Episode 5: Francisco Peralta, Principal, Ethos Consulting
Francisco is a global business executive with over 20 years of experience in the medical device industry. He is a top sales performer establishing record growth and managing market leadership for several medical device companies. He is a proven leader in the development of comprehensive business strategies that result in new markets for emerging medical device companies.
Francisco is the principal at Ethos Consulting; an international market development consultancy specializing in the medical device industry. Through Ethos Consulting, Francisco is currently working on reorganizing distribution networks in Spain, Argentina and Brazil. He is also establishing new distributors in Mexico, Central America, Chile, Paraguay, Uruguay, Colombia, and Venezuela. Under this capacity, he is also managing business objectives, regulatory process, cost structure, and marketing programs. Current and past clients of Ethos Consulting include: Synthes, Arthrosurface, Parcus, Innovasis, STDMED, MedicalVision, SyncMedical, Finceramica, Rhausler, Orteq, and Cannuflow.
Prior to Ethos Consulting, Francisco was a Partner, and VP of Business Development and Marketing at Sync Medical; a company that develops, manufactures and markets medical devices exclusively for international markets by leveraging its strategic partnerships with industry leaders and medical professionals. The company’s focus is on developing global access to the latest medical innovations.
Prior to that, Francisco was Director for Iberoamerica for Arthrex; an orthopedics medical device company focused on minimally-invasive procedures with European headquarters in Germany and global headquarters in Florida. At Arthrex, Francisco developed Arthrex Iberoamerica, directed operations in Spain, Portugal, Latin America and the Caribbean, and opened the Arthrex subsidiary and office in Mexico.
Julio Martínez-Clark: Welcome to the LATAM Medtech Leaders Podcast. This is a weekly conversation with medtech leaders who have succeeded in Latin America. Today our guest is Francisco Peralta. Francisco is a global business executive with over 20 years of experience in the medical device industry, Francisco is a principal at Ethos Consulting; an international market development consultancy specialized in the medical device industry. He's also a Partner and VP of Business Development and Marketing at Sync Medical. Sync Medical develops, manufactures and markets medical devices exclusively for international markets by leveraging its strategic partnerships with industry leaders and medical professionals. The company’s focus is on developing global access to the latest medical innovations. Francisco is a top seller performer, establishing record growth and managing market leadership for several medical device companies. He has a proven track record of leadership in the development of comprehensive business strategies that result in new markets for emerging medical device companies. So Francisco, welcome to the episode today. It is really a pressure to have you here today.
Francisco Peralta: Thanks for having me.
Julio Martínez-Clark: So Francisco, briefly tell listeners about your journey to Latin America. How do you get involved with the region?
Francisco Peralta: Latin America for me it was a sort of a life experience. My parents are Peruvian. I was born in Mexico, but my upbringing was, you know, I grew up in Madrid and Spain and through the years I was able to live in Mexico City for part of my teenage years in Madrid and back to the States where I did my schooling and everything, training and my first couple of jobs in the industry where with a master distributor out of Miami, and I went to work with them because of my family. They had a connection with Latin America that extended couple decades through the industry. My Dad was a master distributor for The Pew a company that ended up being purchased by Johnson&Johnson at the time, we lived in Mexico, we had the distribution of The Pew, which is mainly hips and knee replacements and it was a great experience. I remember going to my father's office and looking at the videos at the time they had these little reel to reel tapes that you would look at, and it was fascinating to me. So, when I was in college, I always wanted to focus on international business and that's what I ended up doing and after that I was able to get an offer working for master distributor in Miami at the time I was working in the orthopedics division; we had Right Medical, Orthofix and Arthrex as part of the lines and we were also in some other areas with Medtronic, Boston Scientific and some other lines that honestly I can't remember right now, but it was through that work that I got connected with Arthrex and then they ended up offering me a job to become their direct employee and director for Latin America. That then evolved to Iberoamerica, which is a division we created to include Spain and Portugal. Mainly I focused on developing Spanish speaking content and strategy that was very different than what was happening at the time. We had a US or European based businesses trying to implement those business models in Latin America, and that didn't really work very well. There's a lot of different factors involved and adoption rates were a little bit different, the education part was complicated. So, you need the opportunity to focus on that market segment and actually get the business up and running, and it's been a great success ever since, just adopting new technology, looking at what works in the States, looking at what is needed in the different markets in Latin America and trying to figure out a strategy that works.
