O.C. Medical Device Companies Await Marketing Breakthrough in Europe : Sales: The plan by 12 European nations to create closer economic ties may provide a bonanza for local firms.
Lately, the offices at Beckman Instruments Inc. have resembled a United Nations annex.
Just three weeks ago, for example, a contingent of French and German medical executives passed through the complex, where the company manufactures medical diagnostic equipment.
They checked out the assembly lines. They glad-handed company officers. They pored over company documents. All the while, they talked up the new era that is dawning in the European business community.
Beckman spokeswoman Elke Eastman said the visitors were fascinated with their tour of the Brea-based company’s operations. “They asked a lot of questions,” she said, trying to pick up ideas they could transfer to their own European companies.
There will be many more questions posed by European and American business executives as the European Community nears implementation of the Single European Act, a 7-year-old effort by a dozen European nations seeking closer economic and political ties.
One question that appears settled is whether the exports of U.S. medical devices will be locked out of this unified Europe. The answer: Not likely.
“The barriers are definitely coming down,” said Edward M. Rozynski of the Washington-based Health Industry Manufacturers Assn. “Europe is wide open and (American companies) can really take advantage of that.”
Indeed, a just-released report from the industry association suggests that the still-evolving EC will offer U.S. medical device companies better market opportunities than anywhere else on the globe.
“The opportunities are almost unlimited,” said Rozynski, co-author of the report.
That study--which analyzes eight regions and countries around the world--provides good news for the hundreds of medical device companies in Southern California, which is one region where the industry is growing fastest.
Everything from syringes and bedpans to Magnetic Resonance Imaging systems and kidney stone pulverizers are manufactured in Orange County alone. That amounts to more than a $1 billion-a-year industry here, by most accounts.
While the overall U.S. trade balance after more than a year of recession was running a $7.4-billion deficit, the medical-device industry exported $3.7 billion more than it purchased from abroad in 1991, the report stated.
And considering an increase in domestic competition and growing opposition to rising U.S. health care costs, Rozynski said in the report that international markets will continue to be ripe for the picking.
That is especially true in the EC, a Brussels-based treaty organization made up of Great Britain, Germany, France, Italy, Spain, the Netherlands, Belgium, Luxembourg, Portugal, Greece, Ireland and Denmark.
Under the Single European Act, better known as EC 92, those European countries will ostensibly open their borders by January, 1993, allowing the free movement of goods, people and services.
The EC 92 program is part of a broad development that has been evolving in the member countries since 1985. Some hope that it will eventually lead to a federal government. Others simply believe that a more unified EC will be good for business.
According to the report, European unification will offer:
* Solid growth. Total consumption of medical devices in the EC during 1991 amounted to $18.6 billion, a 6% increase from the previous year. U.S. exports to the EC reached $3.4 billion last year, about 61% of total medical device imports to that region, according to the report. Consequently, the association report said, U.S. medical device companies have strong potential for accelerated sales in a more consolidated Europe.
* Open trading. Long-standing relationships already exist between companies in the EC and the United States. And despite fears that Europe will be increasingly more difficult to penetrate, cultural, political and economic similarities in the EC and the United States will continue to foster business opportunities.
* Per capita potential. Spending on medical devices in the EC--with more than 350 million residents--is $53 for every man, woman and child. That amount is less than half the $118 spent for every U.S. citizen, and is expected to grow.
* Regulatory harmony. Countries that make up the EC are replacing their myriad regulations and approval processes for medical equipment and supplies with a single, standardized system. A “CE” mark, similar to an Underwriters Laboratories seal, will be issued for some medical devices as early as next January, EC officials said.
With European regulatory standardization, which will make product approvals much easier, the EC will become “a hotbed for future activity for medical device manufacturers,” the report concludes.
That point is not lost on companies in Orange County, many of which are developing strategies to gain inroads to the EC.
Some companies are working on distribution and licensing agreements, while others have purchased European companies, creating subsidiaries. Still others are finding it profitable to go it alone, employing their own people to seek out overseas customers.
Larger companies, such as Beckman, Baxter International’s Irvine office and McGaw Inc., are far ahead of their domestic competitors because they established themselves on the Continent years ago.
For instance, Beckman has half a dozen subsidiaries in the EC and reports that its international accounts made up 57% of its $857 million in 1991 revenue.
To give it an additional edge, Beckman has been striving in the past two years to obtain certifications that would make it easier to export products to the EC.
