Its No European Vacation

It’s No European Vacation

Getting the CE mark is just the first step in a not-so-simplified process of doing business in a market that is facing its own set of challenges.

Jim Stommen
Contributing Writer

Prompted in large measure by progressively onerous U.S. regulatory requirements, medical products companies increasingly are turning to Europe and other international markets as a first choice for their commercialization activities.

But as industry observer John Brosky notes, thinking of the CE mark as a vastly simplified way to get a product to market is a lesson in oversimplification. Brosky is an American journalist who lives in Paris and covers the European medical device industry. The important lesson, Brosky noted, is that the European Union is not 27 countries for medical devices—it is 268 autonomous regions where decisions are made locally.

He cited Spain as an example.

“You can go to the Ministry of Health in Spain, and when you get approval you’ve got nothing, because there are seven different health ministers in Spain, and each region collects the insurance premiums from the workers and then redistributes those funds, whether in the form of salaries, reimbursement for particular care or even capital budgets for the purchase of equipment,” Brosky explained. “You have seven autonomous regions [in Spain]; you’ve got 21 in Italy; you’ve got 16 in Germany, and even though there’s more and more harmonization in Germany, the autonomy of each region still exists. The only two true national structures are France and England, but just because you have a CE-approved product, it doesn’t automatically mean you’re in either. You have to go to the French Health Authority and the celebrated National Institute for Clinical Excellence, or NICE, in the United Kingdom, which often is not so nice for a lot of medtech companies.”

Asked whether the complicated issues surrounding reimbursement make the growing interest by U.S. firms in Europe-first product introductions more problematic, he said, “The CE mark does mean products can be commercialized faster, and this is good news for ‘me too’ and ‘me better’ products already covered by DRG [diagnosis-related group] reimbursement codes. Stents were a good example, in the sense that while the U.S. had two approved, we had 21 being used in Europe.”

But for novel products, the hard work is getting into each region and winning reimbursement, which means having to present your clinical studies again, according to Brosky.

“It would be nice to be able to use the same studies, but unfortunately many of these regions ask that you repeat yourstudies, and that gets expensive,” he said.

The reality, he noted, is that Europe has to be “conquered” country by country.

Citing a local example, Brosky said, “We have EOS Imaging here in Paris that has a 500,000 euro radiology unit that is based on Nobel Prize technology, but they don’t have reimbursement yet for this particular modality, and they have to win it country by country.”

He noted that his favorite “case study of how to do it right” is U.S. heart valve kingpin Edwards Lifesciences, which addresses a high-risk procedure in the form of aortic valve implantation. Brosky said Mike Mussallem, chairman and CEO of the Irvine, Calif.-based company, told him: “Coming to Europe first sure worked for me.”

Brosky said the company moved slowly and carefully, one country after another.

“France and Germany were keys—France, of course, because they have very strong roots here with Dr. Alain Carpentier, then moving into Germany. They go very slowly because physician training is so important, but if you look at the revenue stream generation, they have revenues coming in to support the expensive work that it takes to do this. It’s a good case study because they’re most likely going to arrive three years ahead of the competition in the U.S. with this procedure.”

The European Market Today

Brosky recalled an Ernst & Young presentation he attended roughly a year ago, in which analysts said the European medtech market had stumbled in 2009.

“If it stumbled then, I think we can say that it picked itself up and dusted itself in 2010 and is trying to adjust to the so-called ‘new normal,’” he said. “In France, we had three public offerings by medtech companies, including one for an artificial heart, which is a pretty risky thing. That was the first time we saw something new come into the public markets, so that was a good sign.”

Brosky added that Europe has seen some notable small companies with solid technology as of late.

“One that is emblematic … is called Diagnostic Medical Systems in Montpellier, and they’re pushing hard,” Brosky said. “They got pounded in 2009 and were showing losses every quarter, but [in 2010] they came up with two new products, so clearly while they were taking the punishment in terms of lower sales in 2009, they still were still developing something, and both Carestream and Siemens have picked up their products for distribution and put them in their catalogs. Now the company has reversed its fortunes entirely; in fact, its machine was at three different booths at the French Radiology Congress.”

He added that he recently came across a German company that makes an alternative drug-delivery device for severe asthma, to make aerosol delivery more effective.

“This is not a public company—it has some private investors—but it’s looking pretty good with some of the drug companies and has been building toward an exit.” The lesson here, he said, “is that where the money is being invested, especially privately, they’re looking for the exit, the trade sale, and those are going to be the companies that attract that kind of investment. So the big companies have picked up modest growth and the little companies are still in there swinging and fighting.”

Brosky cited different models for driving innovation in the healthcare sector in various countries. For instance, the United Kingdom has heavy venture capital investment in companies to get them started, whereas Germany features heavy government investment, joining with some private investment. France is right in the middle. The country has a strong government program for innovation investment that has been “handing out a lot of cash,” according to Brosky, to companies that are “really moving along.”

As for the medtech market overall, he said, “I suppose if it was a weather report, it would be, ‘Well, it’s not raining.’ But there still are clouds on the horizon. There are long-term challenges that remain, including the funding drought, especially if the large companies continue to sit on their cash and not put it to work, as well as small investors staying out of the public markets. Long-term challenges are a matter of concern.”