Julio Martínez-Clark: Excellent Francisco, I'm sure it was a fascinating journey for you to work in the region. So, what's your overall perception of Latin America as a market to commercialize medical technologies, Francisco?
Francisco Peralta: Well, if you look at Latin America as a whole, you're looking at over 600 million people; you're looking at a couple of markets that have really come a long way as far as the level of the doctors down there, and I'm speaking specifically medical education. You have a lot of medical level, the doctor level what they're able to do. I remember when I started early on, there was very limited access to a lot of, not only information, but also just surgeon training; their ability to actually figure things out on their own limited. You have to understand, we're talking about maybe 20 years ago, 25 years ago, email was barely used, internet information was limited, there was a lot less access to things; if you think about how a movie is a lunch today. Do you remember your childhood? If you lived in Latin America or Europe, you would get to see movies that premiere here in the US maybe six months later. Medical devices it's been the same, except instead of waiting six months to have access to a product, it's been more like three years and sometimes regulatory barriers are even bigger. So, you have that limitation and it's limited the way that those markets get perceived until recently, and what I mean by that with the excuse of AdvaMed which is a self-regulated body, that actually is more of the US model started being implemented in worldwide. It's basically limits how distributors can spend their money and doctors, whether they can sponsor them for trips and things like that, it's very restricting and with the adoption of this new regulations, what's happening is a lot of these multinationals find themselves very exposed distribution wise for different reasons; and anecdotally I'll tell you from what I've read, you've seen companies like, I believe at the time was Stryker, Zimmer Biomet had real legal case because their distributors or their network was caught up in a legal entanglement, which basically went and skirted around the idea that doctors are getting paid to do procedures, and that created a big disruption in the market and these big multinationals want it to, and this was my interpretation, this is how I've seen in the conversations that I've had with a lot of different people down there, how they see it is that they've used AdvaMed and this whole onset, these are publicly traded companies that have a lot of exposure for bad news and they'd been wanting to control that and they'd been put in place a lot of regulations to make sure that this sort of thing doesn't happen. In the interim, what's happened is this disrupted the market a lot and what's happening in Latin America now is that you have two business models in play with the third one being created out of necessity, and what I mean is you have the direct multinational company, the distribution model, and then you have the local manufacturers that are now able to produce and manufacture a lot of the products locally, which basically eliminates this whole US based or European based regulatory body that limits how they can put together their business models. So, when you asked me how do you see the Latin American market, the Latin American market is changing a lot and it's changing in a way that I don't think has been defined yet, and it's transitioning into many different aspects. I mean there's so many different aspects that are changing, but everything from regulatory to the way that doctors are being paid to the way the insurance reimburse the suppliers, be it a master distributor, or sub-distributor, or different agencies that are involved and it all takes a lot of management and I think unless you're willing to go to Latin America with the real team to manage the territory, what you ended up seeing and what I've seen a lot of companies do is they just get a distributor, some a budget product, watch them fail, move on to the next distributor.
Julio Martínez-Clark: Yeah, that's very true.
Francisco Peralta: Load them up with inventory. They can't pay their bail, they take whatever they can take back and do it over, and over, and over. You're getting complaints. So, there's no market development being done at all, and I think that's the main problem down there.
Experience in countries of Latin America
Julio Martínez-Clark: Wow. Very clever answer Francisco. So, let's get a little deeper into your experience in the region. So, what about the countries you're being involved in? I mean, can you name some countries where you being really strong?
