2012 Operating Performance in the Medtech Industry

7/23/2019 2012 Operating Performance in the Medtech Industry

http://slidepdf.com/reader/full/2012-operating-performance-in-the-medtech-industry 1/12

October 2012

Operating performance inthe Medtech industry: Trendsand imperatives

www.pwc.com



The medical technology industry faces challenges onmany fronts. A sluggish economy and continued economic

uncertainty have depressed demand for medical procedures

and medical products. Increasing emphasis on healthcare cost

containment, as well as the effects of healthcare reform in

the United States, are raising questions about the overuse of

medical technology and putting downward pressure on prices.

Greater pressure to demonstrate clinical effectiveness and cost-

effective outcomes is raising the bar on medical innovation.

Increasing regulatory approval requirements and scrutiny are

contributing to higher uncertainty and cost of developing new

products. In the United States, a new medical device excise

tax is expected to have a signicant nancial impact on device

manufacturers.

All these factors have combined to introduce uncertainty and

shifts in the Medtech industry and its ecosystem. High growth

and protability have given way to slower growth and at

prots, and total shareholder returns for Medtech companies

have been declining over the last few years. It appears that

the industry is transitioning from the growth stage to a more

mature stage of its life cycle. In this environment, Medtech

companies must consider a fresh approach to creating

shareholder value.

Although there are many drivers of shareholder value,

operational excellence is a critical one in maturing industries.PwC has therefore created an Operating Performance Index

(OPI) to better understand industry trends and identify

operational levers that Medtech companies can pull to improve

shareholder returns (see Sidebar 1 for details of the index).

The OPI incorporates several key operational drivers that

can be analyzed using publicly reported data. Drawing on

such data, we have analyzed the performance of 56 global

Medtech companies over the period 2005–2011.1 Our analysis

offers insight into performance trends in the overall Medtech

industry, in key industry segments (both over time and

comparing segments with one another), and among individual

companies. In particular, it elucidates:

• Differences among segments in this diverse industry;

• Benchmarks and peer-performance measures for individual

companies to compare their performance with others’ and

set high-impact improvement targets;

• Unused or underutilized opportunities for improving

operating performance and driving shareholder value.

1 Source: S&P Capital IQ, PwC analysis

With an era of high growth and protability in the Medtech industry having given way to slower growth and at prots,

operating performance is becoming a critical driver of shareholder value for Medtech companies. This report describes PwC’s

Operating Performance Index for the Medtech industry, uses it to analyze trends in operating performance for the industry

and its various segments, and explains how this approach can help Medtech companies identify which levers to pull to improve

their operating performance.

PwC2

Sidebar 1: PwC’s Operating Performance Index (OPI)

PwC’s Operating Performance Index (OPI) for the Medtechindustry is a weighted composite of three primary and sevensecondary metrics for operating performance. These metrics,drawn from publicly reported data, represent key operationaldrivers of total shareholder return. We evaluated several metricsoften considered to be key indicators of operational performanceand ran a series of multivariate regressions to determine thecorrelation of each candidate metric with total shareholder return.The metrics selected for the OPI were chosen to cover differentareas of a rm’s business operations and were weighted basedon the strength of these correlations. The metrics were denedsuch that high values correspond with high levels of operatingperformance.

The components of OPI and their denitions are:

OPI Metric Description

Primary

Metrics

Revenue Growth Rate Annual Revenue Growth

Rate

Operating Profit Last Twelve Month

EBITDA Margin

Invested Capital

Productivity

Return on Invested

Capital

Secondary

Metrics

Asset Productivit y Revenue / Property, Plant

& Equipment

Labor Productivity Revenue / Employee

Gross Margin (Revenue – Cost of Goods

Sold) / Revenue

SG&A Effectiveness Revenue / Selling,

General & Administrative

Expense

Inventory

Management

Inventory Turns

Working Capital

Productivity

Return on Working Capital

R&D Impact Annual Revenue Growth

Rate / (R&D/Revenue)

