NEWS TRENDS

Exercising caution and taking fewer risks while remaining committed to innovation is a likely theme for 2009. The turbulent economy isn't causing havoc on the medical device industry, but manufacturers are being advised to be strategic with the decisions they make this year and beyond.

“This industry has historically not been affected by economic downturn,” says Pete Maslowski, principal, ZS Associates (Chicago), a global management consulting firm that focuses on improving sales and marketing practices. “We seem to be breaking new ground with what's happening
here—we're seeing a varying impact.”

Companies that have most of their business rooted in medically necessary procedures or technologies aren't seeing a large negative effect, because demand hasn't changed. During a healthcare information technology press event held by GE Co. (Fairfield, CT) in November, chairman and CEO Jeff Immelt said his company continues to do well, even in this economic climate. In fact, 2008 is slated to be one of the highest earning years in the company's history.

Conversely, companies involved in elective procedures are starting to see some softness, according to Maslowski. As concerns grow, many might become more conservative in the areas of investment and expansion.

Although the economy isn't expected to do as much damage to this industry as it will to other industries, Maslowski identifies four key areas where companies need to remain alert as follows:

“Many of our clients will go through sales force expansion to take advantage of growth opportunities,” says Maslowski. “However, in today's environment, we're seeing less-aggressive expansions and more hiring freezes. Companies will either refrain from expanding their sales force and keep the same number of territories, or they might keep the same head count and not fill open territories.”

Manufacturers aren't necessarily taking fewer risks in investing in new technologies just because the market isn't doing well. However, one hypothesis is that if the credit crunch continues, funding sources for smaller companies with new technologies could dry up.

During an MD&DI panel discussion last fall, Piper Jaffray (Minneapolis) analyst Tom Gunderson spoke briefly about risks that companies are likely to take in the current market. Three years ago, a company would have been more likely to take higher risks in pursuit of innovation, whereas now, “it's all about risk adversity,” he said. One example of this is with me-too products. In Europe, there are 22 drug-eluting stents, four of which make up 95% of the market share. U.S. companies aren't likely to invest $25 million to compete for 5% of the market, said Gunderson.

Manufacturers should keep an open mind about exploring technologies, but their approach needs to be smart. Ensure that potential technologies fit with the company's current capabilities and go-to-market strategies.

“For example, a technology might be very interesting, but if it's not large enough to support a sales force on its own, is it really be a good fit?” asks Maslowski. “Does the sales force have the same skill set and bandwidth required to sell this product? Will they incur additional costs trying to integrate this product?”

He says that companies don't always think through such complex issues when evaluating technologies. And although large manufacturers will probably always have a stronger interest in acquiring or forming partnerships with small companies, making sure that the technology fits into the strategic plans of the company is critical, he says.

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