better than what

they are presently offering

• 82% believed that in the next five

years, the U.S. healthcare system

would transition further away from

traditional fee-for-service billing to

more capitated, bundled payment

approaches

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Volume ���� Value

The shift toward payments based on quality + cost over procedure-based

reimbursement will change the way medical technologies are evaluated and

purchased

� Decision by committee

� Slower adoption of new

technologies – especially large

capital purchases?

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capital purchases?

� Revolution versus evolution?

� Integration of information,

analytics driven by a more

holistic view of the patient

� Cost of adoption, impact on

workflow

� New pricing models, sharing of

risk

Technology Analysis

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Integrated Industry Opportunities in Healthcare

• Battery and power transmission technology

• Sensing technology

• Materials sciences – particularly polymers and shape-memory alloys

• Microelectronics

• Lab-on-a-chip

• Video games and digital media

• Robotics and artificial intelligence

• The medical technology industry has been described as a field built up by

enabling technologies often developed in other fields and then applied to

healthcare challenges

• The greatest advances in medical technology in coming decades will be driven

by the following enabling technologies:

and shape-memory alloys

• Information technology and informatics

• Wireless and mobile communications technology

• Nanotechnology

• Technologies to enable drug-device integration

• Enabling technologies for minimally-invasive or non-invasive technologies

• Robotics and artificial intelligence

• Biologics and tissue engineering; regenerative medicine

• Microbe detection, identification and elimination; food safety

• RFID

• Display technologies and image processing

• Optical technologies (NIRS, OCT, etc.)

• Semiconductors

Companies with these core competencies have significant potential to expand

into healthcare applications

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Portability Will be a Major Design Feature Requiring Support from Across Many Players

Home as the Hub:

� The home and other local settings will grow significantly as a locale of

choice for care delivery. Delivery system will expand to include community

and family resources.

Integration:

In the future, more healthcare services will be provided outside of the hospital and located where the patient

is as opposed to where providers are. This will lead to a demand for new types of devices from monitors to

treatment tools to wearable sensors to enable that model of care delivery.

Integration:

� Medical services are

integrated with wellness

activities to provide overall

care delivery

Customization:

� At multiple levels (health plans, interaction with caregivers,

individual care pathways, communications, etc.)

� Driven by patients

Information Technology Holds the Greatest Opportunity for Vertical Market Expansion in Healthcare

Huge volumes of data

…data about data (metadata)

…created more quickly

…from more sources

…in more formats

…both structured and unstructured data

Data Explosion Drives the Need for Powerful Analytics Leveraged Across Disparate Data Sets

…both structured and unstructured data

…hard to combine using standard analytics tools

ANALYTICS

Pattern analysis

H o l i s t i c

Right brain approachRight brain approach

NEW TOOLS

Artificial intelligence

Natural language processing

Predictive analytics

USES OF BIG DATA

• Clinical decision support

• Proactive intervention

• CER and outcomes research

• Customer micro-segmentation

• Clinical trial design

NEW BUSINESS MODELS

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Customer Analysis

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Healthcare Consumerism Driving Convergence Between Medical and Consumer Technologies

� Shift in Demographics

– Population composition, attitudes, affluence, education, disease states

� Shift in Technology

– Smaller, wireless, Internet-enabled, information-gathering technologies creating new opportunities to extend the reach of care

� Shift in Care Settings

– Hospital based to non-hospital to home; inpatient to outpatient

� Shift in Caregivers

– Using technology to move care to lower skilled caregivers and the – Using technology to move care to lower skilled caregivers and the consumer; healthcare practitioners to patients, family or non-professionals; patients more informed on disease states and treatment options thanks to the Internet

� Shift in Care Practices

– More scientific, data driven, preventive, technology-intense form of medicine than in the past; physicians more collaborative with patients; greater fragmentation across healthcare system, and more defensive medicine

� Shift in Payment for Care

– More available technologies, but less willingness for insurers to pay leaves patients to pick up more costs associated with their own care, if they see value

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Consumer

Retailing & Finance� Customer service focus� Comparison shopping� Self-service, online shopping� Special offers

Manufacturing & Distribution� Faster time to market� One stop shop� Anytime anywhere

Leveraging Consumer Interactions from Other Industries to Influence Behavior Change

Consumers expect Consumers expect

Consumer experiences in other markets affecting expectations

from healthcare:

ConsumerExpectations

Entertainment & Media� Customized products� Home services

� Anytime anywhere care

24 / 7 / 365 support to resolve questions,

One stop resolution, or call back

Proactive outreach to address issues affecting consumer

24 / 7 / 365 support to resolve questions,

One stop resolution, or call back

Proactive outreach to address issues affecting consumer

Ability to control and customize use and service features

Consumer controls interaction

Ability to control and customize use and service features

Consumer controls interaction

Consumers expect real time info at pt of consumption

Info comes to consumer

Consumers expect high levels of interaction and Q&A in face to face encounters

Consumers expect real time info at pt of consumption

Info comes to consumer

Consumers expect high levels of interaction and Q&A in face to face encounters

Medical Technologies Have A lot to Learn from Other Industries in Terms of Design for Human Factors

VS.

Singapore Airlines –Boeing 747 Business

Class

MJM Extra Wide Geri-Chair

Good design for patient comfort and satisfaction makes a difference!

More designers entering healthcare, but a long way to go.

