Biomedical Device Companies Learning to Prosper in a Bad Economy

The biomedical devices industry grew, invested, and thrived from 2007 to 2009, contradicting an overwhelming trend that saw many of the world’s largest companies collapse during the worst economic environment since the Great Depression.

A new analysis of this industry reveals how did they do it with three key traits that helped recession-proof the top independent biomedical device makers worldwide, and determines whether or not their success is sustainable over the long-term.

The study, authored by WTP Advisors (White Plains, NY, USA), a global tax and business advisory firm, was published in the January 2012 online edition of the biomedical industry journal MD+DI. “In short, our study shows that the best of biomedical device makers succeed by making very little, very well, for sale at very high prices,” remarked lead author, Yair Holtzman, director at WTP Advisors.

The authors looked at 25 of the top independent biomedical device makers worldwide and analyzed their business strategies, financial results, marketing investment, product ranges, and research and development to better determine what fueled growth and profitability in a time of worldwide recession. They found three common characteristics shared by the most successful of the 25 firms that appeared to contribute to their growth during the recession, and are still a factor today, including (1) High value-added manufacturing: constructing sophisticated technology products in developed markets while adding a very high level of value to base costs has and will continue to do well for this sector. For highly differentiated products marketed as customized solutions, the United States and Europe have been great places to establish and grow businesses. (2) Increased marketing efforts: these companies continued to increase spend on marketing efforts during the great recession of the last couple of years (2008-2010). (3) Investment in research & development and new products: the most successful biomedical device companies developed a strong range of new products and R&D capabilities, which allowed them to navigate challenging times successfully. Even during the great recession, they were increasing their R&D spending.

However, Mr. Holtzman warned, “Despite the unparalleled success of the biomedical device industry from a 10,000 foot view, our close study reveals operational fissures that, if left unchecked could threaten future growth.”

For instance, some companies, having grown through acquisition of start-ups and by buying parts of organizations now have too many plants and too many labs to be efficient. Mr. Holtzman believes that consolidation will be a major driver facilitating growth over the near future and that companies should buy up the group of purchased parts and convert these businesses into lucid and focused companies in order to achieve maximum efficiency.

In the future, the big opportunity for the biomedical device business--one already being snatched by the best in the industry--will be to move beyond the sometimes rough revenue stream from selling things, and migrate to a business model focused on marketing systems that provide a point of control and differentiation (through software) or that provide sustained revenues from related consumable products used in healthcare.

“This is the kind of strategy that worked for King Gillette when his business first adopted the razor and blades model, and one that has also worked for IBM as it has migrated from a hardware business to one driven by sustained revenue streams from software and services,” Mr. Holtzman said.

Going forward, Mr. Holtzman concluded, biomedical device companies will need to demonstrate that a particular intervention improves a specific patient outcome and is more cost effective than existing alternative treatments available on the market.

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