Michael Barbella04.07.11
There’s a phrase the Japanese tend to use during their darkest days (and the not-so-dark ones as well): ganbatte kudasai. The expression is used so often in so many different kinds of circumstances (test-taking, for example) that it is difficult to nail down an accurate English translation.
For the most part, ganbatte kudasai is a motivational muse, a pithy pep-talk the Japanese use to help themselves and others overcome the obstacles that life throws their way. The phrase has taken on a chameleon-like quality over the years, adapting to almost any environment and challenge in which it is uttered. The wide array of English translations ranges from “Good luck,” “Work hard” and “Do your best” to “Fight! (or “Fait-o!” as the natives like to say), “Persist,” “Forge on” and “Please endure it.”
The latter two interpretations have taken on new meaning in recent weeks as Japan assesses the physical and psychological toll of its worst crisis since World War II—the tragic triple blow of a historic 9.0-magnitude earthquake off its northeast coast, a deadly tsunami and a near nuclear meltdown. Since the March 11 disaster, ganbatte kudasai has become more of an informal mantra for survival than anything else. Conversations with the phrase are deliberate and more frequent, aimed at reminding survivors to “Be firm,” “Be strong” and “Take courage.”
Medical device executives might want to heed that advice as they brace themselves and their respective companies for the eventual fallout from Japan’s temblor trifecta. While nearly all manufacturers with operations in the island nation reported little or no damage to their facilities and only minor disruptions in service, industry analysts claim the disaster’s financial repercussions could be substantial for firms that base a large percentage of their sales in Japan.
Edwards Lifesciences Corp., for instance, generates about 17 percent of its sales in Japan. In the fourth quarter of 2010, the company sold $69.6 million worth of products to Japanese customers, a 9.9 percent increase compared with the $59.7 million in goods it sold there in the final quarter of 2009. The country’s fourth-quarter sales comprised nearly 18 percent of the company’s total worldwide sales during that period, according to the firm’s quarterly earnings statement.
Japan’s contribution to Edwards’ overall financial health is even more significant when the company’s international sales are more closely examined. In the fourth quarter of 2010, Japanese sales accounted for 28 percent of the $248 million in total international transactions; the country has contributed the same percentage for the last two years, capturing $247.8 million of the $879.4 million in total international sales in 2010 and $214.1 million of the $765.3 million in total international sales the company reported in 2009.
Abbott Laboratories, St. Jude Medical Inc., Boston Scientific Corp. and Becton Dickinson and Company are similarly dependent on Japan for a chunk of their sales. Abbott reported more than $2 billion in sales there last year, and has grown its business in the country by more than 60 percent since 2008, according to its 2010 annual report. The Japanese market also has proven to be one of the most lucrative for the company, consistently generating more than $1 billion in sales for the last three years (Abbott’s data indicate the firm sold $1.2 billion in goods there in 2008 and $1.6 billion worth of products in 2009). As a result of this growth, the Japanese market now accounts for a larger portion of Abbott’s international sales—in 2008, for example, Japan claimed just 8.3 percent of the international sales pie; by 2010, its portion had grown to 10 percent.
St. Jude Medical’s Japanese sales have followed a similar path, accounting for 19 percent of the $2.04 billion in total international transactions in 2008, 21.8 percent of the $2.2 billion in total international sales in 2009 and 22 percent of the $2.5 billion in total foreign compensation last year. Overall, St. Jude Medical generates about 11 percent of its total sales in Japan (last year, the firm reported $552.7 million in sales there), according to earnings reports.
Though the quake had an immediate impact on medtech stock prices, most bounced back within weeks of the disaster. Many companies with distribution facilities on the island turned to other suppliers to minimize immediate disruptions of their manufactured goods. Becton Dickinson , however, remained loyal to its local suppliers even as it weighed the damage to its factory in Fukushima Prefecture, where government officials have been working (as of press time) to repair a crippled nuclear power plant. Becton Dickinson generates about 5 percent of its total sales in Japan.
