How to Navigate the Changing Device Manufacturing Landscape Through Financing

These are some of the biggest game changers in the medical device industry right now—and some lesser-known financing strategies that manufacturers can consider to prepare for continued growth.

Austin Wilson

The medical device industry, and the healthcare industry as a whole, is poised for exponential growth in the coming years. Deloitte’s 2017 Global Health Care Sector Outlook points to a projected $8.7 trillion in global healthcare spending by the year 2020.

This rapid growth, along with ever-advancing technologies and debated changes to healthcare policy, presents both opportunities and challenges for medical device companies.  Many medical device manufacturers are seeking practical solutions that can protect their bottom line and ensure smooth operations.

For this reason, we’ve compiled a few of the biggest game changers in the industry and outlined some lesser-known financing strategies that medical manufacturers can consider to prepare for continued growth in the healthcare sector.

#1—Financing Additive Manufacturing for Cost-Efficient R&D

Many of the costs associated with research and development can’t be financed. However, equipment used in prototyping certainly can be and in many cases, should be.

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Financing in this sector is becoming increasingly important as additive manufacturing technologies become more advanced. Year after year, equipment is updated with added abilities to incorporate new materials with increased precision.

For instance, 3-D printers have historically manufactured plastic products, but are now able to print in metal, rendering earlier generation machines obsolete. 

Depending on the scale and technologies, additive manufacturing equipment can cost anywhere from several thousand dollars to $6 million. Based on its ability to quickly produce small batches of prototypes, this equipment can be critical to research and development functions. 

For example, a medical device manufacturer in Southern California was outsourcing its material printing, losing both time and money by doing so.  The cost for a 3-D printer was $750,000. Rather than making that large capital investment up front, the device manufacturer could finance the lease of the printer, spreading out its costs over time, while also saving by printing concepts in-house.

#2—Financing Software to Ensure Smooth Manufacturing and Management Operations

In recent years, the volume of mergers and acquisition has kept the medical device manufacturing industry in flux. From July 2015 through June 2016, M&A activity in medical technology totaled nearly $80 billion in deal value, according to a report from EY.

The growing, shrinking, and "right-sizing" of operations means that now more than ever, companies are need to streamline their operations and make strategic decisions that best support growth, expansion, and change.

Financing is often a key element in these transitions.

As companies merge or are acquired, existing equipment and software will likely need to be updated or changed to accommodate the new normal. These changes require capital investment, and newly formed mergers often need cost savings instead.

It is here that lease structures can be beneficial to operations and accounting.

For example, M&A activity typically leads to an increased need for management software such as enterprise resource planning (ERP). Implementing this software incurs numerous costs, including software acquisition, installation, maintenance, and training. 

What many in the medical device industry don’t know is that these costs can be financed, resulting in one payment that covers both hard costs (i.e. the software or equipment itself), as well as the soft costs (i.e. the installation, maintenance, and training.) 

By implementing this strategy, medical device companies can create stability in their expenses, which better positions their cash flow for continued growth and expansion.

#3 Moving End Product Amid Industry Uncertainty

One common challenge for medical device manufacturer is how to drive sales during a period of deep uncertainty.  As healthcare policy is debated and the entire industry waits for an understanding of what’s next, the natural response is to simply “hold on.”

Hospitals and healthcare professionals are likely to become extremely cautious when it comes to expending capital, especially since the future of how these entities will be paid remains in question.

Finance options can help medical device companies overcome this challenge, giving these customers a measured, lower-risk alternative to investing in devices outright.  By offering providers the state-of-the-art devices they need with a built-in finance platform to pay for those devices via a steady monthly payment (instead of a large lump sum), it is possible to maintain and even increase sales during these uncertain times.

For example, private label financing allows everything to be branded under the manufacturer's name while the financing company provides and services the leases for the manufacturer’s customers. This builds credibility for the medical device manufacturer and helps them increase their sales without adding extra work to their team.

The Bottom Line

In the highly competitive and rapidly evolving medical device industry, manufacturers are feeling the pressure to test and bring to market the latest technologies. This can often lead to more upfront R&D and production costs.  In addition, the shifts within companies and the industry from M&A activity and an uncertain political climate means the need to remain flexible and stay ahead of the curve is more important than ever.     

Fortunately, by implementing the right financing strategies that allow for increased cash flow, bundling "hard costs" and "soft costs" into single, predictable payments, and offering customers competitive financing options, manufacturers can maintain smooth, cost-effective operations, and move more end product.

Austin Wilson is an account executive at Summit Funding Group, an Ohio-based company that provides equipment lease and finance solutions to businesses across the U.S. and Canada. Contact him at awilson@4sfg.com.

[Image courtesy of COOLDESIGN/FREEDIGITALPHOTOS.NET]

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