Be Ready for a New, More Selective Era for Investment

The president and CEO of Boston Scientific shares some advice for start-ups during these tough economic times.

December 1, 2008

3 Min Read
Be Ready for a New, More Selective Era for Investment

FROM THE EDITORS


In the current economic climate, if you're a small company, the cash you have is the cash you're gonna have, and you better figure out how to live with it. If you have enough cash to get to market, do so as expeditiously as you can. That was the advice of James Tobin, president and CEO of Boston Scientific. Tobin spoke at the Cleveland Clinic Innovations Summit in November. Along with that advice, Tobin outlined Boston Scientific's investment strategy going forward.

“In the short term, given that our issue is top-line growth, we will look for situations where we can buy that top-line revenue or we can see that top-line revenue happen rather quickly,” said Tobin. “We're going to expect that what we buy will be quality product and that we don't have to worry about hitting the reset button shortly after we buy it.”

Over the long term, he said that the company would take a more strategic approach. “We'll look at products that are more narrowly focused, but that meet unmet needs,” he said. Boston Scientific's expectations of the companies that it invests in will increase dramatically.

“The worldwide credit crunch—together with the increase in regulatory requirements—has made us stop and think about the way we do deals,” said Tobin. “We're going to be more selective.”

Tobin stressed that Boston Scientific will expect more and will not overpay. What that translates to, he said, is a new equation for the funders of the medical device industry. “The old days are over and I don't think they're coming back.”

Boston Scientific's approach is driven partially by a climate in which venture capital money is going to be much harder to get and the IPO market is “closed for the duration.” Uncertainty is also playing a role. “Nobody knows the extent to which the government-led initiatives will have an impact,” he said.

“What I do know is that for small companies with great ideas that are running out of money, your options are few. The good news is that traditional sources of funding will come back—they always come back,” he said. For Boston Scientific, Tobin said that the company—which landed at #10 on MD&DI's list of the top 40 publicly traded companies based on revenues (see page 29 in the December print issue)—generates enough cash to meet its financial obligations and make some limited investments.

Tobin said that one of the first things Boston Scientific did in light of the credit crisis was to divorce its business development from R&D. The company has sent its business development function in search of opportunities where that are true unmet medical needs. This strategy, he said, results in significantly fewer deals. He also expects a more rigorous regulatory process in the coming year.

“The regulatory and quality bar is being raised. The scrutiny of the safety-versus-effectiveness equation is going to be revisited. And, we have 50 states trying to regulate our relationship with doctors—relationships that are crucial to our ability to invent new products,” said Tobin.

Despite the financial crisis, Tobin believes that these regulatory changes may actually have a greater effect on the future of medical device investment than the economy.

“That means that we will demand a lot more from the companies we buy. That means you're going to have to give us more. This is the only way I can see to adjust for the realities of the marketplace that we're going into.”

Opportunities can be found in times of stress like this, he said, if companies can navigate the waters. “Innovation is key in the medical device industry. That [innovation] will be challenged by the impending economic and regulatory situations.”

Sherrie Conroy for the Editors

Copyright ©2008 Medical Device & Diagnostic Industry

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