So far, the medical device supply chain has remained largely unaffected by the devastation. But analysts expect that to change. “Hospitals in the [affected] area are going to be flooded with patients, so U.S. sales of medical supplies could increase,” one analyst told MedCity News. “On the other side, hospitals that were destroyed will not be buying supplies for the next year.”
That could potentially become a significant problem for companies that have targeted their products to the Japanese market. Abbott, for instance, launched its XIENCE V Everolimus Eluting Coronary Stent System in the country last winter, hoping to capitalize on the estimated 200,000 stent procedures performed there annually. With whole neighborhoods washed away and hospitals buried under rubble, analysts believe that exports such as building supplies, textiles and heavy machinery could become more important to the country than the latest coronary stents or catheter system.
“We would expect the greatest disruptions to the more elective procedures as hospitals in the affected areas focus on critical care,” Bernstein Research analyst Derrick Sung told Reuters. “We would expect hip, knee and ICD implants for primary prevention to be more affected.”
Such an effect would blindside the orthopedic industry, which has not yet fully recovered from a slowdown in procedures during the worldwide recession. A weak Japanese market over the next several quarters would prevent implant manufacturers from regaining their financial foothold and turning a profit, analysts noted, adding that some of the most vulnerable victims are those that depend on replacement joints and other products used in elective procedures for the bulk of their sales.
Unlike St. Jude Medical, Abbott and Boston Scientific, the major orthopedic manufacturers do not break down sales by country; therefore, it is difficult to determine the longer-term impact Mother Nature’s wrath will have on the companies. Still, analysts are confident predicting that firms such as Alphatec Holdings and Stryker Corp. are likely to be impacted by the disaster’s financial aftershocks.
“We have grown more and more cautious on the Japanese medtech market amid the growing concerns of power shortages impacting a larger portion of the population,” Canaccord Genuity analysts William J. Plavonic, Mark Quick and Kyle Rose wrote in an eight-page report assessing the quake’s potential impact on the worldwide device industry. “In particular, we believe semi-elective procedures in orthopedics and sports medicine could be impacted in the areas hit by the tsunami, as well as in those areas experiencing power conservation and rolling blackouts. While we believe this impact would be only short term (impacting Q1/11 and Q2/11), we believe it could cause some weakness in near-term results for a few orthopedic companies in particular.
We believe Wright Medical, Zimmer, Alphatec and Stryker are the most exposed.”
These companies are the most exposed because they have the most to lose. Take Zimmer, for instance. Its sales in the Asia Pacific market steadily have been rising over the last several years, going from an annual total of $469 million in 2005 to $689.1 million in 2010 (the region’s proceeds last year accounted for 16 percent of the $4.2 billion in sales Zimmer reported). Countries within the Asia Pacific market include Australia, China, India, Japan, Korea, Malaysia, New Zealand, Singapore, Taiwan and Thailand. (Hong Kong also is considered part of the Asia Pacific market even though it technically is a city).
The company’s sales surge was infiltrated by its various product segments, with Zimmer reporting increases in the region’s overall sales of artificial hips, knees and extremities. Knee sales rose 14 percent to $261 million while hip sales swelled 12 percent, rising to $239 million. Sales of extremities jumped 11 percent to $150 million, trauma product sales climbed 5 percent to $246 million and surgical product sales shot up 13 percent to $319 million, according to the company’s full-year earnings report.
Though the demand for trauma products may increase as Japan treats its injured victims, analysts predict the need for devices such as hip replacements and dental implants will wane until power and other supplies are restored.
“The surge in medical needs in the area of the tsunami will create some rationing of medical supplies,” the Canaccord Genuity analysts wrote in their report. “While it was noted that larger medical facilities have their own backup power generation units, we believe that non-life threatening procedures are at risk of being delayed until more certainty regarding supplies (power and other) is gained. In our coverage universe, procedure volumes in orthopedics (excluding trauma) and sports medicine seem the most vulnerable.”
There is reason to hope, though. After a few rough quarters, analysts predict the device market in Japan to return to normal.
“A semi-elective procedure slowdown and capital expenditure pullback could make it difficult on orthopedic and sports medicine players in Japan over the next few quarters,” Plavonic and his team said. “However, as was the case with Katrina in the U.S., over the long term we continue to believe that the high aging patient population and the solid reimbursement environment that have made this the world’s second-largest medical device market continue to look attractive for implant manufacturers.”
