BERLIN, Germany – More than $625 million in sales was in play at the German Congress for Orthopedics and Trauma Surgery here, the largest share of which will go to American companies.

That estimate from the German medical device association, BVMed (Berlin), covers just the hip and knee implants that tend to dominate this national event, in contrast to the German Spine Congress to be held in Ulm in late November.

Which explains why Medtronic (Minneapolis) was tucked away in a modest exhibit area that it shared with Kyphon (Sunnyvale, California), which it acquired last year.

Instead it was the three top market leaders for hip and knee in Germany who featured their products in the largest exhibition spaces, in order Zimmer (Warsaw, Indiana), Smith & Nephew (S&N; London) and DePuy (Warsaw, Indiana), a unit of Johnson & Johnson (New Brunswick, New Jersey), that is the top supplier of medical devices in Germany.

The managing director for DePuy Germany, Dr. Harald Stock, told Medical Device Daily that Germany has the highest volume for orthopedic implants in Europe and the lowest prices.

"Yet the German operations are the most profitable for DePuy in terms of the margin generated as a percentage of sales," he said.

"For three years we have been able to achieve cost leadership in Germany without giving up quality," said Stock. "We have taken out 30% of costs without any layoffs, but we can not, of course, take out another 30% without cutting into the muscle, so we are looking in other directions for growth."

The three pillars of his strategy are cost, quality and innovation he said, propping up each pillar with specific actions.

For innovation, he said the company is launching "a completely new set of instruments for the knee and then we will reveal a new hip implant that will revolutionize the procedure, due out in the second half of 2009."

Cost and quality quickly become mixed due to the unique competitive situation created in Germany by the introduction of a reimbursement system based on diagnostic related groups (DRGs), which are called G-DRGs to designate the specific German interpretation of a system imported from Australia.

"DRGs have strongly impacted hospital purchasing of medical devices in Germany," explained Stock, "and the game gets even tougher next year."

In 2009, he said, public hospitals, which represent 60% of the market in his estimation and 73% according to BVMed, will begin tendering processes for procurement of implants.

"We can consider that a positive," Stock said, explaining that hospitals to this point have not only limited the price they will pay for implants, but also the number of patients to be given the procedures in a year.

If a hospital case budget is 300 patients, then for patient number 301 the hospital would only receive a fraction of the standard reimbursement rate as a penalty for exceeding its budget, such that it is rare that a hospital exceeds the budget.

With the introduction of the tender process, Germany is removing the case budget and this creates an opportunity for company's to win on quality, according to Stock's strategy for DePuy.

Responding to a congress rumor that a U.S. company may acquire S&N, made vulnerable after a leverage acquisition of Plus Orthopedics for $890 million in March 2007, Stock smiled and said, "That's a good call." He added, "J&J has always expanded with a combination of organic growth and acquisition."

S&N doubled its share of the European orthopedic reconstruction market with the acquisition of the Swiss-based Plus Orthopedics.

The combination gave S&N a 24% share of the German market for hip and knee implants, and according to Stefan Pickartz, deputy director for German operations, the company will take the top ranking for knee implants in 2008 and will pull even with Zimmer in hips.

According to Pickartz, working from this position of strength, the question is not who will buy his company, but rather, "Who will we buy next?"

It was clear the executives at the Zimmer booth were struggling with what is essentially a gag order from U.S. headquarters due to recent legal sanctions. While tempted to speak about their triumphs in a fiercely competitive market, the Zimmer executives from Germany nonetheless declined to comment and handed out contact names in Indiana.

In its most recent quarterly report, the company reported growing 18% to $791 million for reconstructive implants in Europe, for which industry analysts said about 24% would be attributed to Germany, or $189.8 million. This works out to the 30% market share that was a consensus on the exhibition floor.

Using the same formula, the estimate for Zimmer sales of knee implants in Germany would be $81.6 million and $89.52 million for hips. The remaining $18 million would be for revision surgeries, shoulder implants, services and other related sales.

Executives from Biomet (also Warsaw, Indiana) were happy to speak, under the condition their names were not used, suggesting they be called "experts from Goldman Sachs, since they own our company."

"To say who is No. 1 always depends on the procedure and sales volume," said one executive, adding, "If you look at spine, for example, then it is Medtronic."

Despite the cutthroat competition to win contracts among major hospitals and the purchasing groups formed by regional hospitals, "at any given hospital the five biggest producers are usually represented, whether they have a hip, a knee or a shoulder product," he said.

"One company negotiates a contract for a specific implant and it is usually for two years, sometimes less, by guaranteeing a certain reduced price for a certain patient case budget," a Biomet sales representative explained.

But it is the diversity of product portfolios among the bigger companies, and their patience with the process, that assures all players stay in the market.

"Everyone is selling in Germany and everyone is doing a good business," according to the Biomet executive.

Among with the top five players, in which he includes Biomet, "everyone is growing in this expanding market by 12% to 20% each year, and despite the price pressures from the G-DRGs, no one is losing money."