OBJECTIVE 3: To focus on some of the challenges that the industry faces as a whole.

Is talent a challenge for GE?

Talent is always a common challenge. If we just say, talent is a challenge, does that mean that we cannot
grow? The minute you make talent a problem, you are done. Because then what does it mean to the
operation? You have to solve it. You have to have a system and you have to have a balanced acquisition
team that is just fully focused on that. You have to be able to attract people that want to work with you
and at the end of the day you have to be a winning business. If you cannot be a winning business, the
talent will move away.

That is true particularly in the healthcare sector today, which is growing so rapidly, not just with a
company like GE. Even with hospitals. I think publications say that Indonesia is short of 1,000
hospitals. Therefore, you are going to start building 1,000 hospitals. It is easy to build, but you have to
make sure you know how to run them, and you have the right people.

What are the main challenges in emerging markets?

The challenge with ASEAN is how fast you can build back the basics. The challenge is not whether
there are opportunities.

In a developed country like the US, or Japan, I think the challenge is finding growth. They spend a lot
of time thinking about boxes being adjacencies of growth as one box, and space for growth as another
box. However, with a region like ASEAN, there are adjacencies or new space for growth everywhere.
Growth and opportunity is knocking on your door every day.

Our challenge is how we can convert the opportunity and make it a reality. Otherwise, the opportunity
continues to be a promise that you will not be able to deliver, because you just do not have any means
to support it in a sustainable manner. Some good deals could be closed, but the minute the deals grow,
there are no operations to support them.

As a company, the challenge is how fast you can restore your basic operations that can support
sustainable growth. That is the issue in emerging markets.

Another invention that is catering to the challenges of access, affordability, and quality is Wipro GE
Healthcares Lullaby Warmers. We had traditionally been importing and selling baby incubators in
India but we realised that our competition in the rural areas wasnt actually the other baby warmers on
the market, but a 200-watt lightbulb. So we had to think about how we could create a product that was
more affordable than what we were already selling. We came up with the Lullaby Warmer Prime, which
is 80-90 per cent cheaper than the high-end incubator that we were importing, and can care for babies
that are jaundiced or born in the winter with inadequate access to heating.

JC: I want to come back to your focus of the business in terms of healthcare and connectivity, because
it's super interesting and very relevant for the debate that we're having here, and also the transition of
your business. But I want to ask you specifically about China, because I think this is one of the real
issues for people at this moment, and what the macro, the growth outlook is there. I mean, there are
specific issues for you here. You've got competition in the local markets, you've got healthcare reforms,
but you were warning us about concerns about future orders in the last quarter. What are you seeing,
and can you give us any sort of difference in terms of the idiosyncratic risk that you see there, versus
the concerns that everyone else seems to have about growth?

FH: Well, the many years of great growth are stalling now, but it doesn't change the picture that China
is a huge market with a huge population and still many unmet needs. So I get inspired by the fact that
1.2 billion people have healthcare needs, and even though investments today have slowed down, that's
a temporary matter, so we stay very focused on China, we will collaborate with the government and
with customers in order to develop the market. I think near term we need to be very cautious and
probably tighten the belt and be accepting that growth is at a lower pace. Instabilities will cause
disruptions and make people, even, scared about doing business in China, but it's a huge market and
we've got to be there.

JC: And you believe in reform? You believe in their views, as far as further reform is concerned?
Because I think that's another question for investors here, is, as you see the issues in the stock market
and with the currency, they worry that actually the progress on reform, or the intention as far as reform,
isn't there. Do you believe it is?

FH: Well, I think those worries are justified, but as you heard, I take a longer term view. I think there
will be issues along the way, bumps on the road, if you like, and we will have to collaborate with China
to overcome those hurdles.