To that end, Beckman has a full-time staff assigned to obtain certification from the Geneva-based International Standards Organization. The treaty-based organization was founded in 1947, and includes most of the world’s nations. Its purpose is to develop global standards on everything from measurements to product safety.
The International Standards Organization certification for medical products is being adopted in whole by the EC, and will be used as a basis for its own CE approval and certification process.
The ISO certification of Beckman’s design and manufacturing processes will make it simpler for it to obtain CE standardization stamps once the Single European Act takes effect next year, company officials said. Separate approvals would continue to be needed for each product.
“We have been moving along toward that goal for some time,” said Richard A. Nesbit, Beckman’s vice president of quality assurance and regulatory compliance. “We are well positioned there. We want to make sure we are a strong force in that market.”
Similarly, Irvine-based Allergan Inc. has established itself as a leader in the international intraocular and contact lens business. In fact, the company announced that it was selling its U.S. contact lens business in April to concentrate on international sales.
With a manufacturing plant in Ireland and a London-based European headquarters, the company’s total EC business, which includes eye and skin care pharmaceuticals as well as the surgically implantable lenses, amounted to $350 million last year--more than a third of the company’s total 1991 revenue of $831 million. The company also sells its products in Asia.
Allergan president William S. Shepard, like other local medical-device executives, said that the EC’s aging population--and its corresponding medical problems--will give a boost to U.S. companies selling in Europe.
But, Shepard warned, American companies should not expect an immediate improvement in the regulatory morass that exists in the EC. Companies still are required to deal with each country’s equivalent of the U.S. Food and Drug Administration.
Norbert Anselmann , directorate general of Internal Market and Industrial Affairs for the EC, said from his Brussels office that by January, the first set of “directives” will be in place, allowing implantable devices, such as pacemakers and heart valves, to receive the CE stamp.
Other directives will follow in time, as representatives from the 12 countries work out new consolidated regulatory agreements, Anselmann said.
“There is no Big Bang in 1993,” Anselmann said. “It’s more of a political date.”
Anselmann said that as the EC 92 program becomes reality, U.S. medical-device companies will have a better chance at gaining market share.
On the downside, fear of increased competition has caused concern among European competitors, who are determined to keep their standing in their own markets. The easier that U.S. companies have it, the more Europeans may grumble.
“There is a fear in Europe that the advantages are higher in America,” Anselmann said. Superior U.S. products with little regulatory barriers to the European market may push out domestic competition, he said.
But there are some limitations.
David Anast, publisher of the Costa Mesa-based Biomedical Market Newsletter, said that high-tech medical device manufacturers have better opportunities in Europe than companies that produce standard products, such as syringes, wheelchairs and surgical tools.
In addition, he said, many of the young start-up companies in Orange County--and there are plenty--are far more likely to face roadblocks than the larger companies, such as Beckman, McGaw or Baxter International.
“There are a lot of novices out there who think, unfortunately, that they can just get something shipped there and have it sell,” Anast said. “But they can face a significant challenge.”
One start-up company prepared for the challenge is Advanced Interventional Systems Inc. in Irvine. It designs and builds a laser device that removes plaque in the arteries of heart disease patients, many of whom were once required to undergo heart bypass surgery.
The company, which received FDA approval to use the product for such surgery in January, last week created a new position: vice president of international marketing. Richard Paige, who had been the company’s marketing vice president, said the EC will be one of the company’s prime targets in its push toward international sales.
Advanced Interventional Systems, with revenue of $7 million for its first six months of sales, is in the process of getting its lasers approved for use in France and Germany, where it will focus its initial sales to the EC, Paige said.
The 6-year-old company had revenue before its FDA approval, as hospitals paid the company “reimbursement” for use of the lasers during mandatory human clinical trials, as required by the government.
Like other international sales managers interviewed, Paige said the EC approvals, although more decentralized, normally take months instead of the years it takes for similar FDA approvals.
“It’s a big market,” he said, “but there’s a lot of challenges. It won’t be an overnight thing.”
The payoff, though, should be well worth it, Paige said, estimating that his company’s international sales, particularly in the EC, could outpace domestic sales within a few years.
Richard Clare, an international marketing consultant with TCG International in Higganum, Conn., agreed, saying that Europe is a “very large and very prosperous market,” especially for companies that produce the latest electronic medical devices, such as magnetic resonance imaging systems, laser surgery devices and specialty diagnostic equipment.
Europeans, Clare said, are spending “a lot of money” on such high-tech devices, both for therapy and research. “Generally, the U.S. has the advantage in that area,” he said.
