1. 1 1 Industry Analysis – Medical Devices & Equipment Summer Deliverable 2 Raditya Purwahjo

2. 2 2 Industry Definition  This industry includes firms that manufacture electromedical and electrotherapeutic apparatus, such as magnetic resonance imaging equipment, medical ultrasound equipment, pacemakers, hearing aids, electrocardiographs and electromedical endoscopic equipment.  The firms in this industry also manufactures irradiation apparatus and tubes for applications such as medical diagnostic, medical therapeutic, industrial, research and scientific evaluation 1.

3. 3 3 Medical Device Manufacturing Sector Summary Breakdown Industry Breakdown By Market Cap ($BLN) Breakdown By LTM Market Cap 1 1 Industry Mkt Cap= $171,287,000,000 Healthcare 37,364.9B Diversified Manufacturing 31,341.5B Medical Equipment & Supplies 1,264.8B Medical Equipment & Appliances in U.S. 171.29 B OTHER MDT$ 38.25 B SYK$ 19.75 B STJ$ 12.37 B EW$ 10.02 B BSX$ 8.39 B BCR$ 8.38 B TFX$ 2.45 B

4. 4 4 Revenue Generation Medical Equipment & Appliances Companies Direct Sales Force Independent Distributors Hospitals Household Utilizes... Selling products to … In general, revenue is recognized at the time the Company is notified that the inventory has been implanted or used by the customer. For products that are not consigned, revenue recognition occurs upon shipment to the hospital or, in the case of distributors, when title transfers under the contract.

5. 5 5 Trends Overview Aging US Population US Government Healthcare Spending Projections Regulatory Environment

6. 6 6 Aging US Population  Older people are more likely to suffer from disease and disorder, thus requiring more medical attention than younger generations. –As baby boomers age private spending on medical devices will increase.  According to the U.S. Census Bureau, “between 2000 and 2010, the population 65 years and over increased at a faster rate (15.1 percent) than the total U.S. population (9.7 percent). ”  According to U.S. Department of Health & Human Services: Administration on Aging, U.S population aging 65 and over is projected to increase to 55 million in 2020 (a 36% increase for that decade as compared to a 15% increase on the last decade).  The average elderly (age 65+) person spends 135% more on healthcare than the U.S. population average, around $6,070 per year.

7. 7 7 US Government Healthcare Spending Projections  U.S. government strives to improve the healthcare system, public spending for medical devices will rise as well.  The US Government is projected to continue increasing its spending in the healthcare sector going forward to FY 2017.

8. 8 8 Regulatory Environment  In March 2010, Congress passed the Patient Protection and Affordable Care Act (PPACA) along with the Health Care and Education Reconciliation Act into law. This could prove to be detrimental for medical device manufacturers, as large-scale pressures on prices and the introduction of additional taxes will most likely hurt the profitability of firms in the healthcare sector. The law imposes a 2.3% excise tax on all U.S. medical device sales beginning in 2013. As a result, industry profit margins are forecast to fall to 8.5% in 2016, down 0.5% from present-day levels.

9. 9 9 Key Financials

10. 10 St. Jude Medical (STJ) CompanySTJ RecommendationBUY Current Price$37.76 1yr Target Price$44.77 % Upside18.57% Trading Multiples 1yr Target Price $42.93 DCF Analysis 1yr Target Price $45.02 Acquisitions Analysis 1yr Target Price $41.32