Francisco Peralta: Yeah, one of the life journey, I think one of the stories I think was really very rewarding for me was when I was working down in Brazil. I represented a great company at the time, but it wasn't really doing what it needed to do in the market and there was many reasons; we had a massive distributor, big well connected, had more tracks with the government in pharmaceuticals, very well funded, but it's what we were just talking about. You have the ability to do a lot, but if you don't develop the market demand is just not there and if he does set up the different factors that you need to set up to get the demand in place, training people and everybody, you just don't get the business, the potential business. So, in Brazil we have done this with a several tenders, we should have been happy but we were watching how other markets were outperforming Brazil for many reasons, but mainly we had different types of distributors and it's through that experience with different distributors that you learn a lot of how that works, what doesn't, who's doing right and who's not and why is that working, why it's not. So, I look a lot of those different factors and I saw in Brazil that we had one big master distributor who was doing some selling through sub-distributors, but that selling was basically on demand. It wasn't really developing the sub-distribution network, not creating a product mix or developing their demand or the implementation or adoption of different products. This was just purely based on surgeon looking up some stuff and saying, hey, I want this product. Can you bring it to me? and so many looking who has that product; Oh, I've got it, let's make a call and get this product too. It wasn't really about this is what this product is for, Who's doing these types of procedures? How are we going to develop that market? What needs to happen, which is something that we did when we broke up Brazil. We opened it up to 13 distributors, and those 13 distributors, ended up all contributing different perspectives for their business and different product mixes that worked, some needed specific category, some reimbursement was better than the others and we grabbed an operation that was doing around 300,000 built that to 600,000 and then turn that over the course of about six years to $28 million operation. Simply by restructuring the way that the distributors, their price points and doing the product mix and just working with everything, but to give you an idea, I mean we went in there with the impression of this was at the time as sports medicine and there was a Brazilian manufacturers that were making sports medicine products. I mean, we used to be able to buy an interfering screw, which is used to attach a tendon in the knee or other joints, but in this case, we're talking knee ligament reconstruction and this device in Brazil cost around $16. We had a bio absorbable product that fulfilled the same space, build the same requirements, except it was bio absorbable, it would in theory disintegrated over the next few years and leave no foreign body in the joint, and that device we were trying to market in Brazil after taxes and distribution fees and everything else around 350 to almost $600 USD depending on.
Julio Martínez-Clark: Wow, what a difference!
Francisco Peralta: Yeah, big difference. So we were able to through certain training, medical education and certain technical things, a lot of the metal implants weren't very viable, used on tendon that didn't include a piece of bone in it, a soft tissue repairs and with that getting in the weeds, there was certain technical things that we used to sort of create new factors to consider a product; Is this really gonna work? And now that we're taking this into account, oh wait, that changes the whole picture and that sort of argument that we were sort of launching our products, which is really what made us able to increase the reimbursement per procedure for these kind of cases, and it was a hard sale, one that required doctors to partake and clinical work, sort of validating these theories that we were putting forth and creating arguments, creating an overall better experience for the doctor using our products. So my answer would be, my short and long answer, Latin America is what you make it out to be. If you're going to put effort into developing the market, it can be a great market, huge, and this is why a lot of the multinationals are going there, you have Arthrex going there, Johnson&Johnson has been there for years, Biomet Zimmer, Stryker got offices opening everywhere and they're expanding their presence, but I mean I think the main error of what they're doing that's different to the other models that we were discussing is they're using CRM, client relationship management software like salesforce and some of these other ones that are being done and they're trying to sort of get a US model that uses a lot of technology that sort of control and manage the different territories and in doing that what they're really restricting and micromanaging the sub-distributors ability to grow because once they do grow too much, they cut their territories and their ability to actually control the business in that once they have too much control over certain aspects of the business, they stepped in, they changed the rules, they limit your ability or they go after this whole, how are you paying the doctor? Or they'll find a reason to get you out of that negotiation. I think that's the biggest risk multinationals are doing is becoming apparent that there is a no longterm strategy to keep these regional distributors as distributors rather I think their goal is to ultimately end up hiring the talent and controlling it themselves, which make all the business sense in the world because some of these districts are very, very expensive to have on there.
