Medical Equipment Producer (Market)

Executive Summary

Company Summary

Technology

Market

The different models of the EMIT system each target a number of different market segments consisting of persons desiring therapy for multiple conditions, including: muscular atrophy, neurogenic bladder and bowel, musculoskeletal pain and/or arthritis. Together, the several market segments yield a total potential U.S. market for the EMIT system of greater than 223 million customers with over 97 million customers falling into the category of dissatisfied patients.

A recent survey of patients suffering from these conditions found that nearly half were so dissatisfied with current therapies that they would be willing to both try new treatments and pay a premium for these treatments if they were effective. These dissatisfied populations, that are both unable to find relief with current therapies and willing to pay more for an effective new therapy, are expected to be the earliest adopters of EMIT.

Market Segmentation

The United States will serve as Premium Therapy's initial target market for both models of the EMIT system. The potential market for each device was extrapolated using data from reputable, referenced sources. In determining the percentage of patients that Premium Therapy expects to be early adopters, estimates of the percentages of persons in the United States currently suffering from chronic, poorly managed medical conditions in each of the various market segments were used based upon the assumption that individuals who have already used existing therapies without significant success would be most likely to try a novel medical device. Thus, it is expected that the earliest adopters of the EMIT system will be those patients afflicted with muscular atrophy, neurogenic bladder and bowel, musculoskeletal pain and/or arthritis for whom all other therapies have failed.

The number of patients that are not being well managed with current therapies, though, is significant. Premium Therapy's principals estimate that in patients with fractures, paralysis, and immobilization (including mechanical ventilation and Guillain-Barre disease), the percentages that subsequently develop long-term complications of atrophy that could be avoided through the use of the EMIT system are 41 percent, 75 percent and 90 percent respectively. In neurogenic bladder and bowel, virtually half of all patients have found no relief through any of the existing therapies. For musculoskeletal pain and arthritis sufferers it was found that "78% are willing to try new treatments, and 43% would spend more on a treatment if they knew it would work." Further supporting these figures, a study published by the Society of Pain Sufferers found that, "56% of pain sufferers have had their pain for more than 5 years and 41% of them described their pain as 'out of control'." These numbers have been factored into the "Intractable Disease" column in the tables below and have been used to calculate the dissatisfied population of patients most likely to try a novel therapy listed under "Early Adopters."

Emit Market Segments

For a sense of scope, both the total potential market and expected early adopter market are listed in the tables below for all of the indications of the EMIT system.

Prevention and Treatment of Muscular Atrophy:

Muscular Atrophy Patients Treatable with the EMIT system in the U.S.

Treatment of Neurogenic Bladder and Bowel:

Neurogenic Bladder/Bowel Patients Treatable with the EMIT system in the U.S.

Treatment of Musculoskeletal Pain:

Musculoskeletal Pain Patients Treatable with the EMIT system in the U.S.

Treatment of Arthritis:

Arthritis Patients Treatable with the EMIT system in the U.S.

Total U.S. Market

The total potential and expected early adopter markets in the United States for the Premium Therapy EMIT system are projected to be the following:

Assuming the entire market were able to be tapped, with pricing, cost schedules, and component use as indicated, the revenues associated with the total potential market and expected early adopter market are $132.4 billion and $57.8 billion respectively.

Industry Analysis

The industry for electromagnetic stimulating technologies is both growing and evolving rapidly. In the 1990s, more than 250,000 prescriptions were written each year in the United States for electrical and electromagnetic stimulating medical devices. As scientific data surrounding PES technology has grown in recent years, trends in both neuromuscular stimulation and pain control have pushed towards the use of this powerful new technology.

The forces driving this trend towards increasing use of PES technology include: 1) the ability to be applied painlessly without the adverse side effects found with electrical technologies, and 2) the demonstrated capability to effectively treat conditions that electrical stimulating technologies fail to adequately address. The problem with PES devices currently in use is that because of design limitations they are either relegated solely to diagnostic purposes or require the constant manipulation of trained personnel for use. Industry product developers have not taken the necessary steps to develop devices that are easily applied in the treatment of medical conditions that have been shown to respond to this form of stimulation.

