Medical technology CEO report: key issues | Whitepaper
Capital markets fuel drive for profitability
The difficult capital markets have had a significant impact on the Medical Technology CEO (Device, iagnostics and Instrumentation). With limited access to new capital, Medical Technology CEOs find themselves acutely focused on achieving profitability. This focus has lead to difficult strategic decisions, including distribution channel selection, number of products to develop, where to manufacture products, where to perform clinical studies and how to staff organizations.
Standing in the way of profitability is the customers’ (hospitals, doctors, research organizations, etc.) propensity to avoid spending money in difficult times and/or to adopt a new process or procedure. These times clearly favor “must have” solutions and disposables. In the disposables arena, where there is a razor/razor blade model, companies are even more focused on giving the razor away to encourage the adoption of the new product.
Additionally, the capital markets have had an impact on acquirers. With depressed stock values, companies are not able to use stock as a currency and in the current climate; companies are hesitant to use cash to acquire. This phenomenon has lead to lower exit values, as there is less competition for deals. The pressure on exit values further exacerbates the CEOs focus on achieving profitability.
Depressed company valuations have also lead to significant equity compensation challenges. Companies often have stock options that are underwater and do not offer the employee an equity incentive. Further, with lower expected exit values, CEOs are not seeing any return to common stock and option holders in an exit due to liquidation preferences from the capital raised.
Through a recent Deloitte survey of Medical Technology CEOs, we learned that the capital market’s affect on raising capital, focus on profitability, and human capital, weighed heavily on the minds of CEOs. While raising capital has been difficult in the past, many CEOs are questioning whether we have seen this level of severity.
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