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SMITH & NEPHEW GOES REP-LESS WITH SOME HIPS AND KNEES (Orthopedics This Week)
Smith & Nephew, plc (SNN) expects to cut some orthopedic implant prices in half with a “no-frills” option called Syncera that excludes logistical support or an onsite technician and replaces them with an iPad app.
The program was announced by company CEO Olivier Bohoun at the end of July. Bohoun said the Syncera program could reduce hip and knee device prices by 40% to 50% for the target market of 5% to 10% of U.S. hospitals.
When Wright Medical Group, Inc. offered a similar program in 2013, Bank of America analyst Bob Hopkins called it the “Death of the Device Salesman.” But Wright had less than 5% of the hip and knee market and subsequently sold its ortho business to MicroPort Orthopedics.
Institutional Drivers
Leaders at Wright had hired Baine & Company to figure out how to segment the 6,000 hospital market in the U.S. The Bain report concluded that about 10% of the U.S. hip and knee procedure market is institutionally driven. That was up from about 5% only two or three years ago. The report further concluded that the institutional numbers were going to be 15% to 20% in the next couple of years. “So there’s a clear drift towards institutions gaining more control over the purchasing decisions,” said the report.
Syncera “fulfills the unmet needs of customers searching for a different value proposition, namely by offering 2 hip implants and 2 knee implants combined with cutting-edge technology that streamlines the supply chain and logistics and enables technical support in the operating room,” according to a Smith & Nephew press release. The company expects to start shipping devices shortly.
Piper Jaffray analyst Matt Miksic said that in a nutshell, SNN will continue to market and price its current line of implants in the same way, serviced by the same rep in the operating room. Syncera will offer older and approved systems with a “‘leaner’ technology-enhanced service model at a substantial discount.”
Syncera and iPad App
Syncera will have its own brand, separate from the traditional orange and white Smith & Nephew brand. The existing business, according to Miksic, will continue to focus on its latest innovations (e.g. Journey II, Verilast, etc.), while the Syncera offering will center on two prior generation lines: the Genesis II knee and the Synergy hip and Reflection cup. Hospitals signing up for Syncera will purchase instrument sets and inventory, as opposed to having them provided by the manufacturer. The rep will be replaced by an iPad app that the surgeon will be able access during the procedure.
The sales teams for core Smith & Nephew will operate independently, with protocol in place as to which targets within a region Syncera can approach freely, and on which accounts they would need to consult with the regional Smith & Nephew distributor.
“To characterize it as ‘bold’ would be understatement,” wrote Miksic.
Unintended Consequences
However, added Miksic, the alternate pricing/service model may raise more questions than answers. Smith & Nephew may “find the unintended consequences of its Syncera strategy to be a handful.”
Miksic writes that key questions and challenges face Syncera.
- If hospitals can already negotiate aggressively with manufacturers for their current and prior implant lines, with full service, instruments sets and inventories included, why would they want to subject themselves, their surgeons and their patients to the risks associated with ‘leaner’ technology based service in the OR?
- If surgeons can already match the demand of a patient with various implant designs, why would they want limit themselves to older generation implant systems?
- If both Syncera and core Smith & Nephew bid on a new account, how do they ensure they present the best value proposition to the center, while avoiding bidding against each other on the one hand and appearing to collude; on the other?
- How will patients know when they are getting access to the most recent innovations available from a range of competing manufacturers, and when they are likely to receive ‘older’ (albeit ‘proven’) technology, based on a cost control strategy put in place by the hospital in which they are being cared for?
- Is the Syncera strategy likely to make a traditional recon sales rep more interested or less interested in working for Smith & Nephew’s core recon business?
There is a need for “out-of-the-box” thinking on recon service delivery and pricing, writes Miksic. “But it’s our simple observation that whatever the future of pricing and service looks like for recon, it’s unlikely that one flavor will satisfy the full spectrum of different types of customers and centers (and patients).”