Julio Martínez-Clark: Sure. So could I say that you advocate for companies to have a proactive and well thought out strategy and plan or market access plan for each country you are planning to enter in Latin America as opposed to having an opportunistic or reactive approach where they just wait for the distributor to contact them and just ship products to them and wait for them to sell?
Francisco Peralta: Yes, and to be fair, I think the main reason that they go about this market in that way is money. A lot of the smaller companies simply can afford to have the right management team behind it, they can afford to run inventories to support operations, or building enough instruments set sometimes, I mean you just don't have access to the resources that you need to develop those markets and that's why the big ones are being so aggressive in going after this, but having been saying that, what is changing is that a lot of these distributors and companies, regional companies, they've sort of figured out the method that's being implemented by these multinationals and they see where it's headed and there's a survival instinct that takes place and there's companies that are getting looked at differently now, especially the local companies, over the last couple of years. You've seen a lot of Latin American manufacturers get way stronger; great examples in Argentina, or in Brazil where you see the conditions that are in play from the multinationals, from the European and the US based companies and the conditions that they put in place for argentine distributors, or brazilian distributors are so ridiculous, and even in Mexico where they're being asked to survive on a third, sometimes an eighth of what they're used to operate with margins wise, when you have collection, you get paid late, you have devaluations, they're running such tight margins that it's not feasible to survive that way and if they think that they're going to be able to run a multinational operation in this more or less sustained model and we've seen that fail over and over again in Latin America. I've seen Biomed open and close, I've seen Smith & Nephew go exclusive and then take away distribution in a lot of territories or hand out distribution because they can't make it into certain spaces. It's not as simple as understanding through CRM software where the opportunities lie working on the price and just going after the business. The relationships that are in place with these sub-distributors, and the doctor's ability to really make a living with the model that has been put in place with insurance companies not really taking care of the doctors the way you think when these guys get paid peanuts per case, like $40-$150 bucks per case, they can't survive on that. The model was created in a way where it was understood that some of these distributors would sort of supplement sort of work the deal with the hospital where they provide services or whatever, I mean it was all of the way that the system worked that's changing and now it's changing in a very dramatic way and there's a power struggle. Doctors used to have the ability to have a say in the hospital, not for more than they did now, and I'm generalizing a lot, I'm telling you anecdotal evidence of a lot of different scenarios that I've seen play out where you can corroborate those stories with local people, they've got a ton of them, but really the regional distribution model is one that requires doctors involvement, the hospital institution's ability to make the kind of margins that they want to make in control of the supply chain that is necessary in their region, so that you're not going into a contract in a multinational and decided that is too big and they're going to cut your territory in half, or they're going to limit the ability to do certain things that you need to do to get the business. I'm talking about surgeon training, making sure that the doctors have the ability or the resources needed to do these procedures and who's going to pay for that? How are we going to get all that training done? And all that set up when the multinationals are looking at this more of a dumping ground for their access inventory in certain cases, or they're looking at really not developing the region, rather just selling whatever it is that they feel that they can use at the time. So I think I'm generalizing a lot, but there's definitely a lot of dismissing of what Latin America really is by these big multinationals.
Julio Martínez-Clark: Okay. But, have you considered that there is a hybrid approach? Because it looks like we're speaking about black and white here. Black being you have a hands off management approach where you have your distributor, you just shipped products to the distributor and hope that they sell something and white is when the manufacturer opens an office in a country, but there is another approach which I call it the hybrid approach, which is a great area where you have a smaller manufacturer office in country or a sales agent, just one person who is representing the interests of the manufacturer in country, and it is working side by side with the distributor to help him generate demand, and that person has clinical experience and can assist the key opinion leaders with their procedures with the product, etc, and they can do co-marketing activities with the distributor. So it's a direct presence but without interfering with the distributor business.