It is on this stage of emerging demand that the Premium Therapy EMIT system has been created. The proprietary position of Premium Therapy protects the ability to employ EMIT with the use of an ergonomic, body-contoured wrap containing strategically placed induction coils. This protection allows Premium Therapy to assert a unique position within its industry, and helps to support the expectation that those involved with the propagation of EMIT system will be able to charge a sustainable premium and realize economic profits for at least the duration of the patent.

Reimbursement Patterns

Intimate knowledge of third-party payer reimbursement is essential to the marketing plans for any medical device. In the case of the Premium Therapy EMIT system, acceptance of the technology is already demonstrated in the establishment of appropriate billing codes and charge histories for related technologies. Current Procedural Terminology (CPT) for the American Medical Association provides for Category III coding of a number of different forms of magnetic stimulation under the rubric of "investigational treatments". This classification of PES devices as "investigational" becomes an important issue in reimbursement patterns.

In a broader sense, reimbursement plans for pulsed electromagnetic stimulation devices can be supported by established billing practices for related technologies such as electric neurostimulation devices, TENS units, and a host of other electrical stimulation devices. While traditionally the market has been highly sensitive to reimbursement patterns, the fact cannot be ignored that consumers will seek therapeutic intervention with or without third party payor acceptance if they believe a device to be effective.

Experts have estimated that Americans spent $13.7 billion for devices that would fall into the category of "investigational treatments" in 1990 alone. Of these expenditures, $10.3 billion was spent as out-of-pocket, nonreimbursable expenses. These figures highlight the fact that while reimbursement is expected to expand our potential market, a large market exists for medical treatments that are paid out-of-pocket without reimbursement. It is this market that Premium Therapy will target in the early years of the business plan prior to full FDA approval and insurance reimbursement.

Purchasing Patterns

As with most significant investments in medical technology, large-scale adoption of the Premium Therapy EMIT technology will require an executive-level decision at the purchasing institution. In order to convince the decision-making unit at the purchasing institution, Premium Therapy must first prove the efficacy of its EMIT system. This is especially true of the MX system, which requires a larger investment, and much of Premium Therapy's initial efforts will be focused on scientifically proving the efficacy of its technology. Once this has been established, and marketing efforts begin to take effect, demand will be generated among healthcare providers and patients, and institutions and practices will begin investing in the EMIT system.

Typically, individual departments within an institution are held financially accountable and, if they decide to purchase a new technology, the decision is reviewed by the hospital administration. If the department is profitable, the decision is rarely overturned. Therefore, the most important market to consider in targeting sales will be the decision-making unit of the medical department. Premium Therapy's management recognizes that decision-making processes vary at different institutions, and the sales team, in cooperation with the specialty distributors, will consider each institution individually.

Distribution Patterns

While direct distribution was traditionally an option in the medical field, there have been multiple changes in the last decade including intense consolidation and increasing use of purchasing agreements in the industry that have made this an impractical option for most novel technologies. This is especially true of highly specialized, truly innovative technologies such as Premium Therapy's EMIT system. Due to the importance of utilizing existing distribution channels in the highly developed medical device arena, selecting an appropriate distributor will be one of the keys to Premium Therapy's success.

As illustrated in the table below, medical device distributors vary greatly in services provided, ranging from strictly distribution to warehousing, billing, customer service, shipping, and selling functions. With greater services, though, comes greater cost. Medical device companies that opt for direct distribution incur only the cost of the freight while at the opposite end, use of specialty distributors typically will result in a 35-50 percent markup.

In light of Premium Therapy's highly specialized market, and in order to minimize initial costs and develop robust distribution rapidly, Premium Therapy intends to utilize specialty distributors focused on the physical medicine and rehabilitation market. Premium Therapy anticipates conversion to general distribution and a direct sales team when the opportunity arises, but for the timeline of this business plan, specialty distribution will be utilized.

In order to tap the full potential of the market, Premium Therapy intends to utilize the services of regional specialty distributors. Premium Therapy has contacted multiple potential distributors, including Parker Doyle of Medical Products and Barnard Smithson of Applied Medical, and is in the process of developing working relationships with select distributors.

Products

Competition

Strategy & Implementation Summary

Management Team

Operational Plan

Financial Plan

Appendix