Our Conversation With Professor Hans Georg Nader
November 2017 Issue
Our conversation came on the heels of fulfillment of all regulatory requirements for Stockholm-based EQT VII Funds' acquisition of a 20 percent share of Otto Bock HealthCare, the first time there has been a shareholder outside the family in the company's 98-year history. We began our conversation with Näder's thoughts about how the evolution of O&P helped shape this as the right time for such an important change for the company.
Photograph by Paulus Ponizak.
Näder: We had been thinking of the potential of an IPO for many years. With increased interest in bionics in O&P and focus on human mobility for quality of life, it is launching a new phase of O&P technology. I feel that never before has the sector had so many future opportunities and never before have we had all the technical qualifications to look into man-machine interfaces, to look into cyborgs, to look into robotics. Let's also look into diabetes and patients with stroke and everywhere O&P could play a role restructuring human mobility. There is consolidation on the patient-care side and on the product side but no one will dominate the market, the sector is healthy and diverse. And we decided as a family that we would love to play a major role in the consolidation of O&P, and I think that we did that over the last few years when building the premier assets in O&P. This gave us the opportunity to—instead of selling to the stock market—we sold the package to one of the best private equity investors in healthcare with strong ties to one of the oldest industrial families [in Europe], the Wallenberg family. And [EQT is] also invested heavily in medical technology, for example, they own Sivantos. So [EQT] is one of the top-level equity companies and we had almost 120 parties interested.
We want to invest this money into growth and future technology, which is increasingly expensive with high-tech development. But to be in [that] environment, we are talking about low quantities per product. We are talking about a few hundreds and we are talking to people in technology development who are usually talking about a few hundred thousand units. So, in O&P with small quantities for a high R&D expenditure there is a challenge. There is so much happening at the moment and we want to play the role of innovator and the role of leadership, and they both cost money. So that's why we wanted to partner at this time with EQT.
O&P EDGE: If I'm understanding you, they were the right partner because they aligned with Ottobock's values?
NädeR: Their focus on med tech, and that they are owned by a family made them the right choice and also their European heritage.
O&P EDGE: You mentioned innovation as an investment. How do you balance that as a company with the shrinking reimbursements your practi-tioners are facing?
Näder: Look for example at the Kenevo, the K2 knee microprocessor-controlled knee; we knew that there was a long way to get reimbursed. I still remember when we invented the C-Leg 20 years ago—it changed the industry. I think it took several years to establish reimbursement and finally it changed the lives of so many users. So, I think as a market leader you must have the backbone if you believe in something to go for it. It takes time and we all know reimbursement is getting more complex.
But on the other side, O&P is a sector where we can prove with clinical studies the socioeconomic benefit of the device and of the reputation. I think that for the C-Leg alone we have nearly 70 studies all over the world. I think there's not one device in O&P with more clinical studies, and I love to balance upgrade in quality of life for the patient and socioeconomic benefit.
Näder continues with insight into how the O&P marketplace influences innovation, as well as the potential growth in demand for O&P services.
Näder: You know, looking at this market, I can think back to an AOPA [American Orthotic & Prosthetic Association] convention some years ago when the market was more divided with more players, while the market after 30 years looks now so different with different players and newcomers. I can remember when I was sitting together with young Rudy Becker [Rudolf B. Becker III] being both second and third generation in O&P and talking about the future. I really like it that he is still around; he's a good friend… and yet others disappear. This market is constantly changing and one thing that is really changing is how you used to meet the entrepreneur who had an idea; today we are meeting the private equity company that is supporting the start-up companies in O&P. That's a big change.
Private equity is looking much more into the O&P sector, and on the other side consolidation is happening more on the patient-care side.
O&P EDGE: How do you see that as a manufacturer and what does that do to the market? It also seems in Europe there's much more crossover between manufacturers and patient care.
Näder: I can tell you in Ottobock we are number two globally by size and by number in patient care. The only country we are not playing in on the patient-care side is the United States, because we have our biggest account here, and we have a good ongoing relationship with Hanger [Clinic]. But this consolidation process on the patient-care side goes on everywhere. On the other side we see new companies that are specialized in a specific arena.
I know that many people are afraid of consolidation in patient care but I see both [consolidation and highly successful independents]. I meet young people who are concentrating on a particular segment of upper-extremity or high-tech, high-quality [specialized devices], so next to the consolidation in the general market I see a lot of start-ups. Both are healthy for the overall future of O&P.
I see room for both. Nobody is able to dominate the market because always you see innovation and that is followed by private equity and then players like Össur and Blatchford/Endolite may buy from private equity. The same happens on the patient-care side—players like Hanger may grow, but there will still be opportunities and room to grow for start-up activities.
But [my view on] this also has to do with my education to think positive. This sector—O&P on a global scale—we like ghosts. We love dangerous ghosts—to think of something damaging us or scaring us. As long as I've been in the O&P industry, we have had ghosts around O&P and people were scared about the future. And I can only tell you, don't be scared. Just take the opportunity and stay positive because the market is growing. Just take other markets like the housing market, which is dependent on the financial market, or the automotive market, sometimes it grows sometimes it declines; this market is constantly growing.
O&P EDGE: Ottobock has recently acquired BionX and bebionic. How does Ottobock's internal drive toward development fit in with these acquisitions?
Näder: I think that some of the BionX technologies may have possibilities in exoskeletal tech. Regarding bebionic, I think the bebionic hand has the biggest potential for the next phase in upper-limb where an arm will be able not only to touch and feel not only cold and warm but the texture of the material. And also [it has the potential] to connect the body to the brain to extend our man-machine interface. So we innovate within, and we are really keen on innovation coming from the outside. (Editor's note: After this interview, Ottobock also announced the acquisition of Freedom Innovations, Irvine, California.)
In addressing the continuing developments in technology, Näder addresses the importance of advancing the profile of that O&P tech.
Näder: I am constantly promoting the sector and promoting the coolness of the technology—this amazing tech-driven quality for life. We have to do joint lobbying to get payers onboard. We have to present this to the payers and the politicians. Not a single company should do it; we have to do it together, with the key decision makers. Therefore, I decided to invest in a science center in North America [the New York Science Center]. I will start building an 800-square-meter building in Brooklyn, New York, patterned after the Science Center Berlin but with American DNA, so we can [demonstrate more pride in] the veterans, of American history, the American way of taking care of people. But what I learned in the last seven years with nearly a million visitors to the Science Center in Berlin, that this is a tremendous investment for our sector, and we do not do it only focused on Ottobock. As a market leader, if your sector is growing you are also growing. I do this for our industry and we do not have one place here in the U.S.—a stage à la Science Center Berlin—where we can bring politicians and decision makers that is not branded from a company. But if you invite them to a platform, a stage, where we present state-of-the-art human technology, it's a different thing. And I'm really looking forward to this project.
O&P EDGE: When are you targeting completion?
Näder: We are finding it's very complex to build in New York, but we think it could be complete sometime in 2020 and maybe open in 2021.
O&P EDGE: Where do you see O&P five years from now?
Näder: Change is going to come related to digitalization and related to the digital manufacturing. I think digital manufacturing will play a real role in five years. The importance of big data will grow.
O&P EDGE: Is there anything else you would like to touch on?
Näder: I think we've touched on everything, especially the importance of technology. The technology now is amazing. Even after being responsible for Ottobock for nearly 30 years now and being close to our 100-year anniversary, I am energized, and maybe more than ever before, because the future opportunities are so big.