What advantages are there for using a public-private partnership (PPP) and managed equipment service
(MES) versus straight investment by governments?
PPP and MES projects usually require a team of private companies who agree to supply outcome-based
solutions to the implementing agency. This takes the burden off the government to monitor/measure
how the service is being provided, and pays only if the service meets certain criteria (such as guaranteed
performance of the medical technologies). The risks are thereby transferred to the private sector
throughout the life cycle of the project and will positively contribute to the overall value of the
investment. It also enables access to newer technology innovations.
Are there any downsides to this type of finance? Is it much more expensive than a government using its
balance sheet to finance equipment?
Complex PPP/MES projects can require significant preparation time and requires assembling the right
combination of expertise. Some may consider longer lead times and higher upfront costs like feasibility
studies and/or hiring external advisors as a downside to this type of finance.
However, for many governments borrowing, it is likely to be less expensive than a private consortium
providing the funding either on their books or through project financing. Total project life costs savings
and transfer of risks is likely to provide better value for money to the government.

The medical-device industry is facing challenging headwinds. As governments and health insurers
worldwide implement measures to control costs, public hospitals are operating on tighter budgets, while
private facilities are receiving lower reimbursements. These measures are triggering a transformation
of the purchasing process that will change the way that medical products are bought and valued.
In the developed world, decisions that used to be the sole preserve of doctors are now also made by
regulators, hospital administrators, and other non-clinicians. This broader set of influencers comes with
different objectives (for example, the prioritization of cost effectiveness or even just costs). The result
of this phenomenon is a shift from individual outcomes to a focus on population-level effectiveness,
such as the overall improvement seen within a population for a given level of spending. Meanwhile,
emerging markets, once seen as a safe haven for premium products thanks to their growing middle
classes and rising investments in healthcare, are leapfrogging developed economies and introducing
cutting-edge purchasing processes and pricing mechanisms.
At the same time, the medical-products industry has become more competitive. Established blockbuster
categories such as wound care, coronary stents, and orthopaedic devices are becoming more crowded
as they mature. As high-impact scientific innovation in these categories has become harder to identify,
smaller companies, such as Draco in Germany, are gaining market share by offering very low prices
and innovative business models. The greater price transparency enabled by the growing use of tenders
in Europe and the United States is giving an advantage to low-cost players like these.
All these trends are combining to create demand for products that are good enough and competitively
priced. Our estimates indicate that this new segment is growing twice as fast as the industry as a whole
in some categories. Aware of the emerging opportunity, global medical-product manufacturers have
been looking to capture it and protect themselves from disrupters that could eventually move
upstreamfor instance, Mindray in China. However, few have yet managed to build a sustainable
business around the new segment while protecting their premium offering. Indeed, in some markets,
manufacturers have offered heavy discounts without sufficiently differentiating their premium
offerings, leading to double-digit-percentage annual declines in pricing in some categories such as
stents.
Before companies can develop a comprehensive strategy to serve value-oriented customers, they need
to address tough questions about tiered portfolios, differentiated offerings, go-to-market models, ways
of working with customers, business development, M&A, cost of goods sold, and implications for the
supply chain.

Products and priorities for the new segment

The past few years have seen a rise in value customersthose who gravitate to products that are good
enough and competitively priced. Unlike customers who seek premium products, value customers are
willing to sacrifice a degree of innovation, quality, and service in return for a lower price. While value
customers are concerned about price, they also have standards for product quality, efficacy, safety, and
service. However, they are generally reluctant to pay for additional features or services once their basic
expectations of a product have been satisfied. As cost pressures continue to increase in the medical-
product sector, we expect the value customer to have a similar effectbut only in certain categories.
Highly innovative products that have just entered the market will fall into the premium-differentiated
category and still command high prices. But once competitors emerge and offer similar products at
much lower prices, customers will begin viewing the products as commodities.

Deciding on a business model

Armed with insights into market dynamics and promising product categories, premium players may
feel they are sufficiently prepared to capture the value segment. All too often, though, they lack a strong
strategy for doing so. One common mistake is to offer significant discounts on premium products to
respond to market pressures, without doing enough to reduce costs structurally. Although this strategy
may secure volumes in the short term, it has a devastating effect on the longer-term viability of the
product categorystents being a case in point.

