Coloplast has once again been neglected by major purchasing organizations that deal with ostomy care products on behalf of US hospitals.
Vizient, the largest organization, has opted to extend its contract with Coloplast's competitors, Convatec and Hollister until 2021.
This leaves Coloplast in the cold, and further, the company has no contract with the purchasing organizations Premier and Healthtrust that together with Vizient are responsible for purchases to about 90 percent of the US hospital patients.
However, Manu Varma, new head of Coloplast's ostomy and incontinence business units in North America, is not intimidated by this situation. He has a new strategy in the pipeline to win market shares despite the unsuccessful contracts.
"We are not burdened by this. We keep winning market shares. And at the end of the day, we'll be impossible to ignore," says Manu Varma to MedWatch.
Manu Varma's strategy is to make individual deals with US hospitals, as the purchasing organizations' contracts do not prevent a hospital from purchasing ostomy care products outside the scope.
In doing so, Coloplast has managed to become the preferred provider to the hospital network Cleveland Clinic with 4500 beds.
"It is beneficial to sign contracts with purchasing organizations, it just makes the sales process easier. At the same time, we see that the decision as to which products they should use use is often made by the hospitals," says Manu Varma.
"This is how we grow the business. Cleveland Clinic was a great success, and we've had several other important successes since then," says Manu Varma.
He points out that the sales in Coloplast's North American business in growing faster than the market, even though Coloplast does not have a contract with any of the three major purchasing organizations.
Manu Varma explains that there are about 200 hospital networks of a "considerable size" which Coloplast will chase in the US, but he will not disclose how many of them Coloplast has already made deals with.
At the end of the day, we will be impossible to ignore.
At the same time, he underlines that hospitals and clinics are not the only ponds to reel in customers.
Gaining market shares
Manu Varma has work to do if Coloplast's US business is to reach the upper echelons where they usually operate.
Coloplast's US market represents the lowest market share across all its markets.
Coloplast's two largest business units in the US, ostomy and continence care, represent 15 and 30 percent, respectively, of the US market.
In comparison, Coloplast in Europe has a market share between 40 and 55 percent in the same business units depending on the country.
This is also reflected in the sales which last year accounted for USD 1.5 billion and USD 437 million, respectively in "other developed countries," including the US.
"We are frontrunners in our area, but in the US, particular in the ostomy care market – we don't gain these market shares," says Manu Varma.
"My first business move was to take stock of the market and identify how we develop and realize a vision that brings us closer to the market share we deserve. That has been my focal point in the last months," he continues.
MedWatch: Which market share do you deserve?
"I will not mention a specific figure, but something in the neighborhood of what we have in Europe," says Manu Varma.
Stronger foothold next time
There are prospects of a US market share of at least 40 percent which will be gained without the large purchasing organizations.
Premier and Healthtrust that are responsible for the purchase of 25 and 15 percent, respectively, to US hospital patients, will renegotiate their contracts in 2020, whereas Vizient which purchases ostomy bags at 50 percent will renegotiate in 2021.
"Coloplast will probably spend more resources on marketing than if they had signed a contract with the purchasing organizations, but they can still win.
Manu Varma forecasts that at that time Coloplast will have a considerably stronger foothold in terms of muscling their way into the contracts.
"I feel pretty good about our chances because of our product differentiation. Our market share will be higher than it is today. We already have a 15 percent market share in the US. With our product differentiation and market share we will be difficult to ignore," he says.
Analyst believes in the strategy
Coloplast's sales efforts to circumvent the procurement organizations have impressed Annette Lykke who is analyst at Handelsbanken.
"It's very impressive that Coloplast increases sales by 10 percent in the US when the market only grows by maximum 5 – although they haven't signed contracts with the purchasing organizations," says Annette Lykke.
She believes that it has become less important to sign a contract with the purchasing organizations, and a change in law in 2016 has entailed that the hospitals are now free to buy medico products outside the organizations.
This is why she is very optimistic on behalf of Coloplast's outlook.
"Coloplast will probably spend more resources on marketing than if they had signed a contract with the purchasing organizations, but they can still win, and Cleveland Clinic is a very good example," says Annette Lykke.
English Edit: Lisa Castey Hall Nielsen