The Columbus adventure: building an asset versus generating revenue in EMEA

No doubt you are familiar with the story of the travels of Christopher Columbus at the end of the 15th century. “When he left he did not know where he was going, when he arrived he had no idea where he was and all that happened at the expense of somebody else”. It is a story that often comes to mind when we hear about the experience of US Medical Device Companies that are spreading their wings and initiating a generation of revenue in EMEA or Europe only.

This is the first article in a series of 5 on the subject of taking your operation International and building an asset abroad.

It will assist you in preparing and planning for the necessary clinical (economic) file, setting up the organization for customer and value chain support, deciding on the kind of distribution you needed, selecting distribution methods and means in the various phases, control, support and optimization of an international organization.

This series of articles will lead you through the do’s and don’ts and allow for the identification of elements that will decide on success or failure in financial and strategic terms. It will be aimed at building an asset and not a liability.

The advice is based on the experience with a lot of companies, hands on experience and not observations. We have been there and done it.

Major grounds for dissatisfaction

There will be a point in time that a US based Medical Device company will take the initiative to consider generating revenue in Europe. The Domestic operation is up and running, the product is solid enough and the board asks questions like “why are we not going international”. It seems obvious: the product has proven itself, the company is ready for it, CE-marking seems an easy exercise, exchange rate is favorable, and at the last American Congress and Exhibition, lots of foreigners dropped by to offer their services in Europe… Let’s go !!

When asked for their opinion about “the International experience” more than 70% of the companies are not happy about that exercise, to say the least.

The Columbus adventure

The message that comes out of the interviews with the company’s senior management hovers around the same issues: “It turned out that we were not as well prepared as we thought we were, ran into issues that we had never thought of, we were badly advised and way too optimistic… if we would only have known”.
Even Senior Managers with international experience in previous positions seem to have overestimated their understanding of the issues and the ability to deal with them, swiftly and efficiently. Their defense: International experience, certainly in Europe, is subject to rapid inflation. The DRG (DRG like) systems in Europe, the pressure on the system as a result of the increased number of patients, fast tracking, central purchasing and the drive for evidence based technologies and therapies has changed the market barriers and drivers in Europe dramatically in the last couple of  years.

The first question is always: “when is a good time to embark on an international voyage?”, and the answer is (as you might expect): “that depends”. We have assumed that in every exit scenario (IPO, M&A) the international operation is to add to the value of the company and not be considered a liability, a part of the company that requires an effort and funds to get rid of or to wind down.
Large overseas organizations are in general (but not always!!) considered a liability in case of a merger or acquisition. The question is, what is large, in relation to the potential revenue and the kind of people there are internationally. A decent amount of field based clinical specialists are potentially an asset and a large sales force can be a burden, but this statement requires qualification and detailing and we will provide that.

In any case, hiring commercial staff, an office, a couple of non-productive headcount to establish that there is no way to advance without a decent clinical and economical preparation (a launch file) is not the smart thing to do. The smart thing to do (and this has been proven) is to take the preparation (building a reasonable clinical file) separate from setting up an organization to sell or to seek representation, partnership or to commercialize.

Having evaluated the product in Europe will allow you to gauge the potential of the product, set realistic prices and negotiate a better deal with a European partner or individual country distributors. It will avoid major disappointments and running up the tab without any purpose.
Setting up the International organization requires planning and one thing is important: the order of things.
How many times did we have to undo the early initiatives, of which the most important is: go to a major European exhibition (traditionally Medica, now also Arab Health) dive into a negotiation with a series of distributors that have a great story and go back thinking that you are on your way…

Remember: most distributors are not fond of investment, selling the concept, launching products big time and probably for the right reasons… However, they love to collect agreements, just in case. Nothing disturbs a domestic organization more than a bunch of uncontrolled distributors that have more questions than you can answer, presenting you with (e.g) additional regulatory issues but not generating a lot of sales (if any).

Also in Europe it is: Ready, Aim, Fire. Any other order should be avoided.
There are smarter ways to build a clinical file, better and more efficient ways to set up distribution and less expensive ways to roll out a business.
A favorite saying internationally (one of the first adopted from the US) is: if you want to dance, you need to pay the band. Sure, ok, but does that mean that you need to hire The London Symphony orchestra. Don’t think so.

Having a plan, doing things in the right order and establishing a “hull speed” will save fortunes and avoid major disappointments. Every boat owner knows that more horsepower generates more, higher waves, consumes more fuel but makes the ship go only marginally faster.

About Helgert Van Raamt

Helgert van Raamt has 35 years of experience in running and setting up companies, big and small, in EMEA (and beyond). After his senior marketing positions with Organon Teknika and Abbott Labs and four years in Venture Capital as an investment manager for US, UK and NL based funds, he joined Nellcor Europe in 1989 and has lead this company through two consecutive M&A’s (Puritan Bennett and Mallinckrodt). The acquisition by Mallinckrodt for 2.7 Billion made Nellcor the most successful Medic venture after the Second World War. He left to set up the International Operation of Aspect Medical Systems and brought that to success. In three years it reached a revenue level of $10 million and was profitable two months after the start of the operation. Since then (2003) he has successfully advised numerous companies about setting up internationally or cleaning up an existing international operation, both independently and as a partner for TforG Group.