Francisco Peralta: And that model is one that I subscribe to a lot because you can leverage a lot of resources that way, but it's one that I've seen increasingly diminished, and what I mean by that, when you have companies like Arthrex, Johnson&Johnson getting rid of their distribution network, companies that have been such a key part in developing certain areas, you understand that there's opportunities for a smaller company come in and fill that space that you're describing, but they aren't coming because the market share that these big companies have taken and the position that they have now is so strong that it limits the ability of any competing company to go in this space and try to take over a space in that model. Using that model, using leveraging either distributors or leveraging, and one of the things that I've noticed in what you say when you have a multinational and the distributors sort of joining forces in a territory, either with an agent or somebody, what ends up happening is these big distribution companies that are in place, they're so tied into the multinational that they ended up working with them for a transitional period and during that transitional period, it can look a little bit like what you described where they're working together and partnering, but at the end of the day after that period is over of transition, they ended up hiring your sales manager or offering these people jobs to come work for you and they take over everything temporary. In a lot of ways that's sort of what's becoming apparent to a lot of these distributors is yeah, I'm being used here for a period to transition the business.
Julio Martínez-Clark: Do you see these happening a lot in Latin America? A lot more US manufacturers or European manufacturers having a direct presence in the region.
Francisco Peralta: I think you see it as you do in everything, you start seeing more and more. The ability for these distributors to identify the right companies to partner with and to build portfolios, and that's sort of what I do a lot of is really identify first by curating relationships with distributors that you know are going to play ball with the right people and two, by identifying business opportunities that makes sense. I've had a lot of discussions that have gone as a consultant pretty far into putting together a business plan and in the end it comes down to money and whether or not they're willing to support something like that or willing to risk, I think it comes always down to risks; there's a certain amount of risk involved that smaller companies can't take and the bigger companies are able to do, but when you put together, and what I tried to do is put together enough of a portfolio where you become by putting a lot of small companies together with distributors within network of distributors, you put together a package that can compete at a much higher level if everybody's willing to partake in that. And I think you're seeing that a lot more, you're seeing non exclusivity contracts more now than you did before because I think these parties understand that they can't ask for everything when they can't supply what is needed to actually go to market.
Julio Martínez-Clark: Okay. Let's get a little more technical here. Let's talk about the regulatory approval processes in the countries you being involved with. So what do you think about obtaining approvals in Mexico, Colombia, Peru, Chile, the main countries? Is it easy? Is it hard?
Francisco Peralta: It's hard. A lot harder than you would think it needed to be, and it varies, each country it's a unique identity and the way that they want to do things, and overall though, I think that it's trying to, they're trying to simplify it and it's changed. I think they're all working on evolving what they're doing and not just in Latin America. I think Asian countries are working on things, Europeans just changed their CE process as well. So regulatory is that, is trying to figure out ways to make it both more efficient so that they're not duplicating a lot of inspections and things like that, there's like a whole new process. I was just speaking to somebody as of January in Brazil for example, they change the good manufacturing practices approval process and that they're not long longer require that you have a Brazilian inspector come to your facility that had created a requirement that they weren't able to address, and it led to a lot of lawsuits, and that ended up delaying some approvals up to four years. Now they've adapted a different method that allows them to actually use third party inspections, what are already being performed for European, a US approval processes to actually count and I think for example in Brazil there is a new regulatory approval process that looks at the facility inspections. So the good manufacturing practices, which in Brazil is the BPM, Boas Prácticas de Manufactura, is an inspection that was taking up to four years to get done by the Brazilian agency, the ANVISA regulatory body. And what they were able to do and through lobbying and one of the as of January of 2019 they allowed the third parties to actually perform these inspections, which a lot of these manufacturing companies have already being done by FDA or CE third party regulatory bodies, they're basically the company that comes in, they do the inspection either for the FDRC, well now that same inspection work for Japan, Brazil, Mexico, Canada, I think they're the ones that actually signed this agreement that it works. Those are things that, unless you're involved in this process on a regular basis, you need to have somebody in place that understands the many changing rules and laws that taking the place that could save you years and ultimately affect the bottom line in a way that, you know, if you think you can go into Brazil because it's going to take you four years to get approval, but the reality is you can get it done in six to nine months, then it's a completely different strategy.
