Skin Grafts-Tissue Engineering Market Analysis What is the current market size?

What is the anticipated growth rate, ideally over a five-year period? Tissue Engineering market was expected to grow by the beginning of the twenty first century to total of 15 billion dollars. During the period of 1997, 435 million dollars were invested worldwide in tissue engineering. Most of these investments were from private investors, about 90%. 400 million dollars were invested/spent in tissue engineering companies, for research and development. The market size for skin grafts is ranged between 5-7 billion dollars/year. About 2 million patients suffering from burn and 13000 of them requires skin grafts. However, 1500 of the 13000 suffers from burn over 20% of their body, therefore skin grafts is not a requirements, but rather a skin substitute. (9) As of now there are 75 companies in skin grafts development, and an estimated 400 million is spent on research and development. The products of tissue engineering are expected to reach 50% of their market size in duration of three to five years. However, over the last 12 years the net spending has increased from 246 million dollar/year to 3.5 billion dollars for tissue engineering. The tend shows that market will continue to grow. The picture below figure 1 shows the expected growth of skin grafts market from 2010 to 2015, as clearly showed, the market size for tissue engineering (skin grafts) is expected to grow to 1.8 billion dollars from 2010 to 2015. Advanced tissue CEO Arthur Benventuo, said that the market for skin grafts is expected to reach a 2 billion dollar increase by 2020. Whereas the potential market for tissue engineering, is estimated to be around 15 billion as of now. Also the projected market size for tissue engineering industry within the next 10 years is 30 billion dollars. The wound management market forecast a growth of skin grafts market by 12% per year. The industry of tissue engineering showed a steady growth in the field of tissue engineering, with 4.5 new companies emerging in USA every year since 1991. The expectation of market potential of 80 billion dollars, with growth rate of 24%, 577million in expenditures and 2.5 billion as market caps. (9,10)

Figure 1 the y-axis is dollars in millions, and x-axis is the year http://www.mrgco.com/biotech_medtech/tissueengineering11.html

What are the barriers to entry? Are there further limits applied by customers or suppliers? The degree at which skin grafts is manipulated in ex vivo, will play a factor in determining how will the FDA respond to the product approval. The degree of manipulation will determine the extent of how did the biological characteristics of the skin changes. The FDA take into account the method of cell selection, culturing, separation, cutting, freezing etc. all these methods are considered as minimal manipulation. However, when the product is expected to be used on large number of patients, or contain very serious risks, the minimal manipulation may not be considered minimal, but rather an important serious manipulation that need to be justified, through clinical trial and other required verification methods. Another important barrier is the ethical means that need to consider. As many people who may agree with the method of developing the skin graft, another may oppose it. While the legislators and NIH still debating on whether the federal dollars should be spent on certain type of human embryonic stem cell, private sectors are already moving forward on the issue. However, even though the production of skin grafts not necessarily depends on embryonic stem cell, the public understanding of tissue engineering is narrow. Therefore, the barrier still exists, unless through advertisement and establishment of an educational network to inform the public about the source of skin grafts development. Another barrier is the access of fund. An access to venture capital is necessary to attract business managers to the industry. Regulatory challenges are also issues, therefore companies in Europe tend to generate revenue by getting their products quickly into the markets, whereas, in USA regulatory issues always hinders the industry from generating revenues. Therefore decreasing the likelihood of competitors to enter the tissue engineering market. (9,7,8) What are the competitive threats? Construct a matrix. Several major competitor in skin grafts products, include organogenesis, Inc, and Advanced Tissue Science, Inc. The FDA had given the approval to the method used by Organogenesis, the bilayer approach, in 1998. Therefore given them the head start to enter the market, the advanced tissue Sciences markets its products through collaboration with smith &Nephew. (9,,3,6) Trancyte, is a skin graft designed with a unilayer and non-absorbable biosynthetic matrix. This matrix is seeded with fibroblasts cells. This grafts act as temporary wound cover for sever burn. (2) Autologous skin products tend to dominate the market in competition. Many companies are investing in research and development for the production of allogeneic skin grafts. Allogeneic skin grafts will enable repair and regeneration of the skin. Another type of competition is indirect competition; this indirect competition is predicted to dominate the future market with the development of therapeutic agents, such as growth actors. (3)

Company Advanced Tissue Sciences Advanced tissue Sciences Organogenesis Lifecell,Inc Genzyme Biosurgery

Product TransCyte Dermagraft Apligraft Alloderm Epicel

Comments Skin substitute, temporary dressing, human stromal cell Living human Dermal replacement Living human Keratinocytes and fibroblasts-epidermal and dermal layers Processed Cadavers skin for dermal replacement Cultured Epidermal skin graft sheets from the patients own skin. Permanent replacement

Table- Source (9) Describe the most applicable industrial cost structure; it may be easiest to do so as an analog of an existing industry. The most applicable cost structure of Genzyme epicel is part of Genzyme Bio surgery division. Even though the cost structure for the epicel product is not available to the public, the table below shows Genzyme the total operating costs and expenses. Also attached to this document, is a supplement of their growth rate, profitability analysis, financial and valuation analysis. In thousands In thousands Cost of product 335,067 Cash and all 1,950,022 sold marketable securities Cost of service sold 66,575 Assets held for 77,690 sale-current Selling, general and 552,099 Other current 2,235,383 administrative assets research and development Amortization 67,927 Property, plant, 2,950,585 intangibles equipment Restructuring 28,260 Intangibles 3,181,797 changes Contingent 33,310 Assets held for 678,762 consideration sale-noncurrent expenses +other noncurrent assets Charge for 26,873 Total assets 11,141,075 impaired assets Total 1,043,536 Source (4,5,8), Financial report is attached How is your product distributed?

