Private Label Products May Fill Portfolio Gaps

We’ve all been there. The surgeon likes the products in our bag, but our competition has the products that the surgeon needs for every case, right here, right now. “If only we had that size screw system or if only we could get that banana TLIF through development, then that surgeon would be using my products instead of my competitor’s.” This is an increasingly popular sentiment in the orthopaedic device industry. Large OEMs have acquired product portfolios in order to respond to hospitals’ and surgeons’ requests with “everything you want right here, right now.” How do medium and small OEMs remain competitive with fewer managers, engineers, quality and regulatory resources, compressed budgets, etc.? How do we offer our customers everything that they want, right here and right now, while managing our capacity limits? One solution is outsourcing—specifically, private labeling.

Private labeling is not a completely new concept to the medical device industry. Biologics are a great example of that fact. Most OEMs private label their biologics from companies with the credentials and expertise to develop and produce them. In this industry, it’s rare that one company has the resources necessary to produce all of the products required to satiate the increasingly diverse demands of the healthcare providers whom we serve. Most of the large OEMs understand this challenge and have added private label products to increase offerings and conserve limited resources.

What is Private Labeling?

Private labeling happens when one company purchases products from another company to resell under their own brand name. Example: Company A (customer) buys products from Company B (private label manufacturer, PLM). The products are then resold under the brand of Company A. Company B retains ownership of all intellectual property rights to the products. Company A owns the physical product purchased, along with marketing and distribution rights.  

Keep in mind that every company or contract will work differently. The rights of the parties entering into the private label agreement will most likely vary on a case-by-case basis according to negotiated contract terms.  

In the medical device industry, the PLM and Customer agree on terms and specifications. The Customer places a purchase order with the PLM, and the PLM produces the order to the Customer’s specifications. The PLM handles the entire production process, from regulatory approval to manufacturing and quality management. In the end, the Customer receives a product that is branded as its own and ready for sale to the end user.

PLMs may offer a variety of options for product customization. Those options could include implant laser marking, implant packaging, Pantone color choice, instrument tray branding and even branded marketing materials. A true PLM will offer additional services, such as engineering support, that allow their customers to modify the baseline implant model to more closely fit their exact needs.  

Adding to your product portfolio through conventional channels can take 18 to 60 months and cost up to $800,000 per year in R&D alone. Alternatively, adding a private-labeled product should take about four months with no R&D costs.

Alternatives to Private Labeling

The private-label model has yet to become the conventional method to boost a product portfolio in the medical device industry. Companies still acquire and license new products; these methods have advantages and disadvantages. Some examples of these pros and cons are outlined below:

Acquisition – A company acquires a product line or an entire company.
 Pros:          Access to established sales distribution        

Control of product and regulatory clearance
Cons:          Long integration time and potential issues        

Large upfront capital expenditures

Licensing – A corporation licenses a product in return for an upfront and long-term payment.
Pros:          Gain control of manufacturing, design and regulatory clearance
Cons:          Requires internal personnel to manage and implement        

Limited expertise on the product        

May require additional development and sales resources 

Direct Distribution – Distribute products from another OEM. The products bear the brand of the supplying OEM.
Pros:          Rapid delivery and access to products
Cons:          Minimal brand development        

Lower margins/commission-based sales

Benefits to Private Labeling

The benefits of private labeling vary based on the needs of the individual Customer and its business model. Examples include: 

Orthopaedic OEMs can obtain quick access to differentiated or synergistic products that complement existing product lines, while conserving internal resources for novel product development.  

Stocking or boutique distributors can increase revenue and product differentiation, while reducing risk from sporadic and unpredictable supply partners. 

Hospitals and GPOs can consider cost-savings methods through the purchase of high-quality product direct from the manufacturer.

The advantages depend heavily upon the qualifications of the partner chosen. Some common advantages and the subsequent qualifications are shown below:  

How to Achieve Success

As with any new initiative, it’s important to fully understand the desired outcome, internal and external resources to arrive at that outcome and a timeframe for execution. The following best practices should be followed to ensure that private labeling is successful in enhancing your company’s product portfolio.  

Identify Your Company’s Needs

• Develop your budget. How much will you spend on the project?
• Identify your target market. You are probably already selling to them.
• Determine a potential selling price, amount of product needed to penetrate markets and amount of inventory necessary to support demand
• Define private label branding and specifications
• Outline product release timelines. When do you want to sell your first product?

Perform Due Diligence

• Identify and evaluate private label products with potential customer
• Meet private labeling partners and assess the companies’ qualifications (i.e. ISO 13485 and regulatory approvals)

Negotiate Terms and Sales Agreement

• Negotiate terms, price and delivery
• Understand additional services offered by the partner
• Place a purchase order

Receive Product and Start Selling

• Inspect product
• Launch through your distribution channels

In Summary

Private labeling can provide access to portfolio enhancing, regulatory approved medical devices in less time than traditional pathways. It can be a lucrative opportunity for companies seeking to add to portfolios and conserve resources at the same time. The right partner can easily provide competitive advantages necessary to help make your company successful in today’s highly competitive market.