The Top 30 and Their Impact on the C-Suite

MPO’s top companies report is an excellent time to reflect upon the wide range of impacts these industry giants have on the medical device industry and potentially on individual businesses. We believe the effects mostly hinge on the roles of both the OEMs and smaller organizations; this column details a half-dozen of the more common personas and the ways in which they interconnect.

Influencer: Some of medtech’s key trends are currently being driven by some of the industry’s largest players. Although innovation is most often generated by startups and smaller companies (a topic for a different issue), these firms usually lack the means to advance their invention. A top 30 OEM, on the other hand, has the financial resources and multinational authority to really drive an innovation, trend, or issue forward, and that benefits organizations of all sizes. Consider, for instance, robotic surgical technology, which has mainly been driven by larger companies like Intuitive Surgical Inc., Medtronic plc, Stryker Corp., Zimmer Biomet Holdings Inc., and DePuy Synthes, all vying for market share. Likewise, Abbott Laboratories, Boston Scientific Corp. Medtronic, and Terumo Corporation have had a hand in shaping the drug-eluting stents market, estimated to reach $8.77 billion by 2027, according to industry data. And, nearly all of MPO’s top 30 companies have made significant digital health investments in recent years, which has undoubtedly increased the value of that market. J&J, for example, is building a connected, data-driven digital ecosystem while Philips Healthcare has bolstered its Connected Care segments through incremental technology grabs, and Medtronic is leveraging artificial intelligence and machine learning to develop the next generation of sensing technologies to power neurostimulators, pacemakers, insulin pumps, and surgical tools.

Customer: Many of the medical device companies profiled in MPO’s top 30 report are customers of contract manufacturers (CMs). A valid argument could be made that medtech’s CM industry is dependent upon the top 30 OEMs for their survival. Over the past 20 years, huge healthcare companies such as Johnson & Johnson, Baxter International, Boston Scientific, and BD, among others have driven the trend of outsourcing to mostly small and medium-size companies. They have tried to focus on the kinds of skills that can augment their core competencies and specific capabilities that can better be accomplished by a secondary party. These outsourcing trends have spawned a global medical contract manufacturing market that was valued at $53.7 billion in 2019 and is expected to swell 11.4 percent annually over the next six years to reach $127.4 billion by 2027, according to GlobalData. These data are leading the way for an exciting sub-segment of the device industry that makes room for entities of all sizes. At the same time, the high quality and regulatory expectations these larger firms demand of their outsourcing partners continue to raise standards across the board.

Competitor: Smaller companies with a technology or novel idea likely have their sights set on competing in markets these top 30 companies have created. While it is difficult to compete with such large entities, the benefit is usually two-fold for a smaller firm: (1) the bigger company—through marketing resources—continues to develop and grow the size of market segments, which leaves opportunity for smaller players; and (2) the smaller player is often more nimble and innovative (in both technology and marketing). These dynamics usually give startup entities a competitive advantage when facing an industry giant.

Acquiror: Mergers and acquisitions (M&A) are constantly occurring in the device industry, and analysts expect 2021 to be a record year for deals. There are various reasons for the anticipated high transaction volume, the first and perhaps most influential being the change in the U.S. presidential administration. A new chief executive induces fears of future higher taxes, and those concerns may eventually impel business owners to seek buyers for their firms. Another contributing factor is the global supply chain snafus, which are causing potential buyers and sellers to rethink their positions. A third cause is the extraordinary amount of capital being made available in both Europe and the United States, where governments are practically “printing” money. Private Equity firms like to call this “dry powder.” Market data indicate that dry powder is currently at all-time highs. Why? Well, PE firms must spend their available capital (dry powder) in order to make money, and these companies are freely spending their capital, often investing in medtech organizations due to their long-term stability and growth. A fourth determinant for M&A activity involves strategy. The device industry’s biggest companies are always looking for investment opportunities to either improve market share through customer acquisition; buy innovation or technology from a competitor (as mentioned in previous examples); or obtain a world-class team (commericialization or R&D) in order to gain a competitive edge. All M&A creates options and opportunity for medtech innovators and established players of all sizes.

Supplier: While not often discussed, several companies on MPO’s top 30 list are also suppliers. Many large companies like Cardinal Health, Medtronic, and BD have established a separate commercial (sales and marketing) team for selling portfolio products, and B.Braun has created a true value commercial opportunity out of its OEM business unit. Historically, B.Braun’s OEM efforts seem to have been as important as its own strategic market initiatives. Bottom line: When “checking under the hood” at many of these large industry players, there is likely to be an OEM business unit that is supplementing profits by selling excess capacity to other medtech companies (even competitors). For some of the contract manufacturers, it’s even plausible that an “MPO Top 30” company may be both a supplier and a customer.

Strategic Partner: In considering the strengths and weaknesses of the largest medtech companies, it’s clear that most are adept at commercial execution but not as proficient in “time to market” innovation. Put simply, it is more difficult for large firms to develop internal innovation compared to smaller and more nimble players. Conversely, however, multinationals are better at commercializing a product, as they have the bandwidth and capital to maximize market opportunities through their advertising and sales channels. This dichotomy often produces an ideal collaborative opportunity for smaller companies and huge enterprises. By creating a strategic partnership, both companies are likely to benefit. Often, the smaller firm lacks the marketing wherewithal to compete as effectively as the larger entity. But combining the smaller company’s innovation with the bigger organization’s marketing execution creates a powerful force that can foster groundbreaking results.

Like them or not, the top 30 medical device companies create tremendous value for the industry. In fact, many of the OEMs beget executives with skill sets who ultimately use their Fortune 500 knowledge and competencies to guide smaller innovators to bigger scale and better, more lucrative market opportunities. Sometimes, these enterprises are simply an influencer, a customer, competitor, acquiror, supplier, or strategic partner.

Whether they are a healthcare conglomerate, smaller firm, startup, or a middle market company, entities of all sizes contribute to the medical device ecosystem’s dynamics with their different roles. For the most part, none could exist without the others, and quite frankly, none would want to exist without the others. The interdependence works splendidly.

May the role-playing always persevere for the benefit of all industry participants. 

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Florence Joffroy-Black, CM&AA, is a longtime marketing and M&A expert with significant experience in the medical technology industry, including working for multi-national corporations based in the United States, Germany, and Israel. She currently is CEO at MedWorld Advisors and can be reached at [email protected] or at www.medworldadvisors.com.

Dave Sheppard, CM&AA, is a former medical technology Fortune 500 executive and is now focused on M&A as a managing director at MedWorld Advisors. He can be reached at [email protected].