Assessing risks
Minimizing cannibalization. New value products could win share from a companys premium offerings
and cut into its profits. Depending on the business model the company has adopted, there are various
measures it can take to counteract this risk.
http://www.usdm.com/practices/customer-relationship-management-crm/blog/challenges-facing-the-
medical-device-industry.html
Multiple factors have been pressuring the medical device industry revenues and are likely to remain as
concerns in the coming years.
Increased clinical and regulatory standards increase overhead
The increased complexity and volume of medical device marketing submissions has increased the time
taken by the FDA to process a 510 (k) from 90 days in 2005 to 140 days in 2010, an increase of over
55 percent. FDA is requesting more clinical data to support claims.
Increasing R&D expenses
Increased complexity and sophistication of devices and assays are increasing R&D expenditures.
Reductions in reimbursements
Efforts to capitates reimbursements for medical assays by insurance companies and HHS is reducing
providers ability to fund capital for new devices.
Increased complexity of medical equipment/devices
Increased complexity of devices results in more difficult diagnosis and repair processes and increases
the cost of field service. It is raising the cost of training of field service technicians and raising the bar
for salaries to hire more qualified field service engineers.
More demanding and diverse customer base
Customers have more choices and are more demanding of equipment and manufacturers, requiring
higher MTBF and more aggressive SLAs. Customers are trying to get more out of their reduced capital
and expense budgets and asking for greater incentives.
Increased competition
Increased competition from start-ups and spin-offs reduces the profit margin for manufacturers.
Industry consolidations and other changes are eroding customer loyalty since differentiators are not as
clear cut and choice has increased.
Migration of some testing to home based tests (vs. labs)
Migration of some diagnostic testing to home based kits threatens to reduce the volume of laboratory
testing and the spending on capital programs for new laboratory equipment.
The overall result is flat or reduced industry revenue growth of up to 12% by some measures.
https://www.intersystems.com/assets/The-Key-Challenges-Facing-Medical-device-
Manufacturers_WhitePaper.pdf
Executive Overview
Accountable care and value-based reimbursement models are causing a seismic shift in the medical
device industry. In the new medical device market, the value of the device and data alone will not drive
sales. Instead, it will be solutions that bundle device, data, and real-time analytics that clinicians, health
systems, and payers will want to buy. For improved decision-making and outcomes, they need these
solutions to deliver actionable information into existing electronic medical record systems and health
information exchanges. And they need them to provide the efficacy and results data required in value-
based reimbursement models. in this environment, nearly every manufacturer of medical devices faces
two key, interrelated challenges: n how to adapt to the shift to value-based payment models n how to
protect margins with products that elude commoditization you can meet these challenges by using a
strategic interoperability platform to create solutions with leading-edge integration, data aggregation,
and analytics capabilities.
http://news.ewmfg.com/blog/3-challenges-for-medical-device-manufacturing-in-2017

Weve narrowed down this years list to three critical items and dont be too shocked, theyre
remarkably similar to the list we published for 2016.
 Security of connected medical devices, including wearables
Regulatory compliance
Cost of product development

SECURITY OF CONNECTED DEVICES: BRING ON THE BLACK HATS

If a fitness tracker cant get the wearers number of steps to the monitoring system, its annoying
but not life-threatening. But lets say you have a child with Type 1 diabetes wearing a glucose
monitor or insulin pump and that data either cant reach the monitoring system or, even worse,
hackers break into system overriding the real data with false information. Thats not a movie
plot.

PC World recently reported that researchers in Belgium and Great Britain were able to disrupt
the signal between a heart pacemaker-defibrillator and the programmer. And in October,
Johnson & Johnson (J&J) revealed to its customers that the Animas OneTouch Ping insulin
pump had a security hole that could have allowed hackers to force a pump to deliver
unnecessary insulin to the wearer. In a letter to 114,000 patients, J&J offered advice to insulin
pump users about how they could enact safeguards against the security gap.

Incidences like the J&J episode serve as a warning that system security is as much a mission
critical function as any new product development. The healthcare segment is one of the fastest
growing markets for wearables. A company looking to move into that space is well advised to
heed the advice of the U.S. Food and Drug Administration, the agency which regulates the
industry. Medical device manufacturers and health care facilities should take steps to ensure
appropriate safeguards, says the FDA website. Manufacturers are responsible for remaining
vigilant about identifying risks and hazards associated with their medical devices, including
risks related to cybersecurity. They are responsible for putting appropriate mitigations in place
to address patient safety risks and ensure proper device performance.

REGULATORY COMPLIANCE: WHO'S IN CHARGE HERE?