Times of Austerity, Anxiety

With Europe having been affected by the same difficult economic climate as the United States and most of the rest of the world, one of the key reflections of those realities is the continuation of reduced tariffs, or rates, by healthcare systems in various countries. That’s especially so in terms of radiology labs and clinical biology labs.

“Here in France, they’re refusing to allow infusions of capital, so it forces regrouping of facilities. There is a consolidation in the number of labs that’s inevitable. And it’s going to be pretty dramatic in clinical biology,” he said. “Germany is undergoing the same sort of thing. The country is facing a 10 billion euro deficit that they’re addressing in very sensible ways, although it’s painful. They have raised the premiums to the insurance companies, but they’re still prevaricating on how they’re going to cut expenses exactly within the system, but cutting expenses is inevitable.”

Brosky said huge deficits being run up in France, England, Germany and other countries are going to have an impact, putting pricing pressure on the consumables and routine equipment areas of medtech, a large slice of the medical technology pie.

“It’s going to further a kind of reticence that the Germans have complained about for years regarding the introduction of innovative technologies,” he noted. “Even though you can make an economic case that you can save money with some of these innovations, the problem is that medtech companies have never had to actually prove that argument, and these days they have to prove it, and that forces up the price of what it costs them to develop their products.”

Innovation Focuses on Those Doing the Work

So where does the current economic situation leave healthcare-sector innovation?

“As a general rule, a third of the annual sales in medtech are coming from products that are less than three years old, so innovation is critical, and companies are spending on it here,” Brosky said. “French companies qualify for certain tax status by spending 15 percent of sales revenues on research, and in Germany they average out at 9 percent, and you can bet that some companies are spending a whole lot more than that.”

But he believes the key issue in Europe about innovation is not the focus on something as vague as the word innovation, but rather the focus is on the innovators.

“The issue is that if researchers and engineers—and we have great engineers over here, people coming out of universities or working in labs—don’t get the grant, the ‘golden ticket’ to go to the U.S., then they’re staying here and keep on cranking out their innovations,” Brosky said. “They then hook up with an incubator, which is government-funded. They need a place to further develop their idea, so the inability of innovators to move kind of ensures that we’re going to continue to see innovations staying in Europe. There still is a lot of innovation bubbling up here.”

Taking the Pulse at Regional Meetings

While perhaps not quite as nimble as Gene Kelly, whose exploits as another American in Paris were a cinematic hit nearly six decades ago, Brosky does make his way deftly across Europe providing coverage of a wide range of medical congresses for news organizations as well as trade associations.

“I hear a lot about pricing pressures and reimbursement all the time. Homecare devices and personal health devices are popping up—they seem to be quicker to develop, and of course there’s the appeal of these massive potential markets if you’re successful,” he said. “For little electronics and the like, they’re everywhere at Medica – I’ve never seen so many heart rate counters and oximeters and glucose monitors, etc. The European Union is starting to give some direction on interoperability for devices that will become very important, so that presents an opportunity.”

Brosky said that at the recent annual Medica medical technology exposition held in Dusseldorf, Germany last November, “we learned that everyone suddenly wants to be the next Germany and claim a share of the robust growth in medical technology. German Chancellor Angela Merkel turned out for the first time for the opening ceremonies to announce that medtech is now placed alongside automotive and engineering as pillars of the German economy.”

He noted that a parade of dignitaries followed, all singing the praises of medical technology as an engine for job growth. The new director for President Obama’s national export initiative, Courtney Gregoire, made Medica her first visit to an international trade show to rally the 600 U.S. companies attending. And the high-profile Lord Ara Darzi, who shook up Britain’s National Health Service, showed up at Medica saying he was “proud to be wearing the British hat” and to cheer on the 300 companies from the United Kingdom.

Brosky said it was interesting to note after the show that “even as Ireland began sinking into a sea of debt, no one protested against the government’s staunch defense of special tax discounts that have attracted companies bringing jobs, giants like Boston Scientific, Stryker and Covidien, but also smaller medtechs such as Merit Medical and Hollister.”

Meanwhile, the Chinese continue to gain share in Europe as an importer known for low-end, low-cost products.

“Once confined to ‘China Alley’ at Medica, Chinese companies have since moved out into the massive exposition halls, taking up positions across a range of products,” he said. “Contec from Qinhuangdao is emblematic of these new players, covering 13 product categories. No matter what the lead product, every Chinese company at Medica was offering somewhere on their stand a line of low-end ultrasound scanners.”

Brosky said competition in this segment is now so fierce that even executives from the more established Chinese ultrasound specialists, Mindray and Sonoscape, said they are feeling the heat. He quoted Randy Hwan, Sonoscape vice president responsible for European customers: “Europe is becoming a challenging market, and with so many comparable scanners the pricing of these systems will begin to fall dramatically. When I tell people that soon we will see such systems selling for less than 10,000 euros, they are shocked, so I do not tell them I really believe that good quality scanners with good performance will reach a price point of 8,000 euros. I believe that in this competition, at least on the low end scanners, European sales will be dominated at some point in the near term by a Chinese company.”

Jim Stommen, retired editor of industry publication Medical Device Daily, is a freelance writer focusing on the medical product sector.