We’ve all been there. The surgeon likes the

products in our bag, but our competition has

the products that the surgeon needs for every

case, right here, right now. “If only we had that

size screw system or if only we could get that

banana TLIF through development, then that

surgeon would be using my products instead

of my competitor’s.”

This is an increasingly popular sentiment in

the orthopaedic device industry. Large OEMs

have acquired product portfolios in order to

respond to hospitals’ and surgeons’ requests

with “everything you want right here, right

now.” How do medium and small OEMs

remain competitive with fewer managers,

engineers, quality and regulatory resources,

compressed budgets, etc.? How do we offer

our customers everything that they want, right

here and right now, while managing our

capacity limits? One solution is outsourcing—

specifically, private labeling.

Private labeling is not a completely new

concept to the medical device industry. Biolog-

ics are a great example of that fact. Most OEMs

private label their biologics from companies

with the credentials and expertise to develop

and produce them.

In this industry, it’s rare that one company

has the resources necessary to produce all of the

products required to satiate the increasingly

diverse demands of the healthcare providers

whom we serve. Most of the large OEMs under-

stand this challenge and have added private

label products to increase offerings and

conserve limited resources.

What is Private Labeling?

Private labeling happens when one company

purchases products from another company to

resell under their own brand name. Example:

Company A (Customer) buys products from

Company B (private label manufacturer, PLM).

Products are then resold under the brand of

Company A. Company B retains ownership of

all intellectual property rights to the products.

Company A owns the physical product pur-

chased, with marketing and distribution rights.

Keep in mind that every company or

contract will work differently. The rights of the

parties entering into the private label agreement

will most likely vary on a case-by-case basis

according to negotiated contract terms.

In the medical device industry, the PLM

and Customer agree on terms and specifica-

tions. The Customer places a purchase order

with the PLM, and the PLM produces the

order to the Customer’s specifications. The

PLM handles the entire production process,

from regulatory approval to manufacturing

and quality management. In the end, the

Customer receives a product that is branded as

its own and ready for sale to the end user.

PLMs may offer a variety of options for

product customization. Those options could

include implant laser marking, implant packag-

ing, Pantone color choice, instrument tray

branding and even branded marketing materi-

als. A true PLM will offer additional services,

such as engineering support, that allow their

customers to modify the baseline implant

model to more closely fit their exact needs.

Stu Shank and Jeff Tyber

It’s rare that one company has the

resources to produce all

products required to satiate the

diverse demands of healthcare

providers.

©1997-2014 ORTHOWORLD Inc. All rights reserved.

2

—

Adding to your product portfolio through

conventional channels can take 18 to 60 months

and cost up to $800,000 per year in R&D alone.

Alternatively, adding a private-labeled product

should take about four months with no R&D

costs.

Alternatives to Private Labeling

The private-label model has yet to become the

conventional method to boost a product portfo-

lio in the medical device industry. Companies

still acquire and license new products; these

methods have advantages and disadvantages.

Some examples of these pros and cons are

outlined below.

Acquisition – A company acquires a product

line or an entire company.

Pros:

Access to established sales distribution

Control of product and regulatory

clearance

Cons:

Long integration time and potential

integration issues

Large upfront capital expenditures

Licensing – A corporation licenses a product in

return for an upfront and long-term payment.

Pros:

Gain control of manufacturing, design

and regulatory clearance

Cons:

Requires internal personnel to manage

and implement

Limited expertise on the product

May require additional development and

sales resources

Direct Distribution – Distribute products from

another OEM. The products bear the brand of

the supplying OEM.

Pros:

Rapid delivery and access to products

Cons:

Minimal brand development

Lower margins/commission-based sales

Benefits to Private Labeling

The benefits of private labeling vary based on

the needs of the individual customer and its

business model. Examples include:

Orthopaedic OEMs can obtain quick access

to differentiated or synergistic products

that complement existing product lines,

while conserving internal resources for

novel product development.

Stocking or boutique distributors can increase

revenue and product differentiation, while

reducing risk from sporadic and unpredict-

able supply partners.

Hospitals and GPOs can consider cost-

savings methods through the purchase of

high-quality product direct from the manu-

facturer.

The advantages depend heavily upon the

qualifications of the partner chosen. Some ad-

vantages and the subsequent qualifications are

shown in Exhibit 1 on the following page.

How to Achieve Success

As with any new initiative, it’s important to

fully understand the desired outcome, internal

and external resources to arrive at that outcome

and a timeframe for execution. The following

best practices should be followed to ensure that

private labeling is successful and enhances your

company’s product portfolio.

Identify Your Company’s Needs

Develop your budget. How much will you

spend on the project?

Identify your target market. You are proba-

bly already selling to them.

Determine a potential selling price, amount

of product needed to penetrate markets and

amount of inventory necessary to support

demand

Define private label branding and

specifications

Outline product release timelines. When do

you want to sell your first product?

—

Perform Due Diligence

Identify and evaluate private label products

with potential customer

Meet private labeling partners and assess

the companies’ qualifications (i.e. ISO 13485

and regulatory approvals)

Negotiate Terms and Sales Agreement

Negotiate terms, price and delivery

Understand additional services offered

by the partner

Place a purchase order

Receive Product and Start Selling

Inspect product

Launch through your distribution channels

In Summary

Private labeling can provide access to portfolio

enhancing, regulatory approved medical devices

in less time than traditional pathways. It can be a

lucrative opportunity for companies seeking to

add to portfolios and conserve resources at the

same time. The right partner can easily provide

competitive advantages necessary to help make

your company successful in today’s highly

competitive market.

Stuart Shank, Regional

Sales Manager at Tyber

Medical, has experience

in roles of purchasing

and inventory manage-

ment, business develop-

ment and sales and

marketing. He

can be reached at

sshank@tybermed.com.

Jeff Tyber, CEO and

President of Tyber

Medical, has served in

the orthopaedic industry

for 12 years in roles of

product development,

research and manage-

ment. He can be reached

at jtyber@tybermed.com.

Customer Advantage Private Labeler Qualifications

Market acceleration and

control Access to additional or

complementary sales

channels

Reduced time to market Differentiated and/or up-to-date technology Flexible and customizable solution to complement

distributor’s needs Accessible engineering resources

Cost effective option À la carte product selection and services Pricing options to help customers achieve target

margins

Expanded capacity for

internal product

development

OEM capabilities and broad regulatory approvals

allowing a customizable solution Strong pipeline of product-growth potential Internal graphic design capability

Reduced regulatory and

quality risks Products with both FDA clearances and CE Mark

approvals ISO 13485 and FDA QSR compliant quality system

Operations supply chain

reliability

Strong communication throughout the manufacturing

lifecycle Comprehensive, private label specific processes Sellable product upon delivery

Exhibit 1

Common Customer Advantages for Use of Private Labeling

Content republished with permission from ORTHOWORLD®, a highly specialized publishing firm serving the global orthopaedic market. www.orthoworld.com.