Market Analysis Summary
The two key factors influencing discussion of Medquip Inc.'s market are the medical procedures and product usage statistics and the customer or chain of distribution considerations.
In both cases the trends are upwards in the favor of Medquip. Banding is growing rapidly replacing sclerotherapy and managed care stresses lowest cost of total treatment. The following sections explain how both offer great market potential to Medquip.
The potential customers of Medquip, Inc. are both domestic and foreign.
Domestic customers include managed care groups, hospital buying groups, physician groups, independent physicians, and other (catalogues) and medical supply houses. The market is dominated by managed care groups. More than 50% of all purchases of medical devices are made by these groups and that is forecast to reach 75% by the year 2000.
The foreign market includes many of the above segments but also includes key distributors. For example, only four distributors are required to penetrate the European, Middle Eastern, African, Central and South American and Japanese markets. These distributors have already been identified.
The following chart illustrates the approximate total number of these buying groups that exist. But initial concentration may be more defined by targeting the largest 50 customers in each segment. This data is clearly definable and available.
The health care industry in the United States has been dominated by managed care and hospital buying groups. Lowest total cost treatment has been the evolution of the pricing model. Medquip is ideally positioned to capitalize on this trend. There has been a rapid trend to endoscopic variceal ligation from the previous norm of sclerotherapy for the following reasons:
- Fewer post-op complications.
- Better control of bleeding.
- Lower risk of re-bleeding.
- Reduction of over-all treatment cost.
- Positioned ideally for managed care.
- Current research studies available.
The growth of banding has been as high as 30% per quarter according to IMI. The top 25 to 50 customers in each market category may account for as much as 70% of the potential business, making it easy to target customers with a multi-channel tiered strategy. The foreign markets may be penetrated initially with as few as four key distributors.
Competition and Buying Patterns
Large companies with established brand names and distribution patterns have a distinct advantage in the medical device arena. But new small companies are succeeding on a regular basis dependent on their technology and its over-all cost-of-treatment advantages. Product cost in and of itself is not paramount but education and training are. The product must deliver performance as promised in order to do a procedure more effectively with the fewest complications.
Time saving and effectiveness are the key economic parameters. Medquip will succeed based upon the capability of its products. They are already competitively priced...except they are more effective. After initial market resistance to any new product, Medquip's products can grow to dominate a market segment...in this case distinct surgical applications.
Variceal ligation is a huge and growing market. The market for the band dispenser is a currently existing one with accurate, up-to-date data from IMI. This clearly defined market represents one of the fastest growing segments in the medical device industry. The reason is that doctors are transitioning rapidly from the old and traditional sclerotherapy surgical protocol to banding procedures.
The entire endoscopic market is a $1 billion annual market. Nationally, upper GI endoscopy accounts for more than 1.2 million procedures per year according to MDI. The trend from endoscopic sclerotherapy (ES) to endoscopic variceal ligation (EVL) has been rapid.
In dollars the Endoscopy--Misc. Supplies category has been growing by 30% per quarter. The most recent qtr. ending June ‘97 was $18.8 million (IMI). The market segment exceeds $70 million in annual sales. This growth can be pegged almost exclusively to the market share gained by EVL at the expense of ES. Best estimates indicate that the percent of EVL procedures to total procedures is still in the 30% to 40% range. Thus, the potential market for EVL could be as high as $180 million.
The most important competitor to be considered is Microvasive (Boston Scientific). Its strengths are its reputation, current market position, and its entrenched loyalty among physicians using its products. Its weakness is that it is not particularly innovative, normally depending on other companies to develop and perfect its technologies. This makes it vulnerable to a new, improved entry.
Eric Smith did significant design work for the company that perfected the Speedband for Microvasive. He is well aware of the performance gaps in the product.
The major companies in the endoscopic device field directly competitive with Medquip proposed products are Microvasive (Boston Scientific), Bard, and Wilson-Cook. No manufacturer has a product competitive with the Visi-Gator although a company like Johnson and Johnson could be a likely joint venture partner or licensee.
Managed care providers such as Humana, Kaiser, Blue Cross, etc. are easily identified. Hospital groups are also easily identified as are physician groups.
However, buying methods are diverse, and there is significant overlap of decision making between these segments. That is why it is imperative that Medquip have an experienced CEO and an experienced Sales and Marketing Manager to effectively attack these channels.
Distribution patterns in the health care industry are such that the large buying groups dictate what products are used for certain procedures throughout their sphere of influence. Thus, our products could be mandated or forced out for thousands of patients due to their health plan or hospital group. Others recommend several alternatives which require physician education and intervention, similar to pharmaceuticals.
Distributors are key for foreign markets.