For the most part, ganbatte kudasai is a motivational muse, a pithy pep-talk the Japanese use to help themselves and others overcome the obstacles that life throws their way. The phrase has taken on a chameleon-like quality over the years, adapting to almost any environment and challenge in which it is uttered. The wide array of English translations ranges from “Good luck,” “Work hard” and “Do your best” to “Fight! (or “Fait-o!” as the natives like to say), “Persist,” “Forge on” and “Please endure it.”
The latter two interpretations have taken on new meaning in recent weeks as Japan assesses the physical and psychological toll of its worst crisis since World War II—the tragic triple blow of a historic 9.0-magnitude earthquake off its northeast coast, a deadly tsunami and a near nuclear meltdown. Since the March 11 disaster, ganbatte kudasai has become more of an informal mantra for survival than anything else. Conversations with the phrase are deliberate and more frequent, aimed at reminding survivors to “Be firm,” “Be strong” and “Take courage.”
Medical device executives might want to heed that advice as they brace themselves and their respective companies for the eventual fallout from Japan’s temblor trifecta. While nearly all manufacturers with operations in the island nation reported little or no damage to their facilities and only minor disruptions in service, industry analysts claim the disaster’s financial repercussions could be substantial for firms that base a large percentage of their sales in Japan.
Edwards Lifesciences Corp., for instance, generates about 17 percent of its sales in Japan. In the fourth quarter of 2010, the company sold $69.6 million worth of products to Japanese customers, a 9.9 percent increase compared with the $59.7 million in goods it sold there in the final quarter of 2009. The country’s fourth-quarter sales comprised nearly 18 percent of the company’s total worldwide sales during that period, according to the firm’s quarterly earnings statement.
Japan’s contribution to Edwards’ overall financial health is even more significant when the company’s international sales are more closely examined. In the fourth quarter of 2010, Japanese sales accounted for 28 percent of the $248 million in total international transactions; the country has contributed the same percentage for the last two years, capturing $247.8 million of the $879.4 million in total international sales in 2010 and $214.1 million of the $765.3 million in total international sales the company reported in 2009.
Abbott Laboratories, St. Jude Medical Inc., Boston Scientific Corp. and Becton Dickinson and Company are similarly dependent on Japan for a chunk of their sales. Abbott reported more than $2 billion in sales there last year, and has grown its business in the country by more than 60 percent since 2008, according to its 2010 annual report. The Japanese market also has proven to be one of the most lucrative for the company, consistently generating more than $1 billion in sales for the last three years (Abbott’s data indicate the firm sold $1.2 billion in goods there in 2008 and $1.6 billion worth of products in 2009). As a result of this growth, the Japanese market now accounts for a larger portion of Abbott’s international sales—in 2008, for example, Japan claimed just 8.3 percent of the international sales pie; by 2010, its portion had grown to 10 percent.
St. Jude Medical’s Japanese sales have followed a similar path, accounting for 19 percent of the $2.04 billion in total international transactions in 2008, 21.8 percent of the $2.2 billion in total international sales in 2009 and 22 percent of the $2.5 billion in total foreign compensation last year. Overall, St. Jude Medical generates about 11 percent of its total sales in Japan (last year, the firm reported $552.7 million in sales there), according to earnings reports.
Though the quake had an immediate impact on medtech stock prices, most bounced back within weeks of the disaster. Many companies with distribution facilities on the island turned to other suppliers to minimize immediate disruptions of their manufactured goods. Becton Dickinson , however, remained loyal to its local suppliers even as it weighed the damage to its factory in Fukushima Prefecture, where government officials have been working (as of press time) to repair a crippled nuclear power plant. Becton Dickinson generates about 5 percent of its total sales in Japan.
So far, the medical device supply chain has remained largely unaffected by the devastation. But analysts expect that to change. “Hospitals in the [affected] area are going to be flooded with patients, so U.S. sales of medical supplies could increase,” one analyst told MedCity News. “On the other side, hospitals that were destroyed will not be buying supplies for the next year.”