In answer to the question above, the FDA. They run a great comprehensive site which is a must-
bookmark for anyone engaged in MDM. While its easy to get sidetracked into rabbit holes on
the website, there is a page devoted solely to medical device regulations and guidance. Its a
safe bet that the average person on the street isnt aware that the term medical device is used
to describe everything from thermometers to Magnetic Resonance Imaging (MRI) machines.
That means the FDA has guidelines for all those products. They are classified (Class I, II or III)
based on associated risks.

Of course, if your product is going to be sold in Europe youll need to apply for a CE Mark, the
letters which appear on many products traded on the extended Single Market in the European
Economic Area (EEA) signifying that the product has met the EUs standards for safety, health
and environmental protection.

We recommend reading this interesting article outlining the role labeling plays in helping
MDM comply with regulations. Essentially it boils down to traceability, a crucial function in
the med device supply chain.

COST OF PRODUCT DEVELOPMENT:

 Already one of the most expensive industries for new product development, the price tag for
innovation will continue to rise with the dual pressures of the previously mentioned challenges
technology and regulation. There could be modest relief in the form of the ongoing
moratorium on the 2.3 percent excise tax on the sale of medical devices one of the industrys
biggest complaints about the Affordable Care Act (ACA). The moratorium was put in place in
late 2015 and was expected to expire in 2018. With a new administration already chomping at
the bit to repeal and possibly replace the ACA, its possible that the excise tax is gone for good.

But regulations arent the only financial pain points for MDM. The way hospitals go about
medical device purchases has changed dramatically. According to a March 2016 article in
MDDI, 100 percent of hospitals used value analysis committees to evaluate new products
under consideration. The research showed that a products price was the most important part of
the committees assessment of value, over factors such as patient experience. In a classic
Catch-22 scenario, the same article points out that MDM must spend more money on studies
and marketing materials to share with value analysis committees in order to make the case for
purchase.

Obviously our list is by no means comprehensive, or even that nuanced. Hopefully it offers an
idea of what's coming down the pike with regard to the challenges facing the MDM industry.
This is the part of the post where I end with a pithy quote and, as I'm one who wants to live up
to expectation, here's a good one from General George S. Patton:

Accept the challenges so that you can feel the exhilaration of victory.

1. Cybersecurity Issues
It feels like all we talk about these days is the threat of cybersecurity attacks. That's because this is a
real issue and it needs to be adressed. The FDA actually held a public meeting January 20-21, to
discuss this very topic.

While networked devices are poised to revolutionize the healthcare industry, they also pose the threat
of subjecting patients and healthcare providers to security breaches and malware infections. One
primary concern is whether connected devices can maintain HIPPA compliance in the instance of a
security breach.

Consumers may be leery about jumping on the networked medical device train, and they actually have
good reason to feel this way as their personal information, medical history and other sensitive data could
be exposed. This pales in comparison to the the viable risk of physical harm or death if a malicious
hacker takes control of a device like a glucometer, pace maker or ventilator. The risks certainly take on
more weight when human life is a factor.

In this 2013 Deloitte report, healthcare information security professionals discussed their concerns on
this topic. They identified the following eight areas security leaders should concentrate on:

1 | Read the FDAs guidance and and related FDA Safety Communication
2 | Understand the organizations risk
3 | Adopt a formalized risk management framework and implement administrative and functional
policies
4 | Enhance vulnerability management
5 | Increase security education and awareness among stakeholders
6 | Leverage the National Health Information Sharing and Analysis Center (NH-ISAC)
7 | Protect vulnerable legacy devices via network segregation
8 | Learn from other industries experience

2. Regulatory Compliance
The US Food and Drug Administration (FDA) regulates all medical equipment before and after they
reach the marketplace. The after bit of this regulation is major, as continued monitoring of product
performance and safety directly affects the wellbeing of subjected patients.

According to the FDA website, regulated devices can range from high-tech, wirelessly connected,
artificial organs to something as simple as a tongue depressor. They are classified (Class I, II or III)
based on associated risks, from low-risk (dental floss), to medium-risk (condoms), to high-risk
(replacement heart valves), respectively.