Using data from a population of 56 leading public companies inthe global Medtech industry, the OPI compares the performanceof a company with the population on a scale of 0 to 100. Thisenables analysis of the Medtech industry as a whole, of particularsegments of the industry, and of individual Medtech companiesalong the following dimensions:

• Industry performance over time

• Segment trends over time

• Segment performance relative to other segments

• Company performance over time

• Company performance relative to peers



Key industry ndings

On most dimensions measured by PwC’s OPI, operating

performance in the Medtech industry has held relatively

steady over the period 2005–2011 (Exhibit 1 shows the

annual trend for each OPI element over this period). However,

there is notable change in some OPI elements. For example,

revenue growth rates have been declining signicantly—at

a rate of approximately 12% per year. Average growth rates

dipped into single digits during the recession and, as of 2011,

revenue growth has failed to return to pre-recession levels

(see Exhibit 2). PwC’s analysis also shows that revenue growth

rates among industry leaders and laggards are converging as

growth rates slow overall. Although revenue growth rates havebeen declining, our analysis shows that Medtech companies

have maintained R&D investment at fairly steady levels as

a percentage of revenue. This has resulted in a signicantly

declining trend in R&D impact, at a rate of 10% per year

(see Exhibit 1).

Although top-line growth has been slowing, the industry has

managed to achieve modest gains in operating protability

over the last seven years (with the trend in operating prot

showing improvement at an average annual rate of 2%). This

suggests that Medtech companies are working to manage

costs and continuing to become more efcient. One area of

operating performance in which the industry demonstratedsignicant improvement in 2005–2011 is labor productivity,

as revenue/employee increased at an average annual rate of

8%. Asset productivity has shown modest gains, reecting an

increased focus on efciency. Gross margins in the industry

have remained essentially at. This indicates that companies

have been able to reduce their cost of goods sold (COGS)

to maintain gross margins amid the pricing pressures of

recent years. In other elements of OPI, however, industry

performance has shown a slightly declining trend. These

elements include invested capital productivity; selling, general

& administrative expense (SG&A) effectiveness; inventory

management; and working capital productivity. As industry

growth rates slow, these areas represent opportunities for

improving cost structures and operating performance.

Exhibit 1: Industrywide Trends in Operating Performance,

2005–2011

OPI Element Annual Trend Relative to

2005 Baseline

Revenue growth rate -12%

Operating profit 2%

Invested capital productivity -2%

Asset productivity 2%

Labor productivity 8%

Gross margin 1%

SG&A effectiveness -1%Inventory management -1%

Working capital productivity -1%

R&D impact -10%

Exhibit 2: Revenue Growth Rates, 2005–2011

-10%

0%

10%

20%

30%

40%

50%

60%

70%

2011201020092008200720062005

A n n u a l r e v e n u e g r o w t h r a t e

AverageTop 10 Bottom 10

3Operating performance in the Medtech industry: Trends and imperatives



Key ndings about industry segments

PwC’s OPI shows wide variations in operating performance

trends among Medtech industry segments over the period wehave examined. (See Sidebar 2 for segmentation methodology

and denitions). As shown in Exhibit 3, the highest-performing

segments currently are in vitro diagnostics (IVD), implantable

devices, and diversied life sciences. The implantable devices

segment was the clear leader in 2005 but has been declining

gradually since then and has lost its edge over other industry

segments. The IVD segment, on the other hand, has steadily

improved to become the leading segment. Diversied life

sciences, meanwhile, has remained fairly stable. Operating

performance in medical consumables had begun to decline

even prior to the recession but has since regained lost ground.

Medical equipment, which was achieving stable operating

performance prior to the recession, suffered the sharpest dropof any segment during the recession, but has since rebounded.

Exhibit 3: Medtech Segment OPI Scores, 2005–2011

15

25

35

45

55

65

75

2011201020092008200720062005

S e g m e n t O P I S c o r e s

In Vitro Diagnostics Medical Consumables

Diversified Life Sciences

Implantable DevicesMedical Equipment

PwC4

Sidebar 2: Segmenting the Medtech industry

The Medtech industry is highly diverse and can be segmented in

various ways for different purposes. For example, segmentationby disease states and intended use of medical products is useful

when looking at commercial markets and top-line opportunities.

