To Boldly Go

Up here around Boston, we are fortunate to have a diverse life sciences sector, including both pharma/biotech and medical device (medtech) companies, and I’ve been fortunate to have some experience and colleagues in both.  Given my global health avocation, I am interested the approaches of major pharma and medtech companies to global markets, particularly in the low income countries, and it seems to me that the medtech companies are moving more quickly than the pharma companies in recognizing the value of “right sizing” their products for the developing world (the vaccine business being an exception).  Most big medtech companies have made it clear that they have strategies for increasing their profits in both the BRIC countries (Brazil, Russia, India, and China with their expanding economies and middle classes) and ROW countries (rest of world with both growing markets like Mexico and Thailand and struggling like much of Africa) and a few are developing country-appropriate, affordable products.  For example, in a June 2011 press release on the opening of Johnson and Johnson’s (JnJ) research center in China (JnJ release), Michael del Prado, Group Chairman for Asia Pacific, described the company’s approach:  “Inspired by local insights, our engineers are adapting and refining products from Johnson & Johnson’s outstanding portfolio and pursuing adjacent and new spaces to make medical devices that better suit the conditions and needs of Asia’s health care professionals and patients. This might include focusing on devices for specific disease states that are prevalent in Asia Pacific or developing simplified or smaller instruments that better suit the conditions and capabilities within a rural health setting.  It may also include creating multi-use and disposable products that are more economical.”

More recently, as was reported last week in our local medtech e-newsletter (MassDevice article 1), JnJ’s CEO, Alex Gorsky, described the company’s global market aims in an investor call and said that JnJ will help governments in developing countries build health care systems based on access and affordability, unlike the US market with its emphasis on high-tech, high-cost treatments:  “… they [the governments] are building their healthcare systems in the developing markets, in not just replicating what’s been done in the developed markets, but looking for ways to expand access and, frankly, also to expand and accelerate their access to some of the new technologies in a cost effective way.”  Gorsky also said that the company’s strategy includes building R and D centers in BRIC countries and acquiring BRIC companies.

Other big medical device companies are in the same camp.  A year ago, Omar Ishrak, the new CEO of Medtronic, the world’s largest “pure play” medical device maker, told shareholders that:  “The biggest long term opportunity will be to meet the needs of billions of people who have no access to healthcare at all.”  (MassDevice article 2)  He also specifically mentioned the world’s growing middle class, but his statement and upbringing in Bangladesh imply an awareness of the lower income market’s potential.  Boston Scientific, our local medtech major, is now struggling to reverse its fortunes and stated in its 2011 shareholders’ letter it is investing heavily to increase sales in India and China through physician training programs, new plants, and improved distribution (Boston Scientific letter).  Covidien, a $10 billion medical device and supply company based in Ireland and Massachusetts, has as one of its corporate mantras, “To remain a global leader in our industry, Covidien much take responsibility for making healthcare more affordable and available.”  (Covidien annual report).  The company opened its new R and D facility in China today and its head said:  “By collaborating closely with local medical experts who use our products, we can tailor devices to meet the demands of China and other Emerging Markets” (Covidien release).  To me, these statements indicate the mechtech biggies are serious about developing products that are appropriate in terms of use and price for the BRIC/ROW counties as a counterbalance to their declining sales and profits in the US and Europe.

But what about interest in BRIC/ROW markets by the mid- and small-sized medtechs, which, like their biotech counterparts, are often the source of new products and need to be ahead of the majors on market trends for partnerships and possible acquisition?  The conventional wisdom seems to be that “going global” is too complicated for most smaller companies.  A panel of big company CEOs at a recent forum noted the challenges of achieving a presence, distribution, and compliance and appearing to be too risky to potential acquirers (MassDevice article 3).  I have a different view as I wrote in a recent posting (“New and Improved!”).  I sided with the authors of a PriceWaterhouseCooper report on medtech companies operating in India who concluded that innovation, not ignorance, was needed for companies to be successful.  Some of the report’s recommendations were appropriate to large companies (like building plants and distribution systems) but most could be managed by small companies:

  • understand the market and buyers’ needs and concerns, especially the middle- and lower-income out-of-pocket buyers;
  • redesign existing products to simplify procedures and decrease accessory cost;
  • design new products for affordability and value, not just low price (more focus on life-saving and less on life-enhancing) and partner with local universities or firms for R and D;
  • emphasize and deliver good service not only sales;
  • decrease the use of distributors and increase direct, in-person sales to maximize interaction with customers;
  • recognize and prepare for infrastructure limitations in communications and distribution; and
  • to be competitive encourage continuous improvement in products, service, and pricing (always good advice).

To these, I added:

  • reach out to NGOs or other groups that are delivering health care to understand the environment better;
  • utilize the services, knowledge, and resources of international economic development groups like the IFC/World Bank (see IFC Medtech Discussion), UK’s DFID (DFID Trials Program), and US’s USAID; and
  • look for successful operational models in used by technology-based companies in similar countries.

To date, however, the smaller medtech players, except for the   diagnostics companies (e.g., Chembio, Cooperative Diagnostics, Diagnostics for All, and Daktari), have largely ignored the potential of developing products specifically for the BRIC and ROW countries.  My sense is that, if entering these markets poses too big a hill, at least they should be adapting their products and trying to license them to the major companies.  I guess I need to talk with my medtech colleagues to figure out if I’m all wet or if it is time for them to boldly go.

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