Title: Skyrocketing demand for sophisticated medical devices

Sub-title: Canadian companies in this sometimes overlooked sector benefit from substatnial export opportunities

 

When Ginette Gagné was first approached to take over as Chief Financial Officer at CryoCath Technologies, she immediately sensed the potential of this medical technology company’s product pipeline. CryoCath’s flagship Arctic Front, a minimally invasive cryo-balloon catheter designed to treat Atrial Fibrillation, was safer, faster and more efficient than other offerings and was poised to make major breakthroughs.

 

However Gagné noticed a significant potential challenge: CryoCath did not yet have regulatory approval to market the product here in Canada. Fortunately, the company was able to overcome that temporary hurdle.

 

“If it was not for exports we would not exist,” said Gagné, a seasoned veteran, who made her bones in the U.S. and European operations of industry giant-Boston Scientific, during a telephone interview from the company’s offices in the Montreal suburb of Kirkland.  “We had not yet been approved by the Food and Drug Administration to sell Arctic Front in the United States either. However European regulatory authorities were faster and as a result, their market was open. So we made our initial efforts there.” CryoCath’s preliminary results in Europe have been positive. At the time we talked to Gagné, she estimated that the potential market opportunity for Arctic Front (which had already been used to treat more than 3,000 patients) at close to $2 billion.

 

Medical devices: a surprisingly large industry

According to Stephen Dibert, President and CEO of MEDEC, a national association that acts on behalf of the medical device industry, CryoCath’s tactic of targeting foreign markets before developing domestic sales is common. “The medical device industry is global in scope,” says Dibert. “If a Canadian company gets regulatory approval for a new product in one market, it will often eventually be approved elsewhere too. As a result, new innovations, often by definition have significant potential.”

 

According the MEDEC, recent study results indicate that Canada’s medical devices industry is far larger than experts previously believed. The trade group estimates that the industry includes about 1,500 corporate facilities that employ more than 35,000 Canadians. In all, the sector generates $6 billion in sales each year.  Although many of the largest players are Canadian subsidiaries of international giants such as Baxter Labs, Bayer, Zimmers and Johnson & Johnson Medical Devices, several domestically-owner players have also made great inroads. That said not all local companies have been as successful in export markets as CryoCath has.

 

“Canada is pretty good at innovation and at developing new ideas,” says Dibert. “However, partly because of their smaller size relative to the larger international players, many Canadians firms have trouble getting a foothold in certain export markets.” According to Dibert, the greatest demand for Canadian medical device producers is the United States, which absorbs about half of all exports, followed closely by major European countries. However emerging nations such as India, China and Brazil are also increasingly coming up on the radar screen.

 

It is thus not surprising that in recent times, MEDEC and Export Development Canada have been crossing paths. “EDC is making its first steps in assessing how they can help Canadian companies get a global footprint,” says Dibert. “We have been partnering with them by providing them feedback and telling our members about their products and services. So far the fit had been quite good.”

 

A sector of great interest

At EDC, one of the biggest believers in Canadian medical devices producers’ potential is Keith Thompson, Sector Advisor, Life Sciences, (Light Manufacturing). “This group holds great interest for us, particularly in these difficult economic times,” says Thompson. “Medical device developers are working in an environment characterized by continuous growth and innovation. Furthermore healthcare tends to be a defensive, recession-proof industry and with the aging population in many Western countries, demand is almost certain to grow steadily.”

 

Because of the industry’s potential, Thompson is making significant efforts to come up with better ways for EDC to lend a helping hand. When we spoke to Thompson, he was preparing to attend to large industry shows; Bio-Europe 2008 and Medica Trade Fair, to study industry supply chains and to get to know some of the major players involved.

 

“We currently support about $150 million worth of transactions each year in the sector and while that may sound like a lot, we can do a lot more,” says Thompson. “For example EDC’s program to finance Scientific Research and Experimental Development tax credits is a promising step. The initiative will enable medical device companies to get some of the cash they invested, circulating back into operations faster.” Thompson is also impressed with opportunities for the industry exporters in India and China. He is currently studying the possibility of EDC providing financing for a group that is putting up several hospitals in India.  In exchange, the Indian group would commit to purchase Canadian products.

 

Pyng: don’t put too many eggs in one basket

Another big believer in the importance of EDC’s role in supporting Canadian medical device exporters is David Christie, president of Pyng Medical Corp. The company developed and markets the FAST1 Intraosseous Infusion System, which provides a rapid, reliable and safe alternative to conventional IV infusion, for fluid and drug resuscitation in shock and trauma victims.

 

“FAST1 is highly differentiated and has no direct competitive products. We are also protected by patent which means that we can command a premium price,” says Christie. In fact trauma and resuscitation products for front line critical care personnel have become lucrative niche for Pyng. This summer, the company acquired the trauma assets of California-based Bio Cybernetics International. These included three products: market leading Trauma Pelvic Orthotic Device (TPOD), Mechanical Advantage Tourniquet (MAT) and Cricothyrotomy device (CRIC). 

 

However Christie’s and Pyng Medical’s success comes with some risks attached and that is where EDC comes in. “A large part of our sales in the United States (which accounts for 90 percent of Pyng’s exports) are handled through one major distributor,” says Christie. “And while the relationship has been going exceptional well, we have a a lot of eggs in that one particular basket. If for any reason something went wrong, we would be heavily exposed. The fact that EDC insures those receivables lets us sleep a lot better at night.”

 

Eyes on the prize

According to CryoCath’s Ginette Gagné, because of the intense competition from major international players, the challenges of developing a foothold in the medical devices sector are daunting. However smaller players may have certain advantages.  

 

“A lot of the times they are able to see opportunities in areas that are off the beaten path that bigger companies sometimes miss,” says Gagné. Furthermore, for those that succeed, the rewards can be impressive. For example during our initial interview with Gagné, CryoCath was the subject of a takeover offer by U.S.-based Medtronic.

 

Just before ExportWise went to press, the deal closed. As a result, after her short six-month stint as the CFO of a Canadian owned firm, Gagné will be once again reporting to a U.S. parent company, a development which she welcomes. “In today’s global interconnected supply chains, ownership matters less than it used to,” says Gagné. “If you have products that fill a particular need market, customers will talk to you.”

 

Peter Diekmeyer (peter@peterdiekmeyer.com) is a Montreal based freelance business and economics writer.

 

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