Over the years, the FDA has increased its regulatory standards and required more in-depth clinical data
to support companies' claims. This has led to higher R+D costs for many companies looking to market
their products in the US. A higher volume of 510(k) submissions has also resulted in longer approval
wait times. According to the American Action Forum, the approval process went from 90 days in 2005
to 140 days in 2010 a 55 percent increase. In fact, the wait time as of 2015 now averages about six
months.

Interesting fact: According to Emergo Group, third party review companies approve devices in an
average of 68 days, but Class III devices don't qualify for this option.

Beyond the US, companies should familiarize themselves with foreign regulations. Particularly tough
markets include China and Japan, where domestically manufactured products are favored (which could
shut American-made products out of Asian markets entirely). The European Parliament, Council of
Ministers and European Commission are currently finalizing new medical device regulations.
Negotiations are expected to wrap up in June 2016.

3. Securing Funding
A common challenge among medical equipment companies is securing funding. Why is this so
common? The answer is simple. Venture capitalists are wary of investing. They view the industry as
risky, expensive and lacking an easy exit strategy if things don't pan out as expected. The long FDA
approval process and strict regulations are a turnoff for investors who see better profit potential in other
markets. According to a January 2015 Anchan report, venture capital firms allocated only 7 percent of
funding to healthcare in 2013, down from 13 percent in 2009.

To make matters worse, back in 2013, the US imposed a 2.3 percent excise tax on US medical device
sales. According to the Department of Commerce, 80 percent of med device companies have fewer than
50 employees, while 98 percent have fewer than 500 employees. This means a 2.3 percent tax can have
a devastating effect. According to a January 2015 AdvaMed report, as many as 195,000 US jobs were
lost as a result of the excise tax.

As the marketplace becomes more saturated and competition grows, increased device complexity means
higher R+D and marketing costs. To remain competitive, device manufacturers often end up with
reduced profits. Expect to see more emphasis on lowering manufacturing costs to make up for this loss.

The article suggests that four major trends to look out for are:
 Increased regulation
Healthcare provider consolidation
An aging population
Emerging markets
Reducing the cost of compliance
Bringing new devices to market quicker
Improving customer supply and satisfaction
Reducing overall cost of goods

Changes in a Global Environment

In recent years, changes to the global regulatory environment have burdened medical device companies
with greater accountability to authorities and higher costs, with little or no commercial gain to be had.
The FDAs introduction of the Unique Device Identification (UDI) system aims to improve patient
safety and track affected devices in the event of a recall, but it is costly and complex to implement.
Similar legislation is expected to be introduced in Europe and other countries around the world, adding
to the complexity of running a global operation. In addition, while the much-debated Medical Device
Excise Tax has been suspended until 2018, it still looms on the horizon.

Beyond the regulatory challenges that exist, market dynamics are changing. Emerging economies have
seen huge growth but that growth comes with risks for foreign companies looking to capitalize.
Regulatory environments often favour local device companies and foreign entities have found
partnering with local firms for sales and distribution to be a potentially risky move. The threat is very
real that companies will copy their devices, capture their treasured intellectual property and become
direct competitors.

https://www.pannam.com/blog/biggest-challenge-medtech-companies-make-when-scaling/

Joseph V. Gulfo, MD, MBA is the CEO of Breakthrough Medical Innovations, a team of industry
experts specializing in Biopharma/Medtech product and commercial development, sales and marketing,
regulatory (FDA and CE), quality, and policy advocacy. For many businesses in the medical device
industry, the problem lies in Establishing CRM and ERP, debugging them, having employees well-
trained, and using them as a matter of rote BEFORE the growth phase commences. Putting these
systems in place in the pilot or early phases takes DISCIPLINE on the part of the entire organization,
as well as unwavering leadership and foresight.
During the early stages, implementing these systems is extremely difficult for small companies that
have developed a breakthrough innovative product for six primary reasons:
1. PEOPLE small product-focused companies often do not have employees who are schooled in these
systems, rather, as the product emerges from development phases to early commercial success, the
engineers and medical people are re-tooled to help bring the product to market, however, they are not
disciplined in CRM and ERP;
2. By hand is easier for the organization and BETTER for the customer in the current phase. CRM
and ERP, of course, are better for the later phases;
3. Organizational Inertia since the new way has not been proven in the organization, there is a strong
tendency to continue to do that which made the company successful to date;
4. Fear of the unknown
5. Disruption of the culture CRM and ERP are cold and insensitive, as well as unforgiving.
If the company was entrepreneurial, this change WILL cause culture shock. Advanced warning,
communication, and strong leadership is required to help an organization transition from its old ways
to the new scalable and trackable business methods that will propel it forward.

