The day of rare diseases on February 28 focussed attention once again this year on the high unmet medical need in view of the 6,000 to 8,000 ‘rare’ or ‘orphan diseases’ for which there are until now no comprehensive therapies.1 The summary of the medicines newly approved in 2017 in Germany may mark an advance with 9 of 31 orphan drugs in this regard.2 The potential for innovative foreign companies, however, is evident – combined with the fact that a market entry in Germany is critical for success at the European level, it is logical for start-ups in particular to take the German market into consideration as their first choice for an expansion. A successful concept for this will include both organizational and market-specific aspects.
Orphan drugs, in addition to other therapeutic agents, provide a good example of business ideas with a potential for expansion. That’s because those who are working in the area of orphan diseases are researching at the forefront: many rare diseases are genetically determined, and scientists need to make use of molecular biology methods to clarify the disease mechanisms.3 The corresponding medicinal products are not infrequently developed by start-ups based in the USA.
After market launch in the United States, the second step is to develop markets in Europe. Due to Germany’s size as well as its relatively rapid reimbursement, many such companies consider the country an attractive initial target market. The lessons learned in Germany can then be transferred to other European countries.
Laying the foundations depending on company size and requirements: organizationally, structurally, close to the market
In a market expansion, foreign companies are confronted with numerous internal and external challenges. In particular, newly established companies lack the functional and specialist resources that an established player has from the outset. A network of competent, independent service providers with different specializations provides a powerful and at the same time cost-effective solution to creating the organizational and structural conditions for successful establishment in Germany and launch of the products.
At the company level, the first steps include searching for a suitable location and setting up a subsidiary, for instance a capital company. Decisions also need to be made on the topics of distribution and logistics. The latter can pose a great challenge in gene therapies. Besides regulations under finance and labor law, there are specific topics for the pharmaceutical industry when founding a company: for instance, establishing pharmacovigilance, appointing information officers, creating approval procedures, or generating a wholesale license.
The product-specific and market-specific challenges with which even established players are confronted when launching a product in Germany consist mainly of a profound understanding of the market when deriving a launch strategy, and bringing about a successful product launch. Once the market mechanisms, treatment guidelines and relevant stakeholders are known, it is easier for companies to develop market access and price strategies and address the right target groups – from medical specialist groups to patient organizations to public health policy.
The time required and the complexity of these tasks are often underestimated. At the same time, the individuals responsible are making decisions with a great scope, decisions are then difficult to revise. Whether for orphan drugs or other new products: for companies abroad of varying sizes, collaborating with cross-functional teams of local consultants is worthwhile for successful entry into the German market.
A company like SpacePharma, supplier of automated testing procedures in space, has a very favorable point of departure: they have found an extremely innovative topic – without competition thus far – and have a unique product for which there is currently no market but a need. Backed with sufficient financing, they can further develop and implement their ideas for years. But market segments that are already developed can also be targeted successfully. This article takes a look at current conditions on the German market and provides useful tips for successful market entry.
Worthwhile sectors for investment on the German healthcare market
Germany, the world’s fourth-largest industrialized economy, spends EUR 4,213 per inhabitant on health. With a volume of EUR 344.2 billion, the German healthcare market is very attractive for companies from all over the world. High-quality medical equipment with a good price-performance ratio that keeps up with the trends in computerization, molecularization and miniaturization has the best prospects here:
- Besides the convergence of medical technology and information technologies, computerization includes the development of high-performance implants through improved hardware and software, model-based image processing, and the intelligent control of dialysis and ventilation systems.
- Molecularization includes, inter alia, nanoparticles that release drugs in a controlled fashion and the development of new functional biomaterials that imitate natural tissues.
- Devices meet the miniaturization trend that, for instance, enable an examination directly at the doctor’s office and the application of implantable micro-systems that work sensorially, by telemetry, or with a connection to nerves.
Other areas also promise high potential for suppliers from Germany and abroad. These include these fields of research into which most investment in Germany is currently going1:
- Imaging techniques, such as 3D imaging combined with navigation and representation of instruments or hybrid imaging procedures
- Prostheses and implants, like prostheses with sensors, actuators and control loops, fall detectors or biofunctional implants
- Telemedicine and model-based therapy, such as process optimization by deploying IT, Critical Incident Reporting Systems (CIRS) or
- Clinical Decision Support Systems
- Operational and interventional devices and systems, like the connection between instrument and data record, augmented reality or combined methods (endoscopy with imaging)
- In-vitro diagnostics (IVD), such as POC diagnostics with lab-on-a-chip systems or multi-array systems for complete analyses with small sample quantities
- Technology for “regenerative medicine”, such as artificial tissue models.
Specific features of the German healthcare market
The challenges on the German market are above all in competition, in reimbursement and with customers. The German market is widely distributed; relationships between suppliers and care providers are strong – meaning that even a company with a product with a persuasive USP has to face up to the competition.
About 58 percent of the market is financed by statutory health insurers; an additional 8.9 percent comes from private health insurers. The requirements from reimbursement are thus clearly defined. The German Technical Aids Register serves as the “gatekeeper” for reimbursement in outpatient care. Often, the new product does not match the product groups, and for that reason alternative sales channels must be developed.
In B2B business, the focus is on hospitals, doctors’ offices and pharmacies. Business with hospitals is complex since the decision-making processes – particularly for capital goods – vary greatly. A survey of 404 hospitals2 identified twelve different decision-making bodies: from the chief physician to the managing director to the IT, medical technology or purchasing department – and various combinations thereof. In addition, doctors’ offices are difficult to reach with a dispersed sales force.
The challenges – taking mobile apps and e-health solutions as an example
A large share of the companies that want to capture the German market come from the booming segment of mobile applications. Successes here are few and far between, as there is often a lack of business models3. Only a few approaches are promising for medical apps in Germany. One possibility is financing by statutory and/or private health insurers or the sale of the application to the end users. Selling to existing care providers is another option. Thus, for instance, providers of emergency call services are a sought-after target group for providers of monitoring apps (wearables).
Apart from the question about the business model, suppliers of mobile applications and those of other e-health solutions should have answers to questions that are crucial for success:
- What existing (medical care) process is improved by means of the application?
- What are the advantages for users in everyday use (e.g., real time savings)?
- How significant are the changes for users?
- How much effort must be expended for IT administration, data or decision management?
Many applications on the market reveal an alarming lack of knowledge about real medical care processes in hospitals, doctors’ offices or at home.
Step-by-step support for market entry
The decision on which market segment to position one’s product helps define the guiding principles for going forward, particularly what path one embarks on to the source of money. On the market for statutory health insurers, these guiding principles are the obstacles to reimbursement, while on the market for privately insured individuals it is customers’ own budgets.
The challenges, not just in the B2B segment, are in driving out the existing relationships between manufacturers and customers. Besides in marketing and sales, there are also often care concepts that have to be implemented together with the care providers, such as pharmacies or medical supply stores.
Figure 1: Market segments for positioning
For each step, you need competent support from the market – and that’s what the Healthcare Shapers offer: the network can provide experienced experts with the appropriate knowledge from development, approvals (medical technology), to market access with topics like reimbursement, market know-how, sales concepts and care models, to implementation.
1 Aachener Kompetenzzentrum Medizintechnik – AKM und AGIT mbH; Zur Situation der Medizintechnik in Deutschland im internationalen Vergleich [On the Situation of Medical Technology in Germany in an International Comparison], Feb. 4, 2005.
2 FAQ Consulting GmbH, survey of 404 German hospitals, 2011, for results ask the author.
3 mHealth App Market Sizing 2015 – 2020, Research2Guidance.