Medical Device Link.

Originally Published IVD Technology September 2004

In Person

Nicholaas Arnold is vice president, sales and marketing, for Diagnostic Products Corp. (Los Angeles).  He can be contacted at narnold@dpconline.com.

In a time of rapid discovery and technological advancement, IVD manufacturers can gain a great return on their investment by offering their products to foreign markets. However, rushing into foreign markets without doing the necessary homework ahead of time can mean failure for an IVD company. Thorough knowledge of local market needs, local regulatory requirements, and local business practices is essential for success, as is an idea of how entering into foreign markets will be beneficial for a company. 

To obtain a comparative outlook for the viability of various international IVD markets, IVD Technology editor Richard Park spoke with Nicholaas Arnold, vice president, sales and marketing, for Diagnostic Products Corp. (Los Angeles). In addition to the outlook for various foreign IVD markets, Arnold discusses how to avoid common pitfalls made by IVD manufacturers when taking their products abroad. 

IVD Technology: What is your assessment of the current status of the global IVD market? 

Nicholaas Arnold: Right now the situation is very positive and will continue to be very positive in the near future. Some of this success stems from the fact that healthcare costs all over the world are rising quickly. A major portion of healthcare spending goes toward the prescription of drugs. Many patients do not get the full benefit from these drugs because the practitioners have not matched the right drug to the right patient. Through evidence-based medicine, people have begun to realize that laboratory diagnostics is a very cost-effective tool for tailoring treatment to the specific needs of patients. 

In addition to personalized medicine, we will see developments resulting from caring for the growing aging population across the world. This population is better educated and is more willing to pay more out-of-pocket than previous generations. People are taking more control of their own healthcare. 

In addition, many new IVD technologies are being brought to the market—most recently molecular diagnostics, but also cellular diagnostics. I expect very good growth in these areas. Once the diagnostic devices are in the right format (more automated, easier to use), they will move into the routine of clinical laboratories. So I do foresee a very positive outlook for the IVD market, but I also think that the IVD market is already in a very positive state. 

Has this shift in awareness of the value of IVDs taken place only recently? 

Yes. It has really been recognized in the last couple of years and is coming more into the daylight every year. In some international markets, groups such as the Disease Regulated Groups (DRG) in Germany have established that evidence-based medicine has a critical impact on healthcare efficacy. 

However, we have seen a reduction in IVD usage in a lot of geographic areas. I think that’s only a limited period we have to go through. Some of these receding markets are in Europe. I believe that it is only a matter of time before the rates of testing will stabilize and we will have normalization across the European market. 

Which international IVD markets outside of the United States appear to be the most promising for IVD companies? 

Let me start with Europe because in general I think that that market is still, when viewed from an overseas perspective, a very promising market with solid economies. Companies in these countries pay their bills. This is not always the case in some other parts of the world. There are some great economic developments because of the expansion of the European Union. The newer European Union countries like Poland and the Czech Republic are starting to grow faster and faster in the advancement of healthcare, particularly in IVD testing. 

Outside of Europe, the most promising markets are those in the developing countries where the economies are starting to grow significantly—China, India, and Russia. However, these countries still have some big economic issues. There are some high-risk markets in developing countries where the economies and political situations are not very stable. Countries like Indonesia have a tremendous potential, but probably need quite some time before the economies will make significant developments. 

I also believe there are some good opportunities in stronger and newer markets like those in Taiwan and Korea where there are very stable economies. Consumers in those countries are willing to pay more and more for healthcare, and IVD companies are making good money there. 

One market that has traditionally been a good market but has been under a lot of pressure in the last couple of years is South America. We had seen some excellent developments there until a few years back. The economic problems they have had in Argentina and Venezuela have affected not only these countries but also the areas around them. But I would recommend that companies keep on investing in South America to keep developing those markets. 

How important is it now for IVD companies to have a global presence and to market their products overseas? 

It really depends on what the company wants to accomplish. It depends on what state it is in as a company. In the case of my company, there was initially a very strong focus on overseas markets and not a strong focus on the United States. Only in the last couple of years have we changed that approach. 

The European market is roughly 30% of the worldwide IVD business and you simply cannot let an investment in that market go. 

Big companies all have a presence in every big country where there is a potential in overseas markets. However, a lot of the U.S. companies have problems being as successful in other countries as they are in the United States. 

Is it worthwhile for a midsized IVD company in the United States to go outside the United States into Europe? 

Yes. I think broaching the European market is definitely worthwhile, if a company does it right. 

Market Entry

How should midsized IVD companies approach marketing their products and technologies globally? 

They should start by looking for what I would call “classic entrepreneurs” in the countries that they want to approach. That approach was successful for my company. DPC’s founder decided to work with companies that were founded by businessmen who had a lot of experience with the IVD market and were determined to build their own independent and successful companies. These founders were to believe in the future success of our DPC as an excellent base for their own future success. We were in this together. Almost all of these partner companies were extremely successful. This approach is much better than just jumping onboard with a company that is already distributing a large number of product lines. In that case, you would have to struggle to get attention for your products. 