However, segmentation based on the characteristics of products

and associated business operations yields greater insight into cost

structure and bottom-line performance, as companies making

similar products face similar operating and regulatory challenges.

When thinking about the industry from an operating perspective,

we nd it useful to segment it in the following way:

• In vitro diagnostics (IVD): Products used to diagnose or

monitor medical conditions via non-imaging technologies.

These products typically include a combination of low-volume

equipment (software-enabled electromechanical instruments,

sometimes with uid-handling capabilities and various

detection technologies) and high-volume single-use reagents.

• Medical consumables: Single-use, disposable medical devices

such as general medical and surgical supplies, hospital

consumables, catheters, and wound care products. These

products tend to have relatively low regulatory requirements,

high-volume manufacturing, and low gross margins.

• Medical equipment: Reusable equipment used for diagnosis,

monitoring, or treatment of medical conditions (e.g.,

medication delivery, patient monitoring, sterilization, hospital/

OR instruments and furniture, and imaging technologies

such as MRI and CT scans). These products typically include a

signicant electronics component. They may be coupled with

software, complex uidics, mechanics, biochemical sensors,

and/or radiation sources. Regulatory hurdles vary from quitehigh (e.g., for oncology treatment) to relatively low (e.g., for

hospital beds).

• Implantable devices: Products used to treat various medical

conditions via implantation in the human body (e.g.,

orthopedic implants, spine implants, stents, pacemakers, and

ICDs). These products are the most highly regulated of any

Medtech products and typically have high gross margins. Their

manufacture often requires special materials and is labor-

intensive and complex.

• Diversied life sciences: Large companies offering a diversied

set of medical products including biopharmaceuticals, medical

devices and diagnostics, and drug-device combination

products.

Companies often make a variety of products within the healthcare

industry. In most such cases, we assigned a company to a

segment based on the product category from which it gets the

most revenue. We also categorized as “diversied life sciences”

a handful of companies that could not be classied on the basis

of one dominant source of revenue. Owing to lack of publicly

reported data, we excluded from our analysis non-public

companies (i.e., privately held or owned by private equity

rms) and the Medtech business units of conglomerates that are

diversied well beyond life sciences.




Medtech Industry Segments and Companies Analyzed

In Vitro Diagnostics Medical Consumables Medical Equipment Implantable Devices Diversified

Life Sciences Alere, Inc. Becton, Dick inson

and Co.CareFusion Corp. Biomet, Inc. Abbott Laboratories

BioMerieux S.A. Coloplast A/S Carl Zeiss Meditec AG Boston Scientific Corp. Allergan, Inc.

Gen-Probe, Inc. CR Bard, Inc. Conmed EdwardsLifesciences Corp.

Baxter International, Inc.

Illumina, Inc. DENTSPLY International,Inc.

Dragerwerk AG & Co.KGaA

Integra Lifesciences Bayer AG

Life Technologies Corp. ICU Medical, Inc. Elekta AB Medtronic, Inc. Covidien plc

Qiagen NV Merit MedicalSystems, Inc.

Getinge AB Smith & Nephew plc Fresenius SE & Co KgaA

Sysmex Corp. Paul Hartmann AG Hill-Rom Holdings, Inc. Sonova Holding AG Hospira, Inc.

Teleflex Incorporated Hitachi Medical Corp. Sorin SpA Johnson & Johnson

Terumo Corp. Hologic, Inc. St. Jude Medical, Inc. Roche Holding AC

The Cooper

Companies, Inc.

Intuitive Surgical, Inc. Stryker Corp.

Invacare Corp. Synthes, Inc.

Mindray Medical

International

Zimmer Holdings, Inc.

Nihon Kohden Corp.

ResMed, Inc.

Sirona Dental Systems,

Inc.

Steris Corp. Varian Medical Systems,

Inc.

