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Ali MADANI

Phone: + 33 1 47 78 46 00

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TUTORIAL – Contract Manufacturing Market

June 2015

Ali MADANIPhone: + 33 1 47 78 46 00

[email protected]

2

TUTORIAL Contract Manufacturing

June 2015

Table of contents

OEM Contract Manufacturing strategyContract Manufacturing value chain

OEM contract manufacturing strategy: Stryker, Depuy-Synthes, Zimmer, Biomet, Smith & Nephew and Challengers

Contract Manufacturing market sizing : By products & by customers

Forging, casting, hip machining & finishing, knee machining & finishing, spine & trauma machining & finishing, instruments, cases & trays, coating, ceramics, Marking, Packaging and Sterilization.

Orthopaedic contract manufacturing & home-made in 2014

Heavy trends: Market concentration, OEM facility disinvestments, moving to LLC ?

Contract Manufacturing market Forecasts

I

II

III


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3


June 2015

Contract manufacturing market value chain

Hospitals &

Clinics

Orthopaediccompanies

OEM

Revenues in 2014:

37.4 B US$

6 majorsFew 10 big challengersFew 100 little size competitors

Co

ntr

act

Man

ufa

ctu

rers

Implants

Instruments

Cases & Trays

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


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


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


http://www.lima.it/homepage.html


http://www.amplitude-ortho.com/index.php


http://www.intech-medical.com/


http://norwoodmedical.com/


http://www.tegramedical.com/index.html



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7


June 2015

OEM contract manufacturing strategy: Biomet

Source: Avicenne 2015

Contract Manufacturing Rate

0% 20% 40% 60% 80% 100%

Packaging

Coating

Sintering

Cases & Trays

Instruments

Implants Machining & Finishing

Implants Casting

Implants Forging

0% 20% 40% 60% 80% 100%

Locking plate

Trauma LF plate

Hip Cup

Tibial knee

Hip stem

0% 20% 40% 60% 80% 100%

Spine Lumbar

Spine cervical

Trauma plates & screws

Knee insert

Knee tibial

Knee femoral

Hip liner

Hip head

Hip cup

Hip stem

Casting: Home-made Fair-Lawn(USA)

Forging: Berlin (Germany)

Machining & other facilities: Warsaw(US), Berlin (Gr), Darmstadt (Gr), Bridgend &

Swindon (UK), Valence (Fr), Valencia (Spain), Zhejiang & Changzhou (China), Irvine

(US), Miami (US)


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8


June 2015

OEM contract manufacturing strategy:

Smith & Nephew


Contract Manufacturing Rate

0% 20% 40% 60% 80% 100%

Packaging

Coating

Sintering

Cases & Trays

Instruments

Implants Machining & Finishing

Implants Casting

Implants Forging

0% 20% 40% 60% 80% 100%

Locking plate

Trauma LF plate

Hip Cup

Femoral knee Oximium

Tibial knee

Hip stem

0% 20% 40% 60% 80% 100%

Trauma plates & screws

Knee insert

Knee tibial

Knee femoral

Hip liner

Hip head

Hip cup

Hip stem

Casting: No home-made casting

Forging: No home-made forging

Machining & other facilities: Memphis(US), Aarau (Sw), Beijing (China), Warwick (UK),

Tuttlingen (Gr), Mansfield (US), Oklahoma City (US), Calgary (Canada)


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9


June 2015

OEM contract manufacturing strategy:

Medtronic


Home-madeContract

manufacturing

17 700

0 5 000 10 000 15 000 20 000

Spine instruments

Spine & Traumamachining

Instruments

Coating

Nb of components in 2014

247 900

198 300

460 400

0 200 000 400 000

Screws & cages 2

Spine plates 1

Lumbar Univ.sys.

Nb of sets in 2014

43 700

35 000

81 200

0 40 000 80 000

Screws & cages 2

Spine plates 1

Lumbar Univ.sys.