In other words, in order to go into a market in which a company doesn’t have a presence, it should find an entrepreneurial organization that it can rely upon. 

What are some of the challenges IVD companies face when marketing their products overseas? 

First of all, when you find the right people in those entrepreneurial organizations in those countries, they should have enough local expertise to be able to let you know what you can expect from that market. One of the problems that U.S. companies have had is that some assume that the overseas market is very similar to the markets we have in the United States, or that the marketing companies that have worked effectively for them in the United States will be effective in overseas markets. Although there are instances when this approach does work, it often does not work. 

When companies move into foreign markets, they will face big challenges in the form of regulatory issues. For example, manufacturers entering the European market will have to face the requirements of the IVD Directive. Although meeting these requirements requires a lot of paperwork, this has been a relatively easy hurdle. In other parts of the world, registration of an IVD product can be very difficult. IVD companies often underestimate this difficulty. In South America and some markets in the Pacific Rim, it can easily take more than a year before you can bring IVD products to the market. 

How, besides looking for entrepreneurial groups, can IVD companies overcome these challenges? 

Spending the time in finding the right partner is a very good investment of their time. IVD companies should not be satisfied with merely finding a distributor. They should research the distributor very well. Again, I am not convinced that simply finding a big company in one of these respective countries is the best way to go. A company looking to break into a foreign market doesn’t necessarily want to be part of a large distributor’s catalog if that catalog contains a large number of products, because the company would have to fight for the attention of consumers. IVD companies will have greater success overseas if they take the time to investigate whether their product is fit for each particular market. 

Assuming that markets are similar in the way they accept certain products is a common mistake. If IVD companies want to be effective overseas, even if they have been extremely successful in their domestic market, they must be very open to change. 

Outside of the United States, many companies expect that when the Americans come in, they will want to tell local companies how things should be done. That is not necessarily the way U.S. companies can be the most successful. U.S. companies going into overseas markets should use traditional marketing approaches. They should never assume that their products are going to be received in the same way as they were in the United States. Companies should approach markets in other countries by first of all providing scientific proof of the worth of their product. 

When U.S. IVD companies approach new markets with nothing but marketing hype, local companies will think, “This is just another big American story.” However, if U.S. companies give overseas companies scientific proof of a product’s worth—especially if local experts conduct the studies in local countries—then those companies will have laid a solid groundwork for a successful entry into a new market. 

If a U.S. company is not willing or able to make this investment, it is probably not worth entering the new market. If U.S. IVD companies use qualified local experts when entering foreign markets, those experts will know what it takes to be successful in that country. 

Would it be best for U.S. IVD companies to establish an overseas partner when taking their products abroad? And in that case, should the partner have not only a local knowledge but also specialize in a particular IVD field or in the regulatory climates that will offer specific insight into the product? 

Yes. You have to make sure that these people are experienced people, have the right entrepreneurial spirit, and know what problems that you might run into. If they don’t understand the regulatory environment, that will kill your business. It is difficult to select a partner because if the partner company is too small but you really like the people you are talking to, the company might not have enough clout to ensure success. If the company is too big, you might get lost in the competition posed by other partners of the same company. So you need to spend time finding the right partner. 

IVD companies can also use comarketing agreements when in partnership with other companies, if there is a natural fit. For instance, companies that work together in chemistry and immunochemistry can work together to come up with a good way of selling their products. 

Today, communication is a lot easier than it used to be. The Internet provides access to a lot more information. Today, everyone knows what technology is available out there. The smaller, local players will have more difficulty achieving success because of this awareness. It used to be that you could sell small platforms or old technologies in certain developing countries. Now those countries are catching up fast. They want the best of the best now. 

Overcoming Obstacles

If an IVD company is having difficulty getting a product into a particular overseas market, what can it do to make the product acceptable for that market? 

I believe in a hands-on approach. In other words, if I see markets where products are not selling in the way that I think that they should, I jump on a plane and go out there, not just to meet with our own people or our distributor but also to go into the market and meet customers because then I can get the real picture. 

There will be situations where companies will have to tweak their products. But I think in general a product that is scientifically sound here will be scientifically sound overseas. Obviously, aspects like the packaging of products in the over-the-counter market will have to be redesigned to appeal to customers in the overseas market. But that’s more the positioning and the promotion of the product than anything else. 

Ultimately it’s the science that will prove your product, and that should be enough, essentially. 

Well, customers tend not to believe everything that comes from outside their country. If I go out into overseas markets and the only thing that I have are a couple of studies that I have done in the United States, then people will say, “I trust your company so I am willing to look at this data but I want to do my own study.” You must rely on local experts in order to get things right for the local market. 

If studies in the United States have raised doubts about a product, the overseas market will not easily overlook those findings. But if you have independent scientific proof that a product is a good product and it has advantages over the competition or the way people work today, then a company is in a good position to go and find local experts. 

