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How emerging markets will disrupt the medtech business model A huge underserved market moving into the middle class represents a unique opportunity for medical device OEMs, if they can adapt

The medical device industry like many other sectors—automotive springs to mind—is looking at emerging economies to grow its business in the decades ahead. More than 85% of the world’s population lives in emerging markets, and the vast majority currently do not have access to affordable, quality healthcare. That will change in the years ahead, and this represents a huge growth opportunity for the surgical device industry to address the unmet needs of massive patient populations, notes Cambridge Consultants in a report titled, Emerging Markets: Transforming Global Surgical Care by 2030 . That’s a compelling, but not necessarily surprising observation. What I found especially interesting in this report is how forward-thinking product development for emerging economies might affect advances in medical technology here in the richest country the world has ever known.

Earlier this year, Cambridge Consultants, a provider of product development engineering and technology assistance to global medtech companies, held a “thought leadership” workshop in Boston. Heavy hitters from the medical device industry came together to discuss how the rise of emerging markets will impact the global landscape of surgical care by 2030. Participants included medtech professionals from the likes of Johnson & Johnson, Medtronic, Smith & Nephew, Becton Dickinson and Philips Healthcare. The report that has just been published summarizes the conversation and provides some fascinating insights.

One of the fundamental differences between developed and emerging economies is the presence of a large middle class. Most emerging market demographics take the shape of a pyramid, notes the report. “Wealthy patients comprise the top of the pyramid, representing 10 to 15% of a country’s population, with the middle class comprising 20 to 25% and mass population consisting of 60 to 70%.” The demographics will shift dramatically by 2030, as mass populations move into the middle class, and that will precipitate a shift in expectations when it comes to healthcare.

“In 2030, patients will expect to engage their hospitals for surgical care in vastly different ways than today,” says the report. “Patients will expect diagnostics, early assessments and information to be mobile. Engaging physicians via telemedicine will be commonplace across all tiers of the pyramid.” This trend is already visible in some emerging economies, where governments are creating policies and initiatives to push adoption of telemedicine. The report cites one such initiative, where Mexico’s Ministry of Health is collaborating with the Cleveland Clinic and Mayo Clinic to test telemedicine in rural parts of the country.

All of this demographic, economic and social change—and the vast business potential that this underserved market represents—creates a unique opportunity for medical device manufacturers, if they can adapt their business strategies and approach to innovation. Participants in the workshop cited the following points that medical device OEMs need to keep in mind to engage in a meaningful and profitable way with these markets:

·         Competing purely on the basis of cost reduction is not sustainable. “[Workshop] delegates admitted their organizations were quickly displaced by domestic competitors selling similar devices at much lower cost,” says the report.

·         Selling high-cost durable equipment to hospitals and relying on recurring revenue of disposables with high margins, as is common in the developed world, will not be successful in emerging economies. “Large hospital systems in emerging markets are already seeking companies that offer more sustainable approaches than the conventional capital/disposable product model,” Rahul Sathe, Head of Surgical Innovation for Emerging Markets at Cambridge Consultants, told PlasticsToday. “Plastic components will continue to be crucial for surgical devices around the globe, but the market pressures, especially in mid-tier and rural areas of emerging markets, will require established manufacturers to rethink disposable design to better serve the growing market while also protecting revenue streams. For example, ‘smart disposables’ with low-cost sensors can monitor usage and help prevent reuse when linked to capital equipment,” explains Sathe. The reuse of single-use devices can increase patient risk—and the practice, it should be noted, is not restricted to emerging economies. “Designing devices [for multiple use] can amortize a hospital's investment while providing recurring revenue for the manufacturer,” adds Sathe.

·         Providing patients with “end-to-end” services—adopting a continuum of care approach rather than limiting innovation to products—can create value and will be more successful in these markets.

·         Top-down innovation is not sustainable in emerging markets. Success will require bottom-up thinking, said one workshop participant. Innovation must happen locally to fulfill the needs of users in developing economies, which are very different from healthcare consumers in the United States. But that can have some rather surprising benefits for the developed world, as well. It’s called reverse innovation.

GE Healthcare is a pioneer in this area, having made a significant investment in R&D in India several years ago. In 2007, company engineers developed a battery-powered electrocardiogram (ECG) system specifically for the Indian market that is portable and features easy, two-button operation. At the time, it sold for around $800; by 2010, they had developed a new model that cost $500. By contrast, hospital ECG systems range in price from $2000 to $10,000. The product has  been very successful, but not just in the developing world. It’s now found in U.S. ambulances.

"That's the power of reverse innovation,” explains Vijay Govindarajan, the Coxe distinguished professor at Dartmouth's Tuck school of business who worked as GE's chief innovation consultant during the product's development. “If you create a product for the rich man, the poor man can't afford it. If you create a product for the poor man, everybody can afford it."

Who could argue with that?

The 20-page report is well worth reading—I have touched on just a few of the many observations it contains. It is available as a free download (registration required) from the Cambridge Consultants website

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