That could potentially become a significant problem for companies that have targeted their products to the Japanese market. Abbott, for instance, launched its XIENCE V Everolimus Eluting Coronary Stent System in the country last winter, hoping to capitalize on the estimated 200,000 stent procedures performed there annually. With whole neighborhoods washed away and hospitals buried under rubble, analysts believe that exports such as building supplies, textiles and heavy machinery could become more important to the country than the latest coronary stents or catheter system.
“We would expect the greatest disruptions to the more elective procedures as hospitals in the affected areas focus on critical care,” Bernstein Research analyst Derrick Sung told Reuters. “We would expect hip, knee and ICD implants for primary prevention to be more affected.”
Such an effect would blindside the orthopedic industry, which has not yet fully recovered from a slowdown in procedures during the worldwide recession. A weak Japanese market over the next several quarters would prevent implant manufacturers from regaining their financial foothold and turning a profit, analysts noted, adding that some of the most vulnerable victims are those that depend on replacement joints and other products used in elective procedures for the bulk of their sales.
Unlike St. Jude Medical, Abbott and Boston Scientific, the major orthopedic manufacturers do not break down sales by country; therefore, it is difficult to determine the longer-term impact Mother Nature’s wrath will have on the companies. Still, analysts are confident predicting that firms such as Alphatec Holdings and Stryker Corp. are likely to be impacted by the disaster’s financial aftershocks.
“We have grown more and more cautious on the Japanese medtech market amid the growing concerns of power shortages impacting a larger portion of the population,” Canaccord Genuity analysts William J. Plavonic, Mark Quick and Kyle Rose wrote in an eight-page report assessing the quake’s potential impact on the worldwide device industry. “In particular, we believe semi-elective procedures in orthopedics and sports medicine could be impacted in the areas hit by the tsunami, as well as in those areas experiencing power conservation and rolling blackouts. While we believe this impact would be only short term (impacting Q1/11 and Q2/11), we believe it could cause some weakness in near-term results for a few orthopedic companies in particular.
We believe Wright Medical, Zimmer, Alphatec and Stryker are the most exposed.”
These companies are the most exposed because they have the most to lose. Take Zimmer, for instance. Its sales in the Asia Pacific market steadily have been rising over the last several years, going from an annual total of $469 million in 2005 to $689.1 million in 2010 (the region’s proceeds last year accounted for 16 percent of the $4.2 billion in sales Zimmer reported). Countries within the Asia Pacific market include Australia, China, India, Japan, Korea, Malaysia, New Zealand, Singapore, Taiwan and Thailand. (Hong Kong also is considered part of the Asia Pacific market even though it technically is a city).
The company’s sales surge was infiltrated by its various product segments, with Zimmer reporting increases in the region’s overall sales of artificial hips, knees and extremities. Knee sales rose 14 percent to $261 million while hip sales swelled 12 percent, rising to $239 million. Sales of extremities jumped 11 percent to $150 million, trauma product sales climbed 5 percent to $246 million and surgical product sales shot up 13 percent to $319 million, according to the company’s full-year earnings report.
Though the demand for trauma products may increase as Japan treats its injured victims, analysts predict the need for devices such as hip replacements and dental implants will wane until power and other supplies are restored.
“The surge in medical needs in the area of the tsunami will create some rationing of medical supplies,” the Canaccord Genuity analysts wrote in their report. “While it was noted that larger medical facilities have their own backup power generation units, we believe that non-life threatening procedures are at risk of being delayed until more certainty regarding supplies (power and other) is gained. In our coverage universe, procedure volumes in orthopedics (excluding trauma) and sports medicine seem the most vulnerable.”
There is reason to hope, though. After a few rough quarters, analysts predict the device market in Japan to return to normal.
“A semi-elective procedure slowdown and capital expenditure pullback could make it difficult on orthopedic and sports medicine players in Japan over the next few quarters,” Plavonic and his team said. “However, as was the case with Katrina in the U.S., over the long term we continue to believe that the high aging patient population and the solid reimbursement environment that have made this the world’s second-largest medical device market continue to look attractive for implant manufacturers.”