Dating Drama in the Industry Next Door

If you follow the 3D-printing industry, you may have received a rash of speculative headlines in June playing out like an industrial scale version of “The Bachelor”. Stratasys, currently the largest 3D-printing company in the world, has been at the center of M&A speculation with 3D Systems and Desktop Metal, currently sitting at positions two and five on the Who’s Who list for the industry. A top ten player (NanoDimension) has also made repeat offers to publicly purchase large quantities of Stratasys stock with the intention of gaining a majority ownership in the company, much to the dismay of Stratasys’ board. 3D-printing enthusiasts are watching the proceedings closely because the outcome, whatever combination that might be, will likely result in the 30-year-old industry’s first company with a net worth exceeding one billion USD. With medical devices among the most heavily publicized applications of 3D-printing, we have, at least, a passing interest in the outcome.

Stratasys, 3D Systems, and Desktop Metal, as well as outlier Nano Dimension, are all equipment manufacturers. Starting from the late 1990’s, they were producing equipment that could make plastic parts directly from a CAD file, with no tooling or machinist skills needed. Medical device manufacturers found a use for these machines in their R&D labs while the 3D-printing companies learned about medical products in turn. After many years of feedback, modern industrial 3D-printers now have integrated quality control systems and build volumes capable of supporting 1000s of parts and material options that run the full gamut of biocompatibility, sterilizability, and traceability. While the 3D-printing companies have pursued entirely new device markets like hospital site production and bespoke patient specific products, the maturation of these companies’ life science offerings also have ramifications for traditional medical device manufacture.

Stratasys and 3D Systems are now running their own ISO 13485 facilities. They are creating both medical grade 3D-printers for use in regulated applications, such at Stratasys’ line of dental printers, and assembling their printers into FDA-registered contract manufacturing facilities like 3D Systems orthopedic implant and surgical model sites in North America and Europe. Rather than relying on medtech customers to address the regulatory challenges of the field, 3D-printer OEMs have developed their own relationships with the FDA. Desktop Metal is the newcomer to the medical field, with only a small portfolio of machines with health applications, but they too have been building capacity as a contract manufacturer with a more diverse range of materials — including Iconel and ceramic — than either Stratasys or 3D Systems.

In business, when a supplier expands to take on more of a customer’s activities, there is a very real risk of that supplier evolving into a competitor. Even with their growing application experience and infrastructure investments, Stratasys is not about to go head-to-head with OEMs like Medtronic or Boston Scientific. Yet, with the growing industry trend towards outsourcing to contract manufacturing groups, there is a strong opportunity for 3D-printing companies to disrupt medical device CMO’s. The outcome of the current “dating drama” could decide the shape and scope of that disruption.

Option 1: Stratasys and Desktop Metal

This was the original business proposal that would have led to the creation of a $1.8 billion company by the end of 2023. Desktop Metal would greatly expand Stratasys’ material and process capabilities, while gaining Stratasys’ extensive experience in selling to the highly lucrative and expanding dental and orthodontic market. This combination could expand technology for standard tooth repairs and dentures into more complex implants and jaw surgeries. The new, larger company would have the resources to roll up the large number of smaller players and dominate dental applications. However, focusing on such a large and immediate market opportunity would likely keep them away from the broader medical device community. 

Option 2: Stratasys and 3D Systems

Alarmed at the prospect of their longest running competitor scaling so rapidly, 3D Systems proposed their own deal for Stratasys after the news about Desktop Metal broke. 3D System’s medical activities have featured machines for hospital point-of-care applications, building out software, and offering consulting services to set up in-hospital resources for anatomy models and surgical guides. Combining this with Stratasys’s extensive dental portfolio — primarily aimed at in-office or small lab production of dental products — would result in a point of care powerhouse. Medical device developers working on products with patient specific customization would want to follow this development closely. Still, while patient specific products are an exciting new market, this combination would likely have minimal impact on traditional production of standard devices.

Option 3: 3D Systems and Desktop Metal

This potential deal, while not being discussed by the companies themselves at this point, has been speculated about by the 3D-printing industry. It is perhaps a good thing that its odds are relatively low, because the combination of resources could mean trouble for traditional medical contract manufacturers in a few years. 3D Systems has already proved its direct medical manufacturing capabilities with its orthopedic implants and surgical guides. What limits its ability to expand further into medtech is the fundamental limitations of 3D-printing itself. While medical products do rely on many monolithic, solid parts — either metal, polymer, or ceramic — designs often include sheet metal, wire, extrusions, laminates, and a whole host of components who functional properties are a direct result of their manufacturing method. It will never make sense to 3D-print a band-aid, since it is essentially 2D. Joining up with Desktop Metal would help take 3D Systems medical manufacturing beyond 3D-printing into other digitally driven manufacturing methods. Desktop Metal may have started creating accessible, smaller scale metal printers, but it is now proving itself as a digital innovator across multiple manufacturing methods. Desktop Metal’s portfolio now includes a tooling free sheet metal former, a sand printer for casting applications, and a 3D-printable foam resin that creates true closed cell foam via a secondary expansion step. A facility equipped with a range of tooling free, digitally native equivalents of medtech’s favorite fabrication equipment would be a tempting prospect for OEM’s of complex products with small to moderate volumes.

The conjectures above are limited to the healthcare product lines of these companies. Stratasys, 3D Systems, and Desktop Metal have all actively courted the major names in automotive, aerospace, and consumer products, any of which could represent far larger market opportunities than medical manufacturing. While doubling down and expanding the healthcare opportunities discussed is one potential action post-merger, selling off the healthcare units to maximize profits from what are perceived as less risky industries is equally likely. Whatever company appears from the current chaos will be under intense pressure to fulfill the expectations of an industry that has spent decades proclaiming its own potential. For medtech, which of these candidates end up committed together will ultimately be less important than how the newlyweds decide to build moving forward.