William Demant Holding

A/S



Our analysis of annual revenue growth by segment (see Exhibit

4) shows that the challenges in achieving revenue growth in

the industry are being felt in every segment, none of which

has been able to return to pre-recession growth levels. Thesharpest drops in growth rates have occurred in segments

requiring high levels of capital investment, i.e., IVD and

medical equipment. We also nd that revenue growth began

to slow in medical consumables and implantables even prior

to the recession. Although there was wide variation in the

growth rates in the different segments prior to the recession,

all segments have converged around single-digit growth rates

since the recession.

Exhibit 4: Revenue Growth Rates by Segment, 2005–2011

0%

5%

10%

15%

20%

25%

30%

35%

40%

2011201020092008200720062005

A n n u a l r e v e n u e g r o w t h r a t e




In terms of operating prot (see Exhibit 5), implantable devices

(which has exhibited strong performance in this category since

2005) and IVD (which has improved dramatically over this

period) lead the pack.

Exhibit 5: Operating Profit by Segment, 2005–2011

10%

15%

20%

25%

30%

35%

2011201020092008200720062005

O p e r a t i n g p r o f i t m a r g i n %




Overall, our analysis of operating performance over time

across all ve segments of the Medtech industry yields these

key insights:

• The implantable devices segment has been the most

consistent top operating performer relative to other

segments, driven by signicantly higher gross margins.

This advantage is declining, however, likely due to the

maturation of the cardiology and orthopedic implant

markets (both of which have been characterized by lowgrowth and reimbursement challenges) and changes in

purchasing dynamics and buyer behavior. The implantable

devices segment also has the highest SG&A expenses (due

to a high-touch sales model) and fewest inventory turns

(due to the practice of maintaining large eld inventory

to support high service levels). Although this segment

continues to enjoy the highest protability, its invested

capital productivity has been declining steadily.

• The IVD segment has shown the most improvement, and

become a leader in operating performance since 2006,

driven by rapid growth. The growing importance of

molecular diagnostics and personalized medicine playsa key role. Rapid operating prot improvements and

steady improvements in many areas of cost management

and operational efciency have also helped drive the

PwC6



sector’s OPI performance. Note that most of the large IVD

companies are business units of diversied life sciences

companies or well-diversied conglomerates, which

are excluded from our IVD segment. Consequently, thissegment has smaller companies than the others, which may

help account for its high growth rates.

• Operating performance in medical consumables has

consistently lagged behind the rest of the industry, although

the gap has closed in recent years with improvement in

segment performance after the economic downturn. This

segment continues to show low operating prot and low

revenue growth relative to others. The segment also ranks

among the lowest in several dimensions of overall efciency,

exhibiting, for example, the lowest gross margins, poor

inventory management, low asset productivity, and

labor productivity that is signicantly lower than that for

other segments.

• Medical equipment companies have been hit hardest by the

economic downturn. Although efcient compared with

other segments (with strong labor and asset productivity

performance and leading inventory management

performance), the medical equipment segment has been

hurt by its customers’ difculties in accessing funds for

capital investments. This problem is evident in the sharp

drop in growth rates for medical equipment companies.

• The diversied life sciences segment has been relatively stable

over the years compared with other segments, likely due to

its diverse product portfolio. The variation in the operating

performance of Medtech business units was apparentlymitigated by the performance of biopharmaceutical and

other business units in these companies. This segment

tends to have both high gross margins and high operating

prot. Although it ranks lowest in the industry in asset

productivity, the diversied life sciences segment has

leading performance in invested capital productivity, labor

productivity, and SG&A effectiveness.

Key ndings about company performance

Amid these segment trends, how successful have individual

Medtech companies been in improving their operatingperformance? Analyzing the trends in operating performance

over the 2005-2011 time frame (see Exhibit 6), we nd that

each segment has improvers, decliners, and steady performers,

but the mix varies according to segment. For example, nearly

70 percent of the companies in the medical consumables

segment have shown improvement. On the other hand, only

about one-third of the companies in the diversied life sciences

segment and one-fourth of the companies in the implantables

segment have been improvers, while over 40 percent of the

companies in these segments have been declining. This shows

that different companies are able to achieve widely different

levels of operating performance amid the same environmental

context and macro trends.