Julio Martínez-Clark: Yeah. You're talking about the MDSAP: Medical Device Single Audit Program. Francisco, Let's talk about how to search for distributor, how to conduct due diligence. How to select distributors?
Francisco Peralta: Distributors really are an interview processes, it's like hiring anybody for your company you'll get really good people that will work and they'll climb in the company and do great things and sometimes try it and you just gotta after three months it's just not gonna work. In the interview process, it's a small industry; I know pretty much somebody who knows somebody in every distribution company. I mean it's a small industry and people jump around a lot. So there's always you can get references from almost every company and if you can't, there are brand new company, then you know what you're dealing with either very hungry guys that are going to just go out there and eat the world for you which is, and I worked at Arthrex, I had two kids there were in their mid twenties and they were amazing in the drive they had and they brought to this and the ability to really play ball, it can be hit or miss, and then you need, it depends on the product line, the category that you have, how what they've been doing in the space and I think there's a lot of different factors, but yeah, if you're dealing with brand new technology, I like to focus on some younger guys to pick it up because they're going to do the homework and they're going to get the drive behind it. If you're dealing with some more, if you're selling spine and you're dealing with pedicle screws, technologies has been around for decades, then you're looking more of established distributors, somebody with deep pockets that that's been in the space and the house had to manage a big volume business and that you're trying to develop market share and you need a whole machine behind that. I think then you want to look at some more seasoned distributors in that sense and somebody that knows how to move around with the regulatory body and all that stuff. Personally, I found that the bigger the distributor, it's better if you have a big product line like that, but if you're dealing with the small niche product it's better on when you deal with the smaller distributors, they are going to make this their baby and they're going to make it grow and they're going to dedicate the time and they're going to nurture it and treat it like a, like a child that needs grow and blossom.
Julio Martínez-Clark: Hey Francisco, what about end user demand generation. I mean, any tips on that?
Francisco Peralta: Well, yeah, I mean I think it's been always my experience to sell; not on, hey, let's go have a couple of drinks and I'm in it, let's go party and then you'll be my client. I think that the success comes from really focusing on the science and the technology behind it, and providing great service, and I've seen both kinds of distributors, I've had distributors that have zero idea of what the products is about, but have the relationships and they can make an headway on that to some extent, but when you get a distributor that you have your deep dive guys that go into the technology, they ask you all the ridiculous questions, how many cycles will this hold if I'm putting it to x amount of stress and my experience usually, you get some Chileans that they ask you some of these really tough questions. They have access to a lot of products, so they hear a lot of stuff because Chile's regulatory barriers is very minimal. The docs there, they'll ask you all the hard questions. I think it's a good learning experience to get exposed to all those really tough questions cause then you find the answers and you go in and you're given them the response that they weren't expecting. When you can do that work is when you really develop a market and you develop the men for the product, and that has taken many shapes, but for me in Latin America it's all about the language, being able to get the information in Spanish, translating a lot and supporting a lot of these organizations that are going to be focused on that market, medical education societies that you want to put together, a lab and stuff like that. That's where you really get some return on your investment.
Julio Martínez-Clark: Very good, Francisco. What about pricing? Some people say that Latin America, is a price sensitive region of the world, what do you think about that?
Francisco Peralta: Well I think that's the main consideration for these multinationals to go direct and it's been a way to sort of try to control their pricing. It's sorta go around having to give up a lot of margin to distributors and to support an operation, and there have been some abuses and that's sort of been mitigated in a lot of ways, but I think that the price that the hospitals pay for a product in Latin America or the insurance companies pay for a product in Latin America can in many cases be a lot higher than the US.
Julio Martínez-Clark: I heard that a lot. Yeah.
Francisco Peralta: The difference is that and dollar that gets spent by the insurance company then gets split up a lot differently than it does in the US. Sometimes in the US you get to bill the insurance companies, sometimes you get to bill the hospital, and it varies a little bit in that sense. Well, in Latin America it's the same, sometimes you bill the insurance company, sometimes you bill the hospital, sometimes you bill the government, big government contracts. It varies for each one of those cases, what the prices and how it all gets factored in, but in general I would say pricing in Latin America is providing about the same return as it would in the US, considering that in the US you have distributors that are getting paid, you have a huge investment in infrastructure to support sales and office staff, and everything else, collection agencies, but the time you're done with everything, I think that there is a very similar return on investment that is happening.