3 100

0 1 000 2 000 3 000 4 000

Spine instruments

http://www.medtronic.fr/







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10


June 2015

OEM contract manufacturing needs: Challengers


Home-madeContract

manufacturing

23 000

204 500

64 000

107 500

654 000

0 400 000 800 000

Trauma LC plates

Trauma LF plates

Knee tibial

Hip cups

Hip stems

362 000

788 000

119 600

115 500

0 400 000 800 000

Knee tibial

Knee femoral

Hip cups

Hip stems

40 500

16 000

12 900

0 10 000 20 000 30 000 40 000 50 000

Knee tibial

Knee femoral

Hip stems

362 000

145 000

242 000

239 000

126 000

0 100 000 200 000 300 000 400 000

Knee insert

Knee tibial

Hip Liner

Hip head

Hip cup

Forging

Casting

Wholly machined

Nb of components in 2014

22 800

16 000

12 000

73 000

0 20 000 40 000 60 000 80 000

Trauma LF plates

Knee tibial

Hip cups

Hip stems

442 000

177 000

296 000

444 000

233 000

0 200 000 400 000

Knee insert

Knee tibial

Hip Liner

Hip head

Hip cup


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11


June 2015

Contract manufacturing product segmentation:

11 segments & 40 sub-segments

Contract Manufacturing

product

segmentation

Forging

Hip stem

Hip cup

Tibial Knee

LF Plates

LC Plates

Casting

Femoral Knee

Tibial Knee

Hip cup, stem

Hip machining

Stem

Cup

Head

Liner

Monobloc

Knee machining

Femoral

Tibial

Insert


product

segmentation

Spine& Trauma

Spine Lumbar plates

Spine cervical Plates

Spine cervical screws & cages

Trauma internal plates

Trauma screws & Others

Instruments

Hip

Knee

Spine

Trauma

Cases & Trays

Hip

Knee

Spine

Trauma

Coating

Stem

Cup

Femoral

Tibial

Ceramics

Head

Liner

MPS

Others



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13


June 2015

Casting: Home-made & Contract Manufacturing

Home-made

240 M US$


176 M US$

31

411

3

24

55

10

2 4

4

14

-

--

-

-

4

2

7

0

10

20

30

40

50

60

70

80

90

De

pu

y-Sy

nth

es

Stry

ker

Zim

me

r

Bio

met

Smit

h &

Nep

he

w

Ch

alle

nge

rs

Femoral knee Tibial knee Hip cup Hip stem

Stryler29%

Depuy-Synthes

28%

Zimmer22%

Biomet19%

Challengers2%

Femoral knee is the most casted

components.

The majors, except Smith, cast in-

house their main needs



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14


June 2015

Hip machining & finishing:

Home-made & Contract Manufacturing

Home-made

236 M US$


152 M US$

10

40

12

1

13

286

4

3 4

9

1,2

0,7

1,6 1,9

5,2

1

1

23

5

0

5

10

15

20

25

30

35

40

45

50

Stry

ker

De

pu

y Sy

nth

es

Zim

me

r

Bio

met

Smit

h

Oth

er C

hal

len

gers

Stem Cup Head Liner

Stryker22%

Depuy17%

Zimmer23%

Biomet17%

Smith 9%

Challengers

12%

Depuy-Synthes & challengers make

more outsourcing than home-made.

Liners &heads are often made

in-house



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15


June 2015

Knee machining & finishing:

Home-made & Contract manufacturing

4 7 3 2

19

51

45

21

14

40

35

21

12

32

0

20

40

60

80

100

120

140

Stryker Depuy Zimmer Biomet Smith OtherChallengers

Insert

Tibial

Femoral

MU

S $

Contract Manufacturing208 M US$

Stryker20%

Depuy27%

Zimmer27%

Biomet16%

Smith 8%

Challengers2%

Home-made654 M US$

Except for challengers, knee machining is made massively

in-house (because the femoral knee is casted

in-house)



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17


June 2015

Instruments machining & finishing:


61 7456

2238

61

95

134

119

23

66

99

12

22

5

9

4022

14

9

14

45

0

50

100

150

200

250

300

Trauma

Spine

Knee

HipM

US

$


Stryker9%

Depuy-Synthes

31%

Zimmer7%

Biomet26%

Smith 5%

MDT17%

Challengers5%

Home-made316 M US$

Hip & Knee Instruments are

massively outsourced except for Biomet (In-

house Chinese production)