Exhibit 6: Company Operating Performance over Time

Percentage of companies with improving, steady, or declining

OPI, 2005–2011

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

P e r c e n t a g e

Down Steady Up

Diversified

life sciences

Implantable

devices

In Vitro

diagnostics

Medical

equipment

Medical

consumables

20%

70%

33%

33%

33%

29%

71%

10%

33%

25%

42%

22%

33%

44%




Company performance on the OPI also enables us to identify

industry and segment leaders and laggards in overall operating

performance. The top 10 companies we analyzed had OPI

scores in 2011 ranging from 91.8 to 59.7 on a scale of 0 to100, while the bottom 10 had scores ranging from 32.6 to

16.2. The individual components of the OPI also help indicate

what leaders are doing that laggards are not. In particular,

industry leaders display strong gross margin performance and

high operating prots. They have also achieved operational

improvements in asset productivity and labor productivity—

indicating a highly efcient operating model—and are

achieving better-than-average revenue growth despite the

challenges of the environment. What laggards have in common

are low revenue growth, weak gross margin performance, and

poor operating margins.

Four key levers for improving operating performance

Exhibit 1 showed overall Medtech industry trends for different

elements of operating performance over the 2005-2011 time

frame. The industry performance results have been mixed. The

performance of leading Medtech companies in recent years

shows that despite a sluggish economy, pricing pressures,

turmoil in the nancial markets, and other adverse factors, it

is possible to improve operating performance in some areas

and drive shareholder value. At the same time, high margins

relative to other industries, strong growth, long product life

cycles, and the high barriers to entry that the industry has

enjoyed in the past have caused many Medtech companies to

focus less on operating performance than they otherwise might

have, and therefore to lag behind rms in other industries in

adopting leading business-improvement practices. With the

outlook for the industry still uncertain—owing to both the

economy and the still unknown impacts of healthcare reform

in the United States—Medtech companies must respond with

new strategies, business models, and capabilities. In the near

term, four key levers for improving operating performance

should be the focus:

PwC8

Two leaders in operating performance

Intuitive Surgical

Intuitive Surgical, a medical equipment company, is the globalleader in the rapidly emerging eld of robot-assisted, minimallyinvasive surgery. Since its founding in 1995, Intuitive has achievedconsistent and rapid growth along many dimensions: revenues,system installed base, types of surgery for which the system isused, procedure volume, geographies, and protability. Year-over-

year revenue growth rates over the period 2005–2011 have rangedfrom 20% (in 2009) to 64% (in 2006). Intuitive’s revenue growthhas been driven, in part, by its multiple revenue models: with itsda Vinci® Surgical System, the company derives revenues fromsystem sales, per-procedure sales of instruments and accessories,and annual service contracts. (Recurring sales of instruments andaccessories and annual service contracts accounted for 56% of2011 revenues from the da Vinci® system.) The company has alsoinvested heavily in clinical studies to demonstrate the effectivenessof its products, and in surgeon education to facilitate adoption.

Consistently ranking number one in operating performance in theMedtech industry, Intuitive has exhibited leading performance and steady improvement in OPI from 81.7 in 2005 to 91.8 in 2011 (on ascale of 0 to 100). It has shown a rare combination of high growthand increasing operating protability (from 32% in 2005 to 41%in 2011). In addition, Intuitive has achieved a steady or, in somecases, dramatic increase in several elements of the OPI during thistime frame—for example, in invested capital productivity (from11.3% to 18.6%), asset productivity (from $4.4 to $8.9 in revenueper dollar of PPE assets), labor productivity (from revenues of$543K to $913K per employee), and gross margin (from 67.5%to 72.5%). This consistent and stellar performance has beenrecognized by the market and Intuitive’s stock price has risen from$18 to $511/share in the last ten years.

Illumina, Inc.

