If emerging-market revenue were a horse race, Boston Scientific would be bringing up the rear. But the medical device maker is fervently determined to gain ground, with stepped-up efforts to sell pacemakers, defibrillators and other technology overseas.
“We’re making great strides to narrow that gap, and we’re developing capabilities more fully in emerging markets,” said Boston Scientific President and CEO Mike Mahoney. “Our emerging-market sales increased to 9 percent of our total company operating sales in fourth quarter 2013, and we anticipate emerging-market sales will grow to an estimated 15 percent of our mix by 2017.”
During a recent conference call with analysts, Mahoney acknowledged ambitious aspirations overseas, particularly in markets like China, Southeast Asia, India and Latin America.
But how does a company that admittedly treated emerging markets as an afterthought start kicking the mission into overdrive? And just how realistic are Mahoney’s goals for a company that only recently returned to revenue growth after years of struggling worldwide sales?
According to Michael Phalen, who leads Boston Scientific’s MedSurg division and was once head of its international business, Mahoney has “brought a sense of accelerated globalization” in his little more than a year at the helm of the company. One change, he said, is that each divisional president has worldwide responsibility for driving sales and income — and is rewarded for strengthening international sales.
Over the past year, Boston Scientific has seen its emerging-market sales grow faster than many of its competitors. A recent report by Wells Fargo analyst Lawrence Biegelsen shows emerging revenue jumped 30 percent in the third quarter of 2012. Since Mahoney took control of the company in the last quarter of 2012, those have grown, by quarter, 35 percent, 35 percent, 29 percent, 29 percent and 18 percent.
“We have seen results. We have seen our revenue results impacted by the investments we have made in the emerging markets,” said Boston Sci’s chief financial officer, Daniel Brennan. “Emerging markets are a piece of our return to revenue growth. To do that, you need the people, the products and the physicians.”
But when looking at its rivals, Boston Scientific, which has 5,000 Minnesota employees, has some work to do. Local med-tech giants Medtronic and St. Jude Medical, for example, each get about 13 percent of their revenue from developing markets. Abbott Laboratories pulls a whopping 40 percent of its revenue from emerging markets, according to Biegelsen’s report. Johnson and Johnson gets an estimated 22 percent of its revenue from emerging markets.
Nuts and bolts
The building blocks needed for the emerging-market business are straightforward, Phalen said. First, hire knowledgeable, talented local leaders who are part of the culture, speak the language and understand the local health care system. Health care in India is a very different animal than in Brazil. That goes beyond sales to building local regulatory and financial teams, Phalen said.
Another key is getting products into a market. Much like in the United States, Phalen said, companies must work with local regulatory agencies to prove that devices are safe and meet other requirements. Products doing well overseas include Boston Scientific’s SpyGlass Direct Visualization System, recently launched in China, that helps doctors see the inside of a patient’s pancreas and biliary tree. Boston Scientific’s Peripheral Interventions Division, which focuses on blood vessel blockages and narrowing in the arms and legs, also has shown strong growth internationally.
When asked how many boots Boston Scientific has on the ground in emerging markets, however, Phalen declined to say. Worldwide, the company employs 23,000 people.
The next important piece of building business overseas is training physicians. Phalen was just in Brazil, a country that actively recruits doctors from overseas. Before sales can increase, Boston Sci and other med-tech firms need doctors who know how to safely use their technology.
One way to do that is through innovation centers. Last year, Boston Scientific opened one in Shanghai. In the past six months, the center has been visited by 300 to 400 physicians who have been able to participate in workshops and watch implant procedures live, then discuss the procedure with the doctors who performed it.
Boston Scientific plans to open innovation centers in Japan and India soon, said Warren Wang, vice president and managing director for Boston Scientific in China.
The company’s Institute for Advancing Science offers Chinese doctors programs in cardiology, cardiac rhythm management, electrophysiology, endoscopy, peripheral interventions, urology and women’s health.
In Brazil, the company is working to identify and train promising young physicians to boost their knowledge of and expertise with Boston Scientific products, Phalen said.
Last is building a sales force. The company used to primarily rely on local distributors to move their product, but more and more, Boston Scientific and other med-tech companies are having to develop their own local sales forces and develop longer-term relationships with distributors.
“One size does not fit all. That is sort of the operating norm here,” Phalen said. “When you come into a market, distributors may have already hitched their relationships to other companies. Then, you have to develop new distribution channels. That changes by the year and the country. Flexibility is the key term here.”
Of course, a major element to overseas growth is reaching more patients, said Supratim Bose, a Boston Scientific executive vice president and president of the company’s Asia-Pacific, Middle East and Africa businesses.
“The question of emerging markets is and has been and will always be about creating the capability to serve more patients,” he said, noting that each market is substantially different.
In some markets, that means getting products to the people who can afford them — a growing middle class in China and India, for instance. In others, it means finding the right product to fit a market’s need and ability to pay. In many, it means building capacity.
Interventional cardiology, for instance, needs cath labs — where doctors perform an angioplasty and implant a stent using less-invasive catheters. Medical technology companies have helped develop 2,000 cath labs in China, although more are needed there and in many other countries.
In some places, it means overcoming long-standing patient fears of medical devices, Bose said. “We have to go step by step in most of the markets in some ways,” he said.
Wang said it takes a long-term commitment to cultivate foreign markets. In addition to training physicians, companies must work with regulatory officials, hospital administrators and key health care policymakers — as well as other companies and trade groups — to continue growing. “To create a market, you have to set up the right policies,” he said.
Tim Nelson, a former analyst with Nuveen Asset Management and Piper Jaffray & Co., said he agrees that it takes a long-term investment to see significant growth in emerging markets. He said he doesn’t doubt that Boston Scientific will reach its 15 percent goal — over time. But, at a time when the company still is working to lower costs while developing its product pipeline, Nelson said it doesn’t leave a lot of room for additional investment.
“That takes a while,” he said. “They really have to have the overall financial flexibility to afford that, and Boston Scientific has not had that in the past. And I am still not sure that they do.”