By Kamran Zamanian, Ph.D, and Sean Collins, iData Research Inc.
With less than 25 million residents, Taiwan flies under the radar of many medical device manufacturers. However, the low penetration rate of bone graft substitutes, a rapidly aging population, huge profit margins in the patient paid market segment, and the emerging allograft and bone morphogenic protein (BMP)/growth factor segments make Taiwan a potentially lucrative target for orthopedic biomaterial manufacturers considering expansion in the Asia Pacific region.
Bone Graft Substitutes: A Brief Introduction
Bone graft substitutes are designed to fill bone voids or act as extenders, thereby eliminating or reducing the need for autograft harvesting. These products are divided into four general categories:
Bone graft substitutes are widely used in a variety of indications, including spine, trauma, large joint, foot & ankle, craniomaxillofacial, and oncology.
A Sketch Of The Taiwanese BGS Market
Approximately 86,000 bone graft procedures were performed in Taiwan in 2016. Use of autograft bone remains widespread in the country. In fact, about 90 percent of bone grafting procedures performed in Taiwan in 2016 used some quantity of autograft bone.
Local surgeons typically attempt to perform bone grafting procedures using only autograft bone. If the patient does not have enough bone of adequate quality to supply the procedure in full, the surgeon will consider using a blend of autograft and bone graft substitute(s). The decision regarding which bone graft substitute(s) — allograft, NHI covered synthetic, patient pay synthetic, and/or DBM — will depend, primarily, on the patient’s budget. Patients with limited means will opt for an NHI-covered synthetic product, while more affluent patients may be able to afford to pay out-of-pocket for DBM or a non-reimbursed synthetic product.
Surgeon preference also comes into play when selecting a bone graft substitute. Some surgeons in Taiwan prefer to use a mixture of local autogenous bone, synthetic products, and DBM in a single procedure to: (1) get the best application of these materials, (2) expand the volume of bone graft, (3) change the properties of the bone graft, or (4) increase their billings.
Firms wishing to gain share in the Taiwanese market may benefit from marketing efforts designed to shift surgeon preference away from autograft. These efforts may take the form of academic publications, seminars, and training sessions with experienced U.S. surgeons currently using bone graft substitutes.
Rapidly Aging Population Drives Procedure Growth
Degenerative disc disease (DDD) is most frequently noted in the lumbar or cervical spine. DDD is evident in approximately 40 percent of those age 40, and 80 percent of people over the age of 80. Surgical management of DDD (spinal fusion procedures) uses bone tissue to link the vertebrae at the degenerated disc to an adjacent vertebra. Lumbar and cervical spine procedures accounted for about 50 percent of total bone grafting procedures performed in Taiwan in 2016.
According to the Ministry of Health and Welfare’s 2016 Taiwan Health and Welfare Report, men and women 65 years and older accounted for 12.5 percent of Taiwan’s total population in 2015, up from 8.8 percent in 2001. Taiwan’s Council for Economic Planning and Development expects the share of men and women 65 and older to reach around 20 percent by 2025.
As the Taiwanese population continues to age, the resulting rise in DDD prevalence will generate growth in spinal fusion procedures. This uptick will contribute to the total number of bone grafting procedures performed each year in the country. In fact, the annual volume of bone grafting procedures is expected to increase at a compound annual growth rate (CAGR) of 5-10 percent from 2017 to 2023.
Huge Profit Margins In The Patient Pay Segment
The bulk of bone graft substitute used in Taiwan is synthetic and DBM. Taiwan’s NHI reimburses some synthetic products. However, margins for these products are razor thin, and continue to fall every few years as the NHI slashes reimbursement rates.
Patients pay out-of-pocket for DBM and select synthetics. DBM and patient pay synthetics sell at a substantial premium, compared to NHI covered synthetics, while DBM is considerably more expensive than patient pay synthetics.
Profit margins in the patient pay market are generous. Distributors, sub-distributors, and hospitals each charge a healthy mark-up. This practice generates a massive gap between the price the manufacturer records as revenue and the price the patient pays for a unit of bone graft substitute. Manufacturers that employ a direct sales team in Taiwan keep a larger share of the high price paid by patients.
Differences in distribution channels (e.g., direct sales team, single distributor, etc.), among other factors, cause pricing to vary considerably by competitor and brand in the Taiwanese market.
Emerging Allograft Market Segment
In the past, tight import regulations and limited local supply have constrained the Taiwanese allograft market. In 2016, the allograft bone market accounted for less than 5 percent of the total bone graft substitute market in Taiwan. However, the market is poised to experience rapid growth over the next seven years. Growth will be fueled by the opening of Taiwan’s first commercial bone processing facility and the entrance of several multinational competitors.
