CEOs Shy Away From Breakthrough Technology

The financial collapse has had different effects on the four New York companies. ConMed, a company that focuses on technology for minimally invasive surgery, has experienced about a 25% drop in capital sales in the first two quarters of 2009. To combat this loss, CEO Joe Corasanti said that his company has cut costs by consolidating three factories into one and eliminating some of its distribution centers. The company also plans to boost its organic growth by introducing new products.

These measures, Corasanti said, would help ConMed improve its operating margins. “We fully expect over the next 3–4 years, that our operating margins should return to the historic levels of about 14–15%.”

Diagnostic equipment manufacturer Welch Allyn also reported decreased revenues so far in 2009. However, CEO Julie Shimer said that the company was seeing an uptick in Q3 orders, which makes her “optimistic that medical devices are getting out of the doldrums.”

To improve the company's bottom line, Shimer is working to grow Welch Allyn's international sales. About 32% of the company's business is international, Shimer said, but medical device manufacturers at large are about 55% international, so she sees a great opportunity abroad.

Another participant, Bio-Optronics CEO Dan Kerpelman, said that his company is “in a pretty healthy situation.” But he acknowledged that his business was a bit of an anomaly in this economy because it develops relatively modestly priced software applications that enable customers to create efficiencies in healthcare.

Despite its success, Kerpelman says that Bio-Optronics still struggles to maintain the proper balance between cutting costs and investing. “It's obviously important to manage costs tightly, but not to the extent that it squashes investment and growth.”

Investment is also a key notion for Greatbatch—a company with revenue that has more than doubled over the last four years, according to CEO Thomas Hook. The executive says that Greatbatch continues to invest about 10% of its annual sales revenue into R&D and engineering. It has also built four new facilities over the last 3–4 years.

Although Greatbatch seems to have effectively handled the financial downturn, it's being tested by the proposed healthcare reform. Hook says that he expects a regulatory environment with higher hurdles, which will make the economics much more difficult for innovation.

In anticipation, Greatbatch has reduced the amount of risk it takes on in product development. “You look for things that are going to provide benefits that are more sure. You're not going to take on a level of breakthough technical risk that you might have historically done and carried,” Hook said.

Corasanti agrees with Hook's assessment. ConMed has had a difficult time pioneering a device that measures the cardiac output of patients in a noninvasive way, he said. One problem is that the device adds a cost to the typical procedure. Also, the company said it is hard to change behavior at a clinical level. Going forward, ConMed will probably concentrate on developing improved products for well-developed markets instead of making first-of-its-kind devices, Corasanti said.

The CEOs were able come up with some positives associated with healthcare reform. For example, an increased number of people seeking treatment would result in a higher volume of medical devices. However, reform is still keeping the executives awake at night.

“Whenever there is reform afoot…people get confused and often get into a wait-and-see mode,” Kerpelman said. He worries that the reform will delay healthcare professionals from making new technology acquisitions.

© 2009 Canon Communications LLC