Julio Martínez-Clark: Okay, so what about reimbursement in Latin American, what are your thoughts on that?
Francisco Peralta: Well, there's a lot of things that have happened as far as reimbursement and you can look at it in two big categories. One is government contracts or public system reimbursement, which tends to be low on the low end, but the volume is so big that it's worth it, and the other is the private insured and that tends to vary a lot by territory; like in Brazil or Mexico. There's certain organizations like in Mexico, you have Grupo Angeles which is huge, they own a lot of hospitals and how we compare them with BlueCross BlueShield or with the Kaiser Permanente here in California, which is they own a lot of hospitals, they have a lot of people under their insurance and what they've been able to do is structure their business in a way that they can basically afford to cover almost unheard of pricing for the US. Grupo Angeles in Mexico really does pay pretty well for all their products and they privately held hospitals that are very well staffed, very resourceful and they've got a huge amount of doctors working on their system, so that's a great company that I would say within reason you're able to get your reimbursement edit decent point just like you would in the US. The government context are a lot lower and then you have everything in between which is low in insurances just like you do here in the States and high end insurance and it's how you work the package that relationships with doctors and basically, yeah, certain cases you have a doctor who draws in a lot of business for a certain hospital chain or an insurance group, and they'll agree to cover for that one doc certain products at a premium price or you create specific product categories that includes certain products mixes that are higher end than you normally for a certain group. I think for pricing, the key thing is to create economies of scale with the product portfolio that is varied enough that you can do that, and what I mean by that is having titanium on the low end, going through peak or bio absorbables or whatever the category is, plastic sometimes are cheaper for an oncology versus titanium ports. It depending on the product, but you can create different price points and you negotiate with the different insurance companies to manage so that you don't sacrifice your products, companies what they'll do is they'll put one price point for the country and they won't micromanage these relationships, and you ended up with the distributor that will pretty much make a whole third or fourth of your portfolio obsolete simply because they don't want to do the homework, but together these packages and product, they get the product in place. So that's when you go back to the other question, you know, do you need managers in country to actually build these guys come into play?
Julio Martínez-Clark: Yeah, totally. Moving along, Francisco, what about the importation process in the top countries in Latin America, what are your thoughts on this?
Francisco Peralta: I mean logistically you have companies like UPS and Fedex, and all these others that have already sorts of resources in place to help big companies. The mid sized companies manage other logistical issues that might come into play, you also have, Miami, Texas, you have freight forwarding companies that manage these things for a lot of distributors as well, not only in duty free zones, like holding areas, sometimes you'll need to hold on to the inventory and the duty free area for a couple of months while you get the regulatory proces in place, or you get your permits in place. There's different aspects to it that sometimes they'll come into play and you have distributors that will play around a little bit with some of these freight forwarding companies or UPS or Fedex just to save some money on freight and shipping, but overall I think that animal is pained with one, having the proper regulatory approvals in place and to once as far as shipping and everything goes with, you have the VA equivalent to these products so that you can import it. It's a paperwork not more than anything just to get shipments down there. There's plenty of companies that'll do it.
Corruption & Bribery
Julio Martínez-Clark: There are also free trade agreements between the US and some countries in Latin America, like Chile, Colombia, etc. Makes the process easier. So moving along, Francisco, last question before we get to the closing remarks. It's about compliance and what I really mean is about your experience with corruption or bribery in Latin America in light of the FCPA, the Foreign Corrupt Practices Act.
