Every company dreams of being able to sell their medical device one day. While considerable thought has been given for the domestic market, what is the best approach for international markets which can be complex to navigate and can vary from country to country? In a series of posts, I will outline the thought process and considerations when deciding how to commercialize internationally.
The two most common strategies for international commercialization are selling through a distributor or a license – the most appropriate strategy being influenced by the company’s business strategy and where the device is in its life cycle. Establishing a foreign subsidiary or joint venture can also be good strategies, but they are more complex to implement so will not be considered at this time.
As a general rule, a distributor will focus on device sales and marketing as opposed to device development. It is typically a simple buy and sell agreement where the distributor buys the device in its final form from you at a set price that includes your profit and sells to its customers at a markup. The distributor will typically determine the markup price.
This is a good option if your device is:
Already successfully launched (sales, utilization uptake, customer and salesforce training, and technical support) in your domestic market
Existing regulatory and clinical data packages are sufficient for getting regulatory approval, pricing/reimbursement, and market traction in the target market
The device is already approved for distribution in the target market
Some distributors have the capability to sell devices at a national level, either directly or through a sub-distributor network, and they will want market exclusivity whereas as some will have local or regional capability. For most companies, managing multiple smaller distributors can be tricky and time consuming, so I find it best to find a national level distributor to make the process more streamlined and less resource intensive.
If company’s business strategy involves eventual acquisition, then a distributor strategy can help increase valuations and give the acquiring company greater control over the international commercialization of the device as the regulatory approvals and trademarks remain with the company and the distributors can be changed more easily.
As a general rule, a licensee will have a significantly greater involvement with the medical device and the relationship is more complex and a long-term commitment. A licensee may be tasked with:
defining device characteristics/development based on market fit
fulfilling the regulatory and clinical requirements for market approval
sales and marketing
In a typical agreement, the licensee gets market exclusivity and favorable profit-sharing terms in exchange for greater “skin in the game” – upfront and milestone payments, R&D expenditures, and allocation of internal resources.
This is a good option if:
Your device is still in the development stage
You need greater assistance (eg technical, market knowledge and feedback, etc)
You need nondilutive funding to complete the device development
You have a final device but it is not approved for sale in the domestic market
You have a final device approved for sale in the domestic market but there is a regulatory requirement in the target market which you are not able/willing to fulfill.
License strategy is better suited for the major markets (US, EU, Japan, China) since the regulatory process in smaller markets are usually harmonized with one of the major markets. While a license strategy can help increase overall company valuation as it can facilitate product development and nondilutive funding, it could have a negative impact on the feasibility of an eventual acquisition, both in terms of valuation and deal attractiveness, if the licensed territory overlaps with the acquirer’s geographical capability and interests.
Choosing the most appropriate strategy for international commercialization can have a major impact on the success of the device and company – Distributor and License being the most common. By having a clear understanding of the company’s business plan, device’s stage of product life cycle, and level of support needed for regulatory and market success, the complexity of international commercialization can be greatly reduced. Distributor strategy being more appropriate when company acquisition is an important goal, device is in the latter stages of the product life cycle, and low level of support is needed. Whereas, Licensing strategy will be more appropriate when company acquisition is not a near to midterm goal, device is in the early stages of the product life cycle, and high level of support is needed.
Author: Jeff Basham. Jeff has spent a significant portion of his career building medical technology companies and leading the development of a variety of medical device products – from clinical imaging to lab diagnostics to wound closure and many things in between.