Illumina is a global IVD company that develops innovative array-based solutions for large-scale analysis of genetic variation andfunction. It has consistently been among the top performers onthe OPI, with average annual revenue growth of 64%, averageEBITDA margins of 25%, and average gross margins of 67% forthe period 2006–2011. Analysis of Illumina’s performance acrossa variety of factors reveals a clear theme: consistent growth with afocus on operational execution. Illumina invests more in R&D thanmany peers and has developed leading technological capabilitiesin a nascent market, driving signicant revenue growth. Illuminamanagement has demonstrated a unique ability to connect thedots between market strategy, disciplined product developmentoperations, and a relentless focus on corporate renewal throughboth organic innovation and tuck-in acquisitions. Illumina has also

worked to diversify revenue sources by, for example, creating aservices business targeted at the diagnostics market.

Illumina, which sells capital equipment (and disposables), has asignicant number of customers who are dependent on federalfunding. Recent turmoil in the nancial markets and cuts infederal spending have therefore affected the company’s results.With a continued focus on operational excellence, however,Illumina has been able to launch a new platform, reduceinventory, increase gross margins, and build backlog.



Broaden innovation. A changing healthcare ecosystem

(characterized by, for example, shifts in pricing power from

device manufacturers to healthcare providers, and increasingly

sophisticated customers demanding total solutions) meansthat Medtech companies must develop new offerings catering

to new ecosystem needs. In the past, innovation in the Medtech

industry has had a relatively narrow scope, being largely

technology driven, product based, and physician focused. In

the future, Medtech companies will need to take a broader

view of innovation. With the growing emphasis on healthcare

costs and quality, new product innovation may become less

important than, for example, clinical effectiveness, improved

patient outcomes, and/or improved healthcare efciency. In

other words, Medtech players must address the needs of a

broader set of stakeholders including, healthcare providers,

payers, and patients, and innovate around new business

models and a broader set of offerings including, products,associated services, and data/information management2.

Move up the productivity curve. With an average operating

prot improvement rate of 2% per year, the Medtech industry

has made slow but steady progress in operating protability

over the period 2005–2011. Yet with increasing pricing

pressures, slowing growth, and threats to protability such as

the impending medical device excise tax in the United States,

it is imperative for Medtech companies to keep taking cost

out of business operations and/or out of products in order to

protect their prot margins. Our analysis shows that several

operational performance measures, such as gross margins,

SG&A effectiveness, inventory management, and workingcapital productivity, have remained essentially at over

the last seven years. All of these areas represent signicant

opportunities for improvement. Medtech companies can learn

from other operationally efcient industries (such as high tech,

consumer electronics, automotive, and industrial technologies)

and adopt their most successful practices3—for example,

value engineering and strategic sourcing practices to improve

gross margins, or outsourcing to leverage external partners

and capabilities and make their cost structures more variable.

Medtech companies can increase the efciency of their supply

chains and implement leading practices to improve working

capital and inventory management performance. They can also

improve their sales operations and reduce indirect expenses to

drive SG&A effectiveness.

Transform the go-to-market model. The ongoing,

transformational changes in the healthcare ecosystem are

having a signicant impact on how medical devices are

bought and paid for. Medical device buyers are consolidating,resulting in greater buying power. The inuence of physician

preference is eroding even as new requirements for public

disclosure of physician relationships are being put in place.

Meanwhile, healthcare delivery and payment models are

evolving from fee-for-service to value-based systems4. These

factors are creating new decision makers and buying criteria

while also creating greater diversity across the customer base.

Savvy Medtech companies are therefore nding opportunities

to help shape decision processes and even change the basis

of competition in this new environment, while also focusing

their sales and marketing budgets on what are now the critical

segments of their markets in order to improve effectiveness.

Revitalize growth strategies. As industry growth in developed

regions slows and markets mature, Medtech companies must

explore new avenues for growth. Emerging markets offer one

set of opportunities for expansion. They provide greeneld

opportunities for serving large and growing populations as

well as access to talent and capabilities, often at signicantly

lower costs (for example, for manufacturing, R&D, and

other operational areas)5. Developing new markets while

under pressure to improve SG&A effectiveness often requires

Medtech companies to shift spend from traditional markets

toward new and growing markets. (Several leading Medtech

companies have already established signicant footprints in

emerging markets and are enjoying growth rates of 20–30%.)Companies are also considering a variety of inorganic growth

strategies. While traditional acquisition and integration

strategies are common, more creative strategies include open

innovation, corporate venturing, co-development through

partnerships and alliances, and a variety of in-/out-licensing

approaches. While some large Medtech companies already

employ a mix of these strategies, we expect a continued

increase in these activities as the industry matures and organic

innovation becomes more difcult.