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Integrated Industry Analysis

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FAMILIES

COMMUNITIESINDUSTRY

Expanding spheresof influence and changing

Strongest center of influence and behavioral processes

Collaboration with payers and providers to drive technology innovation

Emphasis on

Widening Stakeholder Universe and More Cross-Interactions Among Parties

PROVIDERS

PAYERS

EMPLOYERS

Source: Frost & Sullivan analysis

changingattitudes

New era of collaboration and communication

Data and information for shared decision-making

Emphasis on wellness programs and financial based incentives

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The Opportunity in Convergence

� Healthcare consumerism leading to convergence of professional medical technology with consumer technology – taking technologies and responsibilities formerly the domain of healthcare professionals and putting them in the hands of patients themselves

� Examples: AEDs, Blood Glucose Monitors, � Examples: AEDs, Blood Glucose Monitors, Insulin Pumps, Home Diagnostics, Remote Patient Monitoring

� Whole Market Segments Worth Billions

� Opportunities for Products & Services

� Who is in the Market Now?

Philips HeartStart Home Defibrillator

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Major Areas of Opportunity for Convergence

� Combination Devices

� Networked Devices

� Consumer Devices

� Home/ Self-Diagnostics – for identified conditions and “wellness monitoring”

� Remote Patient Monitoring� Remote Patient Monitoring

� Test and Treatments for Chronic Conditions

� Products Focused on Wellness, Nutrition and Weight Loss

� Technologies and Services to Improve Adherence and Compliance

� Quality of Life and Pain Management

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Convergence Across the Medical Technology Spectrum

Exclusively

Professional

Exclusively

ConsumerPrimarily

Professional

Primarily

Consumer

Thermometers

Orthopedic softgoods

Insulin Pumps

Hearing aids

CPAP Machines

Driven by consumer needs,

requires a clinician

intermediary or Rx prior to

purchase

Driven by consumer needs,

does not require a clinician

intermediary or Rx prior to

purchase

Driven by clinician needs,

requires active involvement

by patient to achieve effect ,

requires RX or MD order

Driven by clinician needs, does not

require active involvement by

patient to achieve effect, requires

RX or MD order

NeurostimulatorsCT Scanner

Anesthesia Machine

Orthopedic Implant

Care SettingHealthcare Facility, High Acuity Home

Purchasing

Authority

Healthcare Facility Covers Most Costs with

Little Direct Reimbursement

Consumer Covers Most Costs

Personally

UserExclusively Used by Clinicians

Exclusively Used

by Patient

Technical

Complexity

Highly Complex, Significant Training

Required Prior to Use

Low Complexity, Little Training

Required Prior to Use

Safety RiskHigh Risk for Injury if Used Improperly

Low Risk for Injury if Used Improperly

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Global Analysis

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� Telemedicine driving creation of truly global provider networks, i.e. Global Virtual Hospital

� “Cultural exchange” – foods, fads, fashions, hobbies, ideas, etc. from OUS

� Reverse innovation of new technologies from developing countries

� Best practices on primary care, prevention and wellness from those countries with healthcare systems excelling in those areas - mHealth,

Globalization of Healthcare is Also Driving Opportunities for Vertical Market Expansion

countries with healthcare systems excelling in those areas - mHealth, kiosks, wireless technologies much more widespread and sophisticated OUS, etc.

� Medical tourism

� Globalized supply chain and manufacturing

� Regulatory harmonization across countries

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Best Practices

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Market Penetration

Delivering existing goods and services to the healthcare market, often indirectly through partners or

distributors. Limited innovation to meet specific needs of healthcare

customers. May include licensing and JV deals as well.

Product Development

Developing a technology or service targeting healthcare, but using all or

mostly existing resources and competencies. May sell indirectly into market or through existing channels.

DEGREE OF INNOVATIONLow High

PR

OX

IMIT

Y T

O

EX

IST

ING

MA

RK

ET

(S)

Existing Market(s)

Different Strategies for Entering the Healthcare MarketA Modified Ansoff Grid

JV deals as well.

Market Development

Investing in the creation of new markets, models and customers in

healthcare to increase usage of goods and services that are already core to

existing competencies.

Diversification

Not just a product strategy, but a broader, long-term commitment to

healthcare. Organic or M&A. Completely engaged in healthcare.

Developing a new distribution channel, management team,

regulatory, etc.

PR

OX

IMIT

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O

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IST

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MA

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(S)

Directly in Healthcare

Increasing Risk

Incre

asin

g R

isk

� Subsidiary created to develop a wireless

Case Studies on Expansion into Healthcare (1 of 2)

Market

• Display and video signal solutions provider. Entered medical 5 years ago, and while it still represents a minority share of its business, medical represents the most growth opportunity.

• Company sells through resellers and AV integrators . Acquired display company WIDE in 2013 expanding medical presence internationally.

Market Penetration

� Subsidiary created to develop a wireless health ecosystem where Qualcomm’s expertise in medical device connectivity and data management can be leveraged.

� Launched 2net Mobile connectivity solution for mHealth

� Qualcomm Life Fund invests in wireless health start-ups that will accelerate adoption of its 2net platform

� Committed to growing the use of mHealthon 3G/4G networks which will support royalty revenues for the company

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Market Development

� Display and projector company, Christie

Case Studies on Expansion into Healthcare (2 of 2)

Diversification

• Bluetooth headset designer Jawbone entered the fitness device market in mid-2011 with its Up wearable device. The entrant of such an established mobile device maker added legitimacy to the market.

• Jawbone acquisition of BodyMedia, Massive Health and Visere in 2013 to grow health and fitness presence

Product Development

� Display and projector company, Christie Digital, acquires the vein-mapping technology company Luminetx in 2010. Core company becomes Christie Medical division laying the foundation for further expansion into healthcare.

� Company leverages Christie’s expertise in optics, engineering and manufacturing with the innovation, sales channels and clinical expertise in the medical division.

� Christie has seen healthy growth and an expansion in the Vein Viewer product line since acquisition.

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Diversification

Secrets to Success in Market Expansion into Healthcare

Invest for the Long Term

Find the

Right

Partner(s)

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Long Term

Know your Business Model

Define your Value Proposition