Ursula Hessenflow is the Co-founder and CEO of myLAB, the first service empowering users to take
control of their health by testing for STDs at home. Every company in the medical device/med tech
space is going to have to face regulatory challenges from FDA, HIPAA, CLIA and in some cases
individual state regulatory authorities. The best advice that we have been given is to.

Jason Wang
Jason Wang is the CEO of TrueVault, a secure, HIPAA compliant API that allows providers to create
this accessibility without large scale IT investment on their part.
The biggest challenge to scale for companies in this industry is The ability to integrate with
existing players to create real value for the end users of their products. An innovative patient care
solution cant easily access patient records in a secure and compliant manner.

Aekta Patel
Aekta Patel serves as General Counsel and Chief Regulatory Officer at AccelSPINE, and her role
includes overseeing FDA submissions for new devices.
Several challenges face the medical device/technology industries today, beyond the ordinary
product development and sales/marketing that other markets contend with. As medical device
manufacturers, the main difficulty we face as we try to grow our business is Compliance and
regulatory governance, which can be tedious, complex and costly.

Dr. Igor Reizenson

Dr. Igor Reizenson is the founder and CEO of ClearSmile LLC. He received his DDS from the State
University of New York at Buffalo School of Dental Medicine in 2001, and then advanced to the
prestigious General Practice Residency Program at Veterans Hospital of Western New York.

Peter Alexander
Peter Alexander, PhD has over 30 years of sales and marketing experience, the majority of which has
been in the medical device industry.
The #1 challenge companies in the medical device/med tech industry face when trying to
grow/scale their businesses is Overcoming the status quo when trying to generate new business.
Medical device companies typically focus on their competition when they are vying for new business.
However, the competition is typically a secondary challenge to getting the prospect to change what they
currently are doing or switch from the solution they have. The responsibility rests with the medical
device company to properly train their sales and marketing personnel to teach prospects something they
dont know, or something they should be aware of, in order to do their jobs more effectively. These
insights should be followed with messaging that demonstrates how the companys products can
uniquely address the situation. The medical device companies that can do this will be successful closing
new business.

Dr. Vincent LaRosa

Dr. Vincent LaRosa is the director of the Healthcare IT Practice for Eliassen Group, the 19th largest IT
staffing and consulting services company in the United States, according to the annual rankings as
comprised by Staffing Industry Analysts Magazine.
In my professional experience in the healthcare technology industry, I feel that the biggest
challenges to scaling lie in Research and development, and in keeping the products current.

https://intland.com/blog/medical/2016-trends-and-challenges-for-medical-technology-providers/

New & ongoing challenges for medical developers

Adapting to the above trends is by itself a crucial challenge for developers of medical devices. In
addition to these, however, the following concerns will mean a bit of headache for these companies:
Reliability, safety, security, quality control
Quite naturally, product quality is a primary concern among medical device developers. Avoiding
recalls (resulting in a loss of reputation as well as significant financial damage) is of primary
importance, and the use of adequate processes to ensure product safety, reliability and security is
stipulated by standards and regulations imposed by various governments and international regulatory
bodies. To make matters even more difficult, these regulations are constantly being updated:

Changing regulations & compliance

Changing legislation remains to be one of the main causes of concern for medical device developers.
Evolving regulations on the security, privacy, reliability and safety of medical devices can have a
significant impact on the internal processes, as well as the profitability of development companies.
Upcoming changes to Europes medical device regulatory process are expected to take effect in 2017,
leaving developers with the challenge of preparing for these adjustments well in advance.

Managing data, mobile devices, IoT-integration

While opening up new areas of innovation, the Internet of Things also brings technical challenges for
medical device developers. Collecting, securely managing, and simply making sense of the vast
amounts of data that sensors in IoT-enabled devices gather is going to be a difficult task. Due to the
sensitivity of the information, special care will have to be taken to securely transmit and store data in
the cloud, and to avoid breaches.