2 Christopher Wasden and Brian Williams, “Owning the Disease: A New Business Model For Medical Technology Companies ,” In Vivo: The Business and Medicine

Report , December 2011

3 Michael Blanchette, Linda Meloro, and Prashanth Prasad, “Surviving the Cost Pressure Cooker,” Medical Device and Diagnostics Industry , March 25, 2011

4 PwC, “Unleashing value: the changing payment landscape for the US pharmaceutical industry,” PwC Health Research Institute, 2012

5 PwC, “Medical Technology Innovation Scorecard: The Race for Global Leadership,” 2011 and Axendia, Inc., “Walking the Global Tightrope: Balancing the Risks

and Rewards of Med-Tech Globalization,” 2012




Deciding where to begin

Improving operating performance over so many different

dimensions obviously represents a tall order for Medtechcompanies that have not had to focus on such areas in the past.

How to begin making the necessary improvements?

The rst step for Medtech companies wanting to improve

their operating performance is to baseline and benchmark

against peer companies in the industry and in their own

segment. OPI provides a useful framework for evaluating the

different dimensions of operating performance. The primary

OPI metrics (revenue growth, operating prot, and invested

capital productivity) provide measures of overall operating

performance. Secondary OPI metrics can be used to establish

benchmarks and identify performance gaps and opportunities

for improvement in operational areas such as innovationand product development, operations and supply chain

management, customer service and sales operations, and asset

and labor productivity.

An OPI-based review enables a rapid but broad evaluation of

operating performance that can help to identify signicant

challenges and opportunities for improvement and help

a company determine which levers it needs to pull to

get signicant gains in operating performance. With an

understanding of where operating performance stands most in

need of improvement, management can begin digging deeper

into these areas to determine what, in particular, is inhibiting

better performance and where to target initiatives for change.

If revenue growth, for example, is an area where baselining

and benchmarking point to a need and opportunity to improve,

and R&D impact is low, a company can investigate why it is not

getting more bang from its R&D spending. If the OPI-based

review also shows that SG&A effectiveness is low relative to

other companies in the same segment, management can begin

asking how it can use its sales force more effectively in the

changing industry environment. Similarly, if protability is

shown to be an area where a company lags behind industry

peers and competitors, executives can dig deeper into OPI

elements such as asset and labor productivity and gross margin

to discover where and how to take out costs.

In an environment that is likely to remain difcult and

uncertain for years to come, the difference between winners

and losers in a mature Medtech industry will increasingly come

down to the basics of operating performance. OPI provides

a convenient framework for identifying key challenges and

opportunities for companies to improve operating performance

and drive shareholder value.

PwC10





© 2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved.) PwC refers to the United States member firm, and may sometimesrefer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general informationpurposes only, and should not be used as a substitute for consultation with professional advisors.NY-13-0137

About PwC

PwC United States helps organizations and individuals create the value they’re

looking for. We’re a member of the PwC network of rms in 158 countries with

close to 169,000 people. We’re committed to delivering quality in assurance, tax

and advisory services. Tell us what matters to you and nd out more by visiting us

at www.pwc.com/us.

Contacts

Acknowledgement

Sharad Rastogi, Principal

+1 (617) 530 4726

[email protected]

Thomas Kozy, Director

+1 (847) 430 9059

[email protected]

We wish to acknowledge the important

contribution that Michael Blanchette

made to the development of this report.

pwc.com/us/pharma

pwc.com/us/medtech

Michael Swanick, Partner

US Pharmaceuticals, Medical Devices,

and Medical Technology Leader

+ 1 (267) 330 6060

[email protected]

Attila Karacsony, Director +1 (973) 236 5640

[email protected]

Documents

2012 Operating Performance in the Medtech Industry