For Spine & Trauma, Depuy-Synthes &

Medtronic making in-house



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18


June 2015

Cases & trays:


13 17 13 8 9 11

29

4340

24 2225

6

14

1

17

17

18

38

5

8

19

0

20

40

60

80

100

120

Trauma

Spine

Knee

HipM

US

$


Stryker16%

Depuy-Synthes

0%

Zimmer14%

Biomet0%

Smith 9%

MDT5%

Challengers

56%

Home-made15 M US$

Cases & Trays is an exclusive outsourcing market (> 95%). Very few challengers have

their in-house production



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20


June 2015

Ceramics: Contract Manufacturing

28

37

30

1721

19

10

17

13

8

9 11

0

10

20

30

40

50

60

Stryker Depuy Synthes Zimmer Biomet Smith Challengers

Hip Liners

Hip Heads

MU

S $

Contract Manufacturing220 M US$Almost all the

Ceramics are outsourced. One company supply > 90% of this market.



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21


June 2015

MPS: Home-made & Contract Manufacturing

3%48%

9%11%

2%

Stryker Depuy-Synthes Zimmer

Biomet Smith MDT

Challengers

Home-made



153 0 3 3 0

182

0

1411

40 3

34

46

16

1

70

75

0

20

40

60

80

100

120

140

160

Hip Knee Spine Trauma

MU

S $

274 M US$278 M US$ Except for Stryker, the MPS is made mainly in house by the Majors.


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22


June 2015

Volume of Raw Materials used in hip, knee

spine and trauma

0 1000 2000

Stainless steel implants

Stainless steel instruments

CrCo casted

Ti

CrCo machined

In tons

Hip Knee Spine Trauma

Stainless steel is the most used materials: 2 400 Tons to manufacture

instruments & 750 Tons for implants. Titanium is used for 1 500 Tons.

Source: Avicenne research & analysis 2014

300T

1 500T

1 335T

2 400T

750T


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23


June 2015

Orthopaedic Raw Materials market for hip,

knee, spine and trauma

Hip

Knee

Spine

Trauma

In tons

Stainless steel implants Stainless steel instruments CrCo casted Ti CrCo machined

Hip and knee represent 76% of the total raw materials needs in volume.


1 100T

400T

2 800T

2 000T


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24


June 2015

OEM needs: example of STRYKER, summary

204

10

7

27

39

23

40

135

378

224

CrCo casted

CrCo (not incl.Casting)

Stainless steelimplants

Stainless steelinstruments

Titanium

In-house Contract Manufact.

In Tons



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25


June 2015

Orthopaedic contract manufacturing & home-

made in 2014


2.4

3

1.3

0.6

0.4

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

Contract Manufacturing Home made

Cases & trays

Instruments

Implants

Cases

ImplantsM

US

$

4.1 BUS$

Instruments

3.6 BUS$

2014

The Contract Manufacturing grew, the home made stable between 2012-2014


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26


June 2015

Orthopaedic contract manufacturing & home-

made costs in 2012


2.1

3

1.2

0.6

0.4

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

Contract Manufacturing Home made

Cases & trays

Instruments

Implants

Cases

Implants

MU

S $

3.7 BUS$

Instruments

3.6 US$

2012

The Contract Manufacturing grew, the home made stable between 2012-2014


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27


June 2015

Contract manufacturing market value chain

Hospitals &

Clinics

Orthopaediccompanies

OEM

Revenues in 2014:

37.4 B US$

6 majorsFew 10 big challengersFew 100 little size competitors

Co

ntr

act

Man

ufa

ctu

rers

Implants

2.4 B US$

Instruments

1.3 B US$

Cases & Trays

0.4 B US$


















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29


June 2015

Heavy trend, market concentration:Contract Manufacturers worldwide revenues in 2014 (in M US$)


0 50 100 150 200 250 300 350

MU

S $

Top 15 made

< 40% of the orthoContract

Manufact.market

440M US$

* Avicenne estimation

*

*

*














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30


June 2015From 101 to >1000:

1700 M US$

Average < 2 M US$

Top 17-100: 600 M US$

Average: 7 M US$

Top 16: 1800 M US$

Average: 114 M US$

Contract Manufacturing competitor ranking

& dispersion


15%

40%

45%

N°16

N°100

22MUS$

2.3 MUS$














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31


June 2015

Heavy trend: The OEM facility disinvestments

Dec.

