Why is Australia hampering the growth of some its most successful companies overseas?
There's no intention to do that, but the effect is still the same. Australia-based healthcare companies that produce and sell medical devices overseas may now be looking at much longer wait times to enter a new country's market.
Regulatory approval slowdown
Australian companies like Cochlear Limited (ASX: COH) are required to have regulatory approval from their country of origin for new devices before being allowed into some emerging market countries like India and China, according to the Australian Financial Review.
In markets of other developed countries like the US, their own regulatory bodies grant approvals for new product releases for sale and use. Cochlear and other healthcare companies like ResMed Inc (CHESS) (ASX: RMD), CSL Limited (ASX: CSL) and Sirtex Medical Limited (ASX: SRX) are international success stories and generate the majority of revenue outside of Australia.
Slow TGA could impede Cochlear entering new markets
The situation – if The Therapeutic Goods Administration (TGA) in Australia is much slower in processing approvals than in the US or Europe, new products ready to go and even selling in major markets can't be released in India and China – two very big markets with promising growth potential.
Cochlear CEO Chris Roberts would like the TGA to accept medical devices that have been approved by credible foreign regulators to satisfy the "country of origin" requirement.
Cochlear needs to get new products onto the market
It was only in 2014 when Cochlear was finally able to have new products released in the US after previous approval and manufacturing-related delays. Thanks to that, sales have boomed and the stock has risen about 65% in the past 12 months.
The next stage is getting regulatory approvals for other markets to keep the sales and earnings momentum going. CEO Roberts supports a review of how the TGA grants approvals.
Cochlear's stock is near multi-year highs now and trades at 36x forward earnings. The company's fundamentals are strong and earnings are forecast to rise in the high-double digits over the next few years. If delays weaken the share price, I think it may be a good time to pick up some stock.