Large companies decide their sale force depending on the type of product and how its is marketed toward. The sale force of epicel is dedicated to the hospitals. Among the same products, Genzyme also sell other wound care products to the hospitals. Since the products are only directed to toward health care, the marketing scheme tends to be limited. The End-user of epicel is is hospitals, since the procedure require a surgeon and dermatologist. (13) Many injuries associated with burns are treated in Emergency rooms. 82.8% of US hospitals have emergency rooms. However 14.3% of them are certified trauma center, which include burns. The marketing of the product epicel tend to be focused around the 14.3%. What special about epicel is its the method of distribution, its a non-traditional method. Epicel is personalized, in another word, epicel products is not available in shelves, retail stores or inventories. In order for the product to be distributed, a request by the end user must be made. But also what make this product unique as of its kind, it's the only permanent skin replacement on the market, therefore request by the end user is not an issue. Since the demand for epicel is inelastic. (13,7) What trends exist in the market? The trend of the market showed that new companies will continue to join the market or form, however the issue involving funding will continue to restructure the market competition. By downsizing, merging, consolidation and globalization. Even though minimal revenues are expected at the beginning, the market of skin grafts and tissue engineering in general is dynamic, and the size of the market will continue to grow. However, the market showed that the companies with the most risks, are the one with funding through research and development stage that's is not protected against discontinuance or change. The investment trend showed that the industry found difficulties in the past to raise money for biotechnology in general. The trend in companys activities with fund and acquisitions tend to dominate tissue-engineering companies in general. Many of them seek partnerships with larger companies, in order to gain access to their capabilities and technologies, for example, the purchase of BioMatric by Genzyme for 700 million dollars. (9,3) What features will be necessary in your company to achieve dominance? To achieve dominance, creativity and invention is the key. By dominating the filed of skin grafts as permanent solution, rather than just a temporary cover like other industry are pursuing. There are three keys in term of marketing that can be applied. if we assumed pareto optimally, but also assuming the nice assumption, no market power, no market failure. Identifying the elasticity vs inelastic of the market to the product, the ability to manipulate the market becomes great. Also the seeking-rent or maintain-rent, will establish the dominance in the market. The ability to coordinate individual preferences will enhance the positive externality, and prevent the negative externality. Finally, consideration must be taken in term of the number of available and the quality of substitutes available. By creating an artificial demand derived

factor demand, dominance can be established. Coordination with the end-User is also crucial to establish dominance. Also by initiating strategy for discovery, development and delivery of therapy, through first, discovery stage: Hypothesis and experimentation, preclinical prototyping, intellectual property (patents), standardization. Second stage: development stage: regulatory protocols and compliance, and IP licensing. Third stage, Delivery: cGMP manufacturing, multicenter studies and marketing permission. Through these stages the industry will not only establish dominance but confidence on its product, and attain confidence of the public. (2) References 1- Genzyme Reports Financial Results for Fourth Quarter of 2010 and Full Yeay http://www.businesswire.com/news/home/20110216006024/en/Genzyme-ReportsFinancial-Results-Fourth-Quarter-2010 2- Steven Boyce, PhD Opportunities and obstacles with Human Engineered Human Skills http://www.Gernzyme.com 3- Business Insights, Future Directions in regenerative Medicine, http://academic.marketresearch.com 4-NITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549. FORM 10-K, GENZYME CORPORATION. http://www.genzyme.com/corp/investors/fin_sec_filings2.asp 5- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549. FORM 10-Q. GENZYME CORPORATION. http://www.genzyme.com/corp/investors/fin_sec_filings2.asp 6- Markets And Innovations In Wound Care Healthcare United States January 1996 AA-44800 http://academic.marketresearch.com 7- Biomolecular Research and Development -- Tissue Engineering The tissue engineering market is expected to be worth more Guide: I-259+, 1999 Dorlands Directories. http://academic.marketresearch.com 8- R&D expenditures Pharmaceutical Biologics for human use NEC (283439); Demographic data (283657); Dermatological, except sunscreen and sunburn remedies (984000). http://academic.marketresearch.com 9- Kalorama Information Market Profile: Structural Tissue Engineering. Published By Kalorama Information A Division of MarketResearch.com. http://academic.marketresearch.com 10- Advanced Polymers for Medical Applications. Published By Kalorama Information

A Division of MarketResearch.com. http://academic.marketresearch.com 12- Pharmaceutical Products of the Future Pipeline Analysis to 2015. Kalorama Informations. TOP 50 PHARMA/BIOPHARMA COMPANIES: PIPELINES AND MARKET FORECASTS. http://academic.marketresearch.com 13- Tissue Engineering Related Tools and Analytical Products: Current & Future Markets U.S. & E.U. Trends & Commercial Implications. http://www.mrgco.com/biotech_medtech/tissueengineering11.html