Francisco Peralta: Yeah, I think early on we were talking a little bit about that and when I was telling, about there was a very big case that was settled in Latin America a couple of years ago that involves some of the big companies regarding there, total joint business in Brazil and Argentina, and it was several million and I don't remember the exact amount, but I want to say there at $300 million that they were penalized for that, and that's when this whole AdvaMed was sort of brought forward in a much stronger way and a lot of the distributors were forced to sign these agreements that they weren't going to do, and there are rules like you can't spend more than x amount of dollars when you take a doctor out to dinner, you can't fly them to these meetings, ridiculous things like if a doctor has been invited to speak at a lecture and they're invited to speak on Saturday, we're not going to cover the hotel for Friday. That's on you, or on the doctor, things like that I think don't make any sense, and that have been very difficult for doctors or distributors to manage and that go beyond what makes sense. You're inviting a doctor to give a lecture, you don't just pay for one night hotel cause they have to leave their practice and they have to do a bunch of other things that are coming into a interrupt their whole day or a week and that didn't make any sense to me. That's sort of why a lot of distributors that even doctors don't want to work with these companies anymore, they're done being micromanaged and being expected to carry certain burdens that they didn't feel that they had to.
Julio Martínez-Clark: Interesting. Okay. What about trends coming to Latin America? I mean, what do you see coming in the region that will affect positively or negatively the business, the medical device business?
Francisco Peralta: Well, I think we've mentioned a lot of these trends that are happening with the multinationals going, trying to go direct in a lot of countries, if you become a distributor for one of these multinationals, your revenue stream has been decimated and they're expecting it to be able to operate with reduced margins, but more than that, if your territory becomes too big, then you're not allowed to take on more territory. If you're very successful in the region, they don't want to make you bigger, they want to make you smaller, and I think you've seen that a lot in the States. I think I've seen it in a couple of cases where these really big distributors are being asked to give up either product lines or territory, or their territories are getting divided, and that's unfortunately, and a lot of the smaller companies who will tell you they're not going to do that, but at the end of the day, these companies are expected to grow every year and you see that there's a big piece of your business going to somebody, they're going to come get it
Julio Martínez-Clark: All right, yeah, makes sense. Francisco, any final thoughts for our listeners? In other words, what would you say to the CEO of a small, mid-size medical device company in the US that is exploring Latin America as a possible market?
Francisco Peralta: Well, I would tell them that, give me a call and I'll help them.
Julio Martínez-Clark: I love that answer.
Francisco Peralta: Honestly the challenge is, I think that you need to understand your business model well. If you're looking at Latin America to grow your business, to expand your footprint and to maybe get easier access to notoriety from the technological standpoint, I think that Latin America has an opportunity for your product to actually get used a lot and to become a central focus of the group of doctors that I think sometimes you don't see as easy to do in the US because there's so much more influenced taking place there, and because a lot of the big doctors already have their commitments with certain companies. Latin America is an emerging market, is evolving very quickly and with the technological advances that are in place, and I think there's a global trend. We're in the middle of an industrial revolution as far as I see it, where you're seeing everything from robots, to CRMs, to the way that we address even patients needs through more technological advances. So anything that's on the cutting edge I think has a great potential to leap frog a lot of developments that maybe weren't implemented early on, and I'll give you an example, telephone lines in Latin America, it used to be really hard to get a phone line, but with cell phones, everybody has a phone line now and technology and medical devices can be similar. We had situations where people didn't have a tower to do an arthroscopic procedure, well that's all changed with different models that have been put in place, people renting a capital equipment, or a scheduling some different types of access to hospitals that are poorly equipped, or renting equipment or whatever the case. These things have been addressed and I think if you are part of a company that's coming at it with that in mind with that sort of solutions based to a new approach, then I think you have a great potential, not to only find a new market, but to find less barriers for entry to this new market and if you find the right combination of distributor, doctor, and product, then the potential is tremendous.
Julio Martínez-Clark: Yeah, I agree. Alright Francisco, it was a delightful conversation. I'm sure listeners got a lot from your insights in Latin America, and I thank you so much for being on the show today and, I look forward to having you again, with another topic.
Francisco Peralta: Great, I appreciate it! Thanks a lot for providing this opportunity to express my thoughts and giving me the opportunity to be part of your program.
Julio Martínez-Clark: Thanks.
Francisco Peralta: Great. Thank you!