HCT Regenerative, Taiwan’s first commercial bone bank, is expected to play a key role in driving growth in the allograft market. The company is currently the only player in the allograft market with an office in Taiwan; all other competitors (LifeNet Health, AlloSource, Community Tissue Services, etc.) currently sell through a distributor. In addition to having an established physical presence in the market, HCT Regenerative also boasts a leadership team with a unique combination of experience in both the Taiwanese orthopedic market and the American bone banking space. Beyond that, the company’s musculoskeletal allograft portfolio is rapidly expanding. The company is expected to launch DBM, cervical spacers, and tendons by late 2017; launch a line of DBM fibers by early 2018; and secure a partnership with U.S. non-profit LifeLink Tissue Bank, in Taiwan, in the near future.
Multi-national competitor AlloSource recently entered the Taiwanese allograft market, as well. The company has recorded limited allograft revenues as of September 2017. MTF, another multinational competitor, also is expected to launch an allograft product in Taiwan in the near future.
Nascent BMP/Growth Factor Market Segment
As of September 2017, Medtronic was not selling INFUSE® Bone Graft in Taiwan. Three factors have kept INFUSE® absent from the Taiwanese market: (1) concerns from the TFDA that mad cow disease could be transported via INFUSE®’s bovine derived collagen sponge, (2) a lack of interest from Medtronic in smaller, low-potential markets, and (3) the price-conscious nature of the Taiwanese market. Wright Medical is yet to commercialize AUGMENT® in Taiwan for similar reasons.
Medtronic and Wright Medical are expected to eventually bring INFUSE® and AUGMENT® to the Taiwanese market. However, a commercial launch is still at least 5 to 10 years away, as both companies have yet to receive TFDA approval for their products.
Local Taiwanese competitor BioGend Therapeutics is currently developing an osteoid-inducing factor (OIF) and bone graft, OIF/Bioceramics. The product will work in a wide array of applications, including spinal fusion, long bone fractures, dentistry, maxillofacial bone grafting, and other surgical procedures that require grafting. Unlike INFUSE® and AUGMENT®, OIF/Bioceramics is not derived from bovine materials.
BioGend is currently carrying out phase I/II clinical trials. Initial estimates suggest the company will be able to conduct licensing agreements and issue an initial public offering by 2020. However, the product is not expected to launch in Taiwan until 2023. Many surgeons in Taiwan have expressed interest in orthopedic growth factor, and adoption of OIF/Bioceramics is expected to be well-received by the market. BioGend is currently seeking co-development partners in China, the United States, and Europe.
Wright Medical, Wiltrom, and Medtronic collectively accounted for about 50 percent of the total market in 2016. The remaining 50% of the market was split between 20+ local & multinational competitors.
Wright Medical led the total Taiwanese bone graft substitute market in 2016, though the company’s lead has narrowed since switching distributors in 2015. Wright Medical is strongest in the synthetic segment, but also holds a moderate share in the DBM segment.
Local manufacturer, Wiltrom, was the second leading competitor in the Taiwanese bone graft substitute market in 2016. The company derived this position from strong sales of its synthetic bone graft substitute portfolio which includes the Osteocera® and Bicera® product lines.
Medtronic ranked third in the total Taiwanese bone graft substitute market in 2016. The company’s flagship DBM product line Grafton® is available in several variations (including gel, putty, and matrix strips). Medtronic also sells two versions of its synthetic Mastergraft® product: a compressible matrix block and putty. These products complement the hardware lineup offered by Medtronic’s highly competitive spinal fusion department. Medtronic’s leadership in spinal fusion provides an effective sales channel for its bone graft substitutes. Stability in Medtronic’s local distribution channels have also been an asset in recent years.
The low penetration rate of bone graft substitutes, a rapidly aging population, huge margins throughout the supply chain in the patient paid market segment, and the emerging allograft and BMP/growth factor segments make the Taiwanese bone graft market a small, but profitable potential target for firms considering expansion into the Asia Pacific region. Firms evaluating a foray into the Taiwanese market should be wary of razor-thin margins on NHI-covered synthetic products, crumbling NHI reimbursement rates, and staunch competition from local heavyweights, such as Wright Medical, Wiltrom, and Medtronic.
Brand and SKU-level pricing data presented in this article is taken from MedPrice.
About the Author
Sean Collins is an Analyst Team Leader at iData Research and served as the principal analyst for the 2017 Taiwanese Bone Graft Substitute Market report.
About iData Research
iData Research is an international market research and consulting firm, dedicated to providing the best in business intelligence for the medical device industry. iData covers research in: Spinal Implants and VCF, Spinal MIS, Orthopedic Trauma, Large & Small Joints, Orthopedic Soft Tissue, Orthopedic Biomaterials, Orthopedic Soft Tissue Reinforcement and Regeneration, Wound Management, Dental Operatory Equipment, Dental Material, Dental Lasers, Dental Prosthetics, Dental CAD/CAM, Dental Bone Graft Substitutes, Ultrasound, X-Ray Imaging, Diagnostic Imaging, Oncology, Ophthalmics, Vascular Access, Laparoscopy, Urology, Gynecology, Endoscopy, Interventional Cardiology, Cardiac Surgery, Cardiac Rhythm Management, Electrophysiology, Operating Room Equipment, Surgical Microscopes, Robotics and Surgical Navigation, Anesthesiology and more.