As M&A advisors that focus in healthcare (medical device, medical technology, dental, OEM, and biotechnology companies), we spend a lot of time talking to the “C-suite” among our clients, their acquirers, and their suppliers. We enjoy this dynamic exchange because these conversations keep it fresh and real for us.

While our success is dependent upon keeping abreast of current issues impacting the industry, it is also important that our clients and their prospective acquirers understand the current market trends and dynamics impacting their business both today and in the future. This facilitates relevant conversations about the direction of innovation being driven by our clients as well the strategic fit with their potential acquirers.

Having conversations that make us think helps us to be better advisors and improve our performance as an organization. That was one of the key premises of the book “From Good to Great.” We agree with author Jim Collins, that questions are more important than answers. We enjoy being told by clients that we’re asking great questions and we also like being asked thought-provoking queries from the C-suite or Board of Directors, even if it sometimes requires additional research.

“Good” companies are those that are simply content with their performance, but “great” organizations with long histories of success are willing to ask themselves difficult questions that lead to self-assessments of their business plans. They’ll determine what went right (or wrong), what can be done better, and what more can be done to further advance the company in the market. The questions also will evaluate whether the plan will work the following year and five years down the road; also, the queries will determine the factors needed to achieve particular goals. Following are questions that help companies gain critical insights.

• Should growth be organic, inorganic, or both?
• Is there an understanding within the organization about the market segments in which it participates?
• What can be done to become (or stay) tops in each segment? Note: Unless a company is a specialty niche player in a segment, it’s difficult to be profitable unless it is among the top two or three players of that segment. Companies lacking market leadership might consider creating new innovation to add to its competitive differentiation (organic growth) or purchasing a competitor in the segment to better penetrate the market (inorganic growth).
• Are there adjacent segments to enter and achieve success?
  • If so, how can the company prove its value proposition for that segment?
  • If not, are there complementary acquisitions that can be made to create opportunity for growth in adjacent segments?
• Is there an understanding of market dynamics impacting:
  • Customers and those customers’ clients?
    Note: Ultimately, the “Patient Experience” is going to have more impact in 2020 than it did in 2010; and in 2030 vs. 2020; etc.
  • Market segments
  • Technology
  • Value Proposition—for the next year (2018), in two years (2020), in five years (2023). Note: The best performing organizations often have a five-year plan that is updated annually (and dynamically, as market forces dictate).
• What market disruptive forces in the industry will impact the company’s present and future?
  • Digital health trends including Cloud vs. SaaS, blockchain, IT security, big data.
  • Artificial intelligence (machine learning)
  • “Smart” devices including connected devices, combination products, intelligent solutions, and Internet of Things (IoT).
  • Personalized medicine
  • Consumerization of medical devices—Large technology companies like Apple, Google (Alphabet), Microsoft, Oracle, and Amazon entering the healthcare space as well as new VC-backed players pushing disruption
  • The merging ecosystem—Medical device and pharma; retail and insurance; insurance and hospitals/clinics; communication and medtech
  • Economic ecosystem
    • Medical Device Tax—Off the table for now, but could it return in the future?
    • Reimbursements—FDA approval doesn’t mean market acceptance if there is no reimbursement or valid economic cost outcome study.
    • India Price Controls
    • United Kingdom National Health Service Funding
    • Other European Union government cost constraints
  • Regulatory
    • Changes in U.S. Food and Drug Administration programs
    • CE Mark becoming more difficult to attain “Harmonized” regulatory challenges in Canada, Brazil and elsewhere
    • Asia – Often requiring local “partners” to be successful (particularly in China and Japan)
    • India Price Controls
• Does the company understand its customers?
  • If yes, can it grow within its customers?
    Note: One of the most profitable ways to grow is to gain market share within existing customers.
  • If yes, is the company doing enough to help its customers “win”?
    Note: The most successful OEM suppliers are those that understand their customers’ clients and help their OEM customer to WIN with those patrons.
  • If the company is unsure, does it understand the trends impacting customers (e.g., market dynamics, innovation, global market, reimbursement, regulatory decisions, tax rate changes, etc.)?
  • Does the company take care of all its stakeholders (e.g., employees, customers, shareholders, suppliers, etc.)?
    Note: Companies that maintain strong relationships with all key stakeholders typically perform better in the long-term.
     

Disciplined functional organizational analysis is also crucial to a company’s success and should be completed on a consistent basis for all departments.

As we expand our client base, we often get new questions that help us consider our business model as well as market dynamics impacting new segments. And usually, that experience makes us reflect on how we perform better in our current segments and create value in new ones.

Recently, we accepted an assignment with a pharmaceutical company that has developed a next-generation medical device to improve drug delivery to ensure the efficacy of its drug. Executing on this opportunity has recently helped us address new questions being asked by both ourselves and our pharmaceutical client’s board of directors, including:

• What is different about the lifecycle of a pharmaceutical company vs. a medical device company?
• What is the total addressable market of a medical device vs. a pharmaceutical solution?
• What is the time to market for each type of product?
• What are reasonable investments to “de-risk” the solution (medical device or pharmaceutical) that will still allow for an excellent future return on investment?
• What does a validated product look like and when is the solution de-risked?
• What are the regulatory paths in the United States, European Union, global?
• What market segments are addressable with this new drug delivery device?
• What will the clinical acceptance be?
  • Clinical outcome impacts
  • Adoption rates as influenced by patient and practitioner acceptance

While our client’s board (individually and collectively) is extremely intelligent and talented, we are all biased by our experiences and backgrounds. Therefore, it has been an interesting translational process to get to a mutual understanding of the appropriate great questions we should be asking of each other. This has been a healthy growth experience for both parties and has served to make us all stronger as we work together toward a pathway to success.

The next round of questions will come from the marketplace (strategic acquirers/partners) and customers. While we are confident that we have mutually and collectively prepared ourselves to address the great questions, we are also excited to embrace the queries that truly make us stop and think, as they will only make us stronger.

We have begun 2018 by asking ourselves the questions we believe necessary for our growth today and for the future. All medtech companies should be doing the same. No organization should be intimidated by questions that don’t have immediate answers (and may require research) because those queries will help pave the way to organizational success both now and in the future. 

Editor’s note: This is the first of a series of columns dedicated to industry trends and their impact on the C-suite.

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Florence Joffroy-Black, CM&AA is a longtime marketing and M&A expert with significant experience in the medtech industry, including working for MNC’s based in the United States, Germany, and Israel. She can be reached at florencejblack@medworldadvisors.com. Dave Sheppard, CM&AA is a former medtech Fortune 500 executive and is now a principal at MedWorld Advisors. He can be reached at davesheppard@medworldadvisors.com.