So, should companies assume that they will incur the expenses required to conduct a whole new set of clinical trials in each new geographic market in order to ensure success of their products in that market? 

Absolutely. In some situations, such trials will be required in order to get regulatory approval for a product. In other cases, you don’t have to make it a very extensive project. You could conduct a simple comparison study in the new market to show that the ELISA or other product works well when compared with established products. Companies will not necessarily have to spend a huge amount of money in order to get to that point. You have to be a little street smart to find the most economically sound way to handle it. 

In some cases, a local distributor might take care of these studies and make them part of its promotional expenses, but an IVD company should be ready to incur those expenses when entering a new market. 

The European Market

What unique opportunities does the European market offer to IVD companies? 

It is a very stable market. Some of us might believe that the U.S. market is ahead of the European market in many ways, but in many cases this is not so. Europe has moved faster in certain areas because there was no regulatory barrier. A lot of people see the IVD Directive as a negative hurdle. In all honesty, the directive offers opportunities to well-established companies. It ensures that only companies that are bringing good- quality products will enter the market. 

So Europe presents a unique opportunity in that if you know that you have an excellent product, you will have significant advantages over some of the competitors. Because of the IVD Directive, that product could have better success in these markets than it has had elsewhere. The directive will separate the good products from the bad. 

You mentioned that Poland, the Czech Republic, and Russia are new and promising markets. Are there any other prospects in Europe?

We have seen tremendous development across Europe and the markets are becoming more and more similar. Smaller countries in Europe such as the Baltic states have jumped on new technologies in the IVD industry and have done tremendously well. We are already seeing some good business in Hungary and hopefully when countries like Bulgaria and Romania start to do better, they will jump onboard. We have seen some good developments in Croatia. In Bosnia right now, things are going better. 

Because of the strength and the support imparted by the European Union, we see that developments that in earlier years took place in only the Western European markets are now happening in the Eastern European market. It is just a matter of time.

Are you willing to speculate how long it may take for some of the smaller markets to become more profitable? 

It is a mixed bag. Countries like Poland or the Czech Republic have already moved in this direction, Czech more than Poland. The Baltics are moving ahead although the markets are still small. In markets like Romania, people simply have no money and it will probably take another five to ten years before you can expect any real developments there. But in the grand scheme of things, five or ten years really is not a very long time. 

You are seeing this type of growth right now in China. You will also be seeing it in India, although it has not grown as fast there as we all hoped for. It has taken China over ten years to become a major power. As long as the market potential is there, it truly pays off to invest. 

Other International Markets

Which overseas market appears to have the greatest prospect of growth in the future? We have already talked about Europe. Could you forecast about Asia and Latin America. 

By far the greatest prospect for growth is China. Then there is a whole group of countries in that Pacific Rim area such as Taiwan and Korea where we can expect a lot of growth. 

The fact that Hong Kong is part of China now has been giving us some headaches. On the other hand, because Hong Kong was already so well developed, we will see some good spin-offs going from Hong Kong into the areas in China like Shanghai and Beijing. Those are areas where labs are starting up every month or even every week. There is some very strong potential there. 

There are a lot of good things happening in the Pacific Rim area. India will probably still take a long time and it will grow slowly, but it will keep on growing because of the high population. 

South America is based on how well the individual economies will do. Unfortunately, it has not been the most stable part of the world in that sense. So I think it is worthwhile investing in it, but you have to keep your eyes open. 

There is a large population in Africa, but unfortunately there is not much money there, other than in countries like Egypt, to support real growth. Unfortunately, it will be a long time before these markets start to develop. 

As the IVD industry becomes more and more of a global market, what effect will this have for the future marketing and sale of IVDs? 

Economies in areas start to rely more on each other and communication and globalization will ensue. If companies have done extremely well in one country in one area, and have not done well in a number of other countries in the same area, the reasons for the uneven success will become apparent. 

Also, because of the Internet, it will cost companies less money to bring their products under the eyes of the people in those respective countries. There are easier ways today than ever before to inform end-users and to find distributors for various products. 

How will this new age of molecular medicine fare in international markets? 

Molecular diagnostics will continue to be one of the largest growth areas for IVDs. It is important that molecular diagnostics can move into general routine laboratories all over the world. 

In order to make this happen, technologies need to become available in more automated, simpler formats. They must allow the users to do a broad number of different tests on one system. This system must accommodate everything, from sample treatment through amplification to signal detection. 

We are not there yet, but I do believe that we are not far from seeing companies enter the market with easier and faster molecular technologies. The growth will take place in many different areas. One area of great potential, as mentioned earlier, is theranostics. Although diagnostic-pharmaceutical combinations that help match the right patient to the right drug will potentially reduce the market potential for a given drug, they will allow the drug to be more effective and therefore go through a faster approval process. I foresee that governments will offer more funding for situations like that because they want to have the best possible outcome from these very expensive drug therapies.  

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