The Fallacy of the CE Mark (Revised Content)

Due to a Notice of Concern issued under s14(2) of the Defamation Act 2005 (NSW) by Oncosil Limited (ASX : OSL), this content has been re-posted without any reference to OSL. Thanks to readers who gave me feedback that the content was useful and should be re-posted in a redacted form.


Everyone loves the CE (Conformité Européenne) mark.

The ASX is littered with companies that have challenging products to develop that have gone down the CE Mark process. In some cases, it is possibly appropriate – like Sirtex (ASX : SRX). In some cases, it wasn’t – like Tissue Therapies (ASX : TIS) that got all the way to the end and failed because the company basically didn’t have enough clinical data (safety database wasn’t big enough). The CE mark is great if you can get it because depending on the product classification, it means a lot quicker pathway to marketing clearance for a product and – in some cases – even self-certification is possible. But however way you view it, getting a CE Mark means that a company, providing it is able to maintain an effective and relevant quality system, is able to position its product to a rather large market. CE Marking is not just important in Europe, it also paves the way for marketing clearance in other countries too. Like Australia. And Canada.

That said, retail investors have some fundamental misconceptions about CE Marking that is irresponsibly propagated by many companies in our space. Therefore it is useful for retail investors to understand a few points of clarification :

1) Despite what a company might claim, getting a CE Mark doesn’t “open a market” for a product. It only means that, subject to ongoing demonstrated product quality, there is no regulatory barrier to entry for a product in a particular market. It is, in regulatory parlance, a “marketing authorisation”.

2) Just because a company gets a CE Mark, doesn’t mean that a product will sell. A validated quality system simply doesn’t mean a good product, or good clinical data.

3) Although the clinical validation for a CE Mark (or the rough US-equivalent, the IDE or “Investigational Device Exemption”) may facilitate a faster pathway through regulatory approval, it in no way guarantees that a particular healthcare system / insurers are going to fund the use of that product. It is all to common that post-CE Mark, extensive additional clinical validation is required to establish the efficacy required to achieve meaningful reimbursement and product adoption. Look at Sirtex – the company got its CE Mark but then spent a fortune actually demonstrating that the product has a certain clinical utility. It is only by doing so that it enjoys the product sales growth (however positive you may be about it) that it does.

Despite the fact that a CE Mark opens the door to selling a product to “signatory” EU Countries, a fairly large market in aggregate, the individual country healthcare systems are very different and product roll-out in Europe is one of the most challenging, heterogeneous and complicated tasks imaginable. I often see companies pursue a CE Mark strategy thinking that is going to be easier to get to first product sales, but in many instances a US IDE pathway is a smarter and long-term more cost-effective pathway to a large, homogenous market with a somewhat more “uniform” insurance model*.

Getting a CE Mark can be tough – but getting a CE Marked product to market is even tougher. In a prior post on Avita (ASX : AVH) there are some useful soundbites about the challenges of the post-CE Mark world. When you are considering investing in a company that is pursuing a CE Mark as the primary commercial strategy, take caution. You want to see evidence of an executive team that knows how to sell a product in Europe, and has a track record in building either a sales team or a distributor base that is cognizant of the particular quirks of individual national health schemes. You particularly want to see a company that is committed to investing in post-authorisation clinical validation (i.e. efficacy trials) to really obtain top-dollar (or rather Euro) for their product because without it, that company is going to be just another underwhelming ASX-listed company that cranks out a few mil in revenue a year and simply never meets shareholder expectations.


*Note my careful use of the word “model” – because US healthcare reimbursement has become much more devolved in recent years, though there are still large and influential insurers that drive interstate pricing behaviour.

4 thoughts on “The Fallacy of the CE Mark (Revised Content)

  1. Thanks for the revision Chris. This is very useful, as I realise I overestimated the importance of the CE mark. I have the feeling that the company I invested in kind of counted on my naivety in this regard, as they hammered it endlessly in ASX anns.

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    • Look, I think it is very important – don’t get me wrong. Depending on the product class, a CE Mark (even self-certification in certain instances) means you can go out and start selling. For many products this is the value inflection.

      But for most things that you would classify as “in vivo” or “drug-like”, if a CE Mark is possible then the benefit is a lower cost, lower risk regulatory process. The trade off is that the company may still need to spend some serious $$$s post marketing authorisation to get they efficacy data to actually make real money.

      This is the “little detail” that is often glossed over. Many retail investors (understandably) assume that the CE Mark means the cash spigots are going to open wide and this is typically not the case. Market launch costs real money.

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      • Yep, I’m one of those retail investors. I would expect my stock to appreciate significantly with a CE Mark, so at least I’ve learnt something today ( which was a fairly ordinary day on the ASX).

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      • It should appreciate! I’m not saying it isn’t a big deal…

        But what I am saying is that you have to “look through” the CE Mark to what the company has to do to be commercially successful. A successful CE Mark can reduce the probability of commercial failure (or rather, eliminates a regulatory barrier) but I guess the point I am trying to make is that getting a CE Mark is possible for a mediocre product and a mediocre commercial strategy. The real question retail investors need to ask is “what does the company need to do after it has CE Mark. In many – not all but many – that question will leave many an ASX CEO scratching their heads for a respectable answer. In the case of more complicated products, the answer is actually “a bunch more clinical trials in order to show efficacy and get a reimbursement case together”. That is an answer that many retail investors don’t expect.

        Sirtex doesn’t have a $2Bn market cap because it got CE Marking/PMAs. It has a $2Bn market cap because it spent a ton of money to show oncologists/payers that its product has a value proposition and it is able to turn that value proposition into revenue.

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