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Voice of Industry

Emerging Markets Favored Over Europe for Global Expansion

Worldwide orthopaedic product sales reached $44.6 billion in 2013, about 41 percent ($18 billion) of which occurred ex-U.S., according to THE ORTHOPAEDIC INDUSTRY ANNUAL REPORT®. To better understand the expanding orthopaedic markets, the OMTEC® 2014 Keynote CEO Discussion sought perspective on the trends in developed and developing countries.  Here are their thoughts:

Dirk Kuyper, President and CEO of fracture repair company, IlluminOss Medical: There are some great markets, ex-U.S. Australia is not big, but good in terms of pricing and the ability to get into the market. South Africa is great. Once you’re in Japan, it’s a phenomenal market. China is up and coming. Certainly, if you’re not in the Far East or Asia, you really need to look at that region.

A lot of developmental or venture-backed companies, like IlluminOss, went to Europe first. It was easier to get your product on the market in Europe and to generate revenue while working through FDA challenges. What we’ve found in the last two years is that the pendulum swung back on the U.S. regulatory side. FDA is far easier to work with today than it was two or three years ago. It’s more open, more collaborative. We’ve made huge steps with FDA recently. On the other hand, the European market is swinging the other way. They’re requiring more clinical data before they’ll approve even simple products.

You may think of Europe as one market, but it’s not; its 26. Take Spain. They don’t have a single payor system; they have 17. Pricing changes dramatically from country to country. You must be mindful about what countries you want to hire employees in, because you can hire them for life if you’re not careful. Europe, even though it’s a big market, requires thought on the complexity of the different environments. If you go to Italy, they pay 720 days, in some cases. You have to consider all of that into your equation.

Developing countries are easier to get going in than Europe. Even South America—Chile, Colombia—has become a great market. You need to evaluate globally; do you have the resources; the ability to effectively work in that country? We all look at Europe as the place to go, but I don’t necessarily think that’s true.

Michael Butler, President and CEO of Life Spine: The U.S. marketplace is phenomenal. From an ASP standpoint, we continue to see erosion; it’s still growing from a unit basis, at least, is what we’ve seen. We’ve seen the IPOs, the M&A activity and most recently, we’ve seen venture capital flowing back into the space. There is a lot of positive momentum there—it’s horses to horses to a degree. The U.S. is a bullish marketplace right now, and we’re excited about that because we’ve seen phenomenal growth inside of it.

Shifting internationally, we picked our first ex-U.S. market by looking at who had the least regulatory path. When there isn’t a regulatory path, there’s usually some type of government shenanigans where you have to know a guy. That’s a challenging thing, when you don’t know these guys. New Zealand is a great marketplace; it’s actually our number one market outside the U.S., followed by Algeria and Iran. Iran is an extremely vibrant economy, which you don’t often see in the U.S. because we’re sheltered with news that is maybe not true.

Two other phenomenal marketplaces are India and China. India is a much different marketplace than China, but what you can’t ignore, as Dirk was talking about, is the size of these markets. A little factoid about China, the communist government there indicated two years ago that the number of people requiring surgical intervention for spinal pathology—everything from a laminectomy to a fusion—is about 300 million people. That’s the same number of people we have in the U.S. as a whole. The question people always ask then is, ‘Well, can those people afford to get treatment?’ The answer is a resounding yes. China’s middle class is actually growing faster than ours, and obviously, the rich are rich. They have a payor system that is a lot like ours—a company-sponsored system and a government-sponsored system.

Our last marketplace entry is Germany and the rest of Europe, simply those are the most difficult to enter. As Dirk mentioned, to do so requires an understanding of each one of the marketplaces. That’s the challenge as you grow. You need a good legal team. Is it your core competency to understand what each individual market takes?