2007

Intech acquired Wright Medical facility in Toulon, France

Feb.

2008

Sandvik acquired Medtronic facility

in Memphis, USA

Feb.

2008

Greatbatchacquired Depuyfacility in Chaumont, France

Sept.

2010

Lisi acquired the Stryker facility, Herouville, France

Dec.

2007

Symmetry acquired DepuyFacility in New Bedford, USA

Feb.

2012

Symmetry acquired J&J surgical instruments

business

Even though it is

being accomplished

step by step, OEM

facility

disinvestments is a

heavy trend.


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32


June 2015

The risk of moving to LLC by 2020: Developed

countries & Low Labor Cost countries


Generic orthopaedicinstruments

Massively outsource In LLC

Complexes & customized

Orthopaedic instruments

Massively outsource

Stay in USA & Europe

Implants forging & casting

Stay in USA & Europe

More outsourcing for the Majors

Implants hip & knee machining

Trend

by 2020

Spine & trauma implants machining

Few % go to the major OEM facilities in LLC

Depuy-Synthes & Medtronic will stay in house. Other players outsource more and more in LLC

Level of moving

to LLC


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33


June 2015

Contract Manufacturing market historical

revenues & forecasts (M US$)

Implants will grow more rapidly than the instruments & cases &

trays.


866 963 1 082 1 206 1 099 1 158 1 245 1 221 1 275 1 330 1 391 1 455 1 522 1 592 295 325 360 400 350 370 390 377 391 405 423 441 461 481 1 230

1 358 1 530

1 717 1 808 1 904 2 055 2 130 2 243 2 362

2 506 2 659

2 821 2 993

-

1 000

2 000

3 000

4 000

5 000

6 000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Instruments Cases & Trays Implants

CAGR 2005-2018 : 5.9 %

Implants : 6.1 %

Cases : 4.4 %

Instrum.: 4.6 %

M U

S$

CAGR 2014-2018


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34


June 2015

Summary (1/2)

To manufacture the implants, instruments & related products, the orthopaedic companies in 2014 spent, 3.6 B US$ in-house and paid their contract manufacturers 4.1 B US$.

In the orthopaedic Contract Manufacturing market, Depuy-Synthes is the n°1 customer. Depuy-Synthes, accounted for 860 M US$ followed by Stryker (730 M US$) , Zimmer (500 M US$) and Smith & Nephew (420 M US$).

Biomet spent only 160 M US$ and Medtronic 100 M US$ because their manufacturing strategy is mainly oriented to in-house made. All the challengers accounted for 1.3 B US$ due to their higher rate of outsourcing.

Instruments are the largest segment, with revenues of 1.3 BUS$ for the contract manufacturing followed by spine & trauma machining (890 M US$) and cases & trays (405 M US$). Forging contract manufacturing accounted for 400 M US$ & casting for 152 M US$.

OEMs are requiring their Contract Manufacturers to reduce costs and sometimes to follow them to certain LLC countries to set up facilities there.


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35


June 2015

Summary (2/2)

The Majors want to drastically reduce the number of their Contact Manufacturers. The response to this need is Contract Manufacturing market concentration.

The risk of moving to LLC countries will be mainly limited to Generic instruments and spine & trauma implants machining.

Even though it is being accomplished step by step, OEM facility disinvestments is a heavy trend.

Contract manufacturing market benefits from the main orthopaedic drivers, population ageing and product mix evolution. It also has its intrinsic drivers: OEM implants facilities disinvestments and the challenger’s market share growth, which is drastically impacting this market, due to their high outsourcing rate.

By 2018, the contract manufacturing market will grow faster than home-made.

Contract manufacturing remains a robust market with 5.5% CAGR by 2018. Implants will grow more rapidly than instruments and cases & trays.

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