Patrick Wong knows firsthand both the advantages and the complexities of the European market. Appointed vice president of international sales for Newport Corp. three years ago, Wong regularly travels to Europe to meet with prospective customers.
“Europe is one of our prime targets,” he said recently, fresh from a trip to Madrid. His company sells devices that are used during cell research.
Wong said that in the EC, where funding for research and development lags that of the United States, there is an effort to increase research spending to keep up with the Americans. Therefore, the potential is strong, he said, for firms that sell equipment that aid in medical research.
“It’s like a new research frontier out there,” Wong said from his Fountain Valley office.
As a new frontier, there are likely to be snags: For instance, selling to Europeans can be a lesson in cultural sociology. Take Baxter International’s experience in selling something as simple as doctors’ hospital gowns.
Baxter spokesman Geoffrey Fenton said that his company manufacturers and sells blue hospital gowns. In the United States, the gowns sell like hot cakes, making Baxter the leading supplier of hospital gowns in the United States.
But in the United Kingdom, all sterilized products are green--including hospital gowns. “They won’t take anything else,” Fenton said. And in France, they want ankle-length hospital gowns only.
“There is a still a great deal of complexity,” said Michael Mussallem, president of Baxter’s Irvine division, where the company manufacturers cardiology products, including artificial heart valves, balloons and catheters for heart surgery.
Ultimately, a medical device company must adopt a local approach to selling its products in Europe or elsewhere abroad. Baxter, with 1991 revenue of $8.9 billion, has either a distribution center or a manufacturing center in each EC member country.
“That’s what makes the difference,” he said. “With all the talk of globalization and the realities of working in a global medical marketplace . . . to be successful, you have to meet the customers’ needs. After all, the customers are local, no matter what.”
When Opportunity Knocks
The Single European Act will go into effect Jan. 1, and health care industry officials suggest that closer economic and political ties to the European Community could mean booming business for U.S. medical-devices companies. EC opportunities could even surpass those in Japan, and several Orange County biotechnology firms stand at the ready to cash in.
World Market
Worldwide, sales of health-care technology products reached $70.9 billion last year. Americans and Europeans were the two largest consumers and producers; both produced more products than they consumed. (Dollar amounts in billions.)
Market Consumption Production United States $29.9 $33.7 Europe 20.9 21.8 Japan 12.0 12.4 Canada 2.3 1.2 All others 5.8 1.8
Global Production
Instruments represented the largest portion of the worldwide medical products market in 1991. Implantable products, such as pacemakers, and prosthetic supplies following closely behind: * Surgical, medical instruments: 29.3% * Hospital supplies, implantable products: 27.0 * Electromedical equipment: 13.1 * In-vitro diagnostics: 12.3 * X-ray equipment: 11.2 * Dental equipment: 7.1 Trade Dynamics
During the past three years, the United States has been the largest producer, consumer and exporter of medical devices. The growth rate of exports to the EC should more than double the rate to Japan. (Dollar amounts in billions)
U.S. Market
1989 1990 1991 Growth* Production $29.1 $31.5 $33.7 7% Consumption 26.7 28.6 29.9 5 Imports 3.2 3.8 4.1 9 Exports 5.6 6.7 7.9 16 Trade surplus 3.2 3.8 3.7 -- Exports to EC 2.3 2.8 3.4 16 Exports to Japan 0.8 0.9 1.1 7
European Community Market
1989 1990 1991 Growth* Production $18.1 $18.5 $19.0 6% Consumption 16.5 17.5 18.6 7 Imports 4.4 5.1 5.7 8 Exports 5.9 6.0 6.1 6 Trade surplus 1.6 0.9 0.4 -- Imports from U.S. 2.3 2.8 3.4 16%
Japanese Market
1989 1990 1991 Growth* Production $10.0 $11.1 $12.4 10% Consumption 9.7 10.7 12.0 8 Imports 1.9 2.2 2.6 7 Exports 2.1 2.6 3.0 20 Trade balance 0.3 0.3 0.4 -- Imports from U.S. 0.8 0.9 1.1 7
* Estimated annual average for next three years. Import Picture
Last year, U.S. medical-device imports dominated both the EC and Japanese markets. European products accounted for more than half of such U.S. imports.
U.S. Imports Europe: 55% Japan: 24 Others: 21
EC Imports U.S.: 61% Japan: 19 Rest of Europe: 14 Others: 6
Japanese Imports U.S.: 47% Europe: 35 Other: 18 Source: Health Industry Manufacturers Assn. Researched by DALLAS M. JACKSON / Los Angeles Times
