Unlocking the Value of Data: Tech Acquisitions in Healthcare

Four weeks ago, Intuitive Surgical shares rose on a report that it is open to being acquired by a larger player in medtech.  Naturally, this type of report drives intrigue and consideration of who might be a viable acquirer.  Intuitive may or may not be sold, but when one looks at the potential suitors in medtech who could do such a deal, the list shrinks fairly quickly.

For the sake of argument, let’s take the statement from MassDevice on face value: the acquirer is larger and in Medtech.  Intuitive is currently 35th on the list of largest medtech companies.  On face value, only Stryker (or possibly Boston Scientific) can truly take on a deal of this size, has interest in selling capital, is in urology/GYN/general surgery, and doesn’t have a robot in the works targeted at Initiative’s procedures. Eliminator GraphicOthers like Danaher, GE Healthcare, Siemens, or Fujifilm Holdings could be tempted to explore this opportunity because of a focus on capital or general surgery or informatics.  Further, companies like JNJ or Medtronic could explore it if internal robotic development programs fall flat.

So, we are left with three groups within the Medtech segment:

  • Group 1: Enter Surgical Adjacency – Stryker or Boston Scientific
  • Group 2: Enter a healthcare capital and/or informatics adjacency – Danaher, GE Healthcare, Siemens Healthineers, Fujifilm
  • Group 3: Hedge against internal robotic program inability to meet expectations – JNJ, Medtronic

However, is there a fourth category of strategic buyer?  Would this market be attractive to a traditional technology company?  In the way Verily partnered with Ethicon (Verb), might another tech company see the value in big data, analytics, machine learning, etc.  Could an outright acquisition be a path to expand access to information and a channel to market in healthcare?

Healthcare companies have struggled on their own to monetize data effectively and tech companies have similarly struggled with the sales cycle and regulatory environment of the healthcare market.  Beyond Verily, we have seen Qualcomm Life, IBM Watson Health, and Salesforce (via Philips partnership) make forays into the healthcare market from a data or disease management perspective.  If one thinks of a robotic platform as a data solution vs. an interventional tool, it could lead to a disruptive play.

Despite the threat of competition, Intuitive is in a strong market position with over 3900 installs and 750K procedures/year.  The result is over 70% of revenue is from recurring sources, which makes for a stable foundation.  However, two of the pillars for Intuitive’s future growth (discussed in recent investor presentations) are built on its ability to develop more intelligent systems and drive data analytics through its platform – clearly a step beyond its historical comfort zone.

It would be a bold move for a company like Apple, Cisco, IBM, or Microsoft.  It may be more attractive as a partnership, but it is worth considering.  Tying more data into the equation opens channels for novel analysis, different business models, the ability to predict value, budget more effectively, and meet broader hospital (and payer) goals.

Perhaps Intuitive will be able to address its data analytics and intelligent systems strategies in-house or via partnership to stave off competition.  This coupled with its early diagnostic platforms could provide an attractive organic growth path.  Perhaps Medtronic or JNJ wants the book of business and install base on which to build.  Or, perhaps we continue to see this steady march towards a digitized healthcare environment and entry of non-traditional companies to the market.

Beyond the Surgeon: Value-Based Selling in Medical Devices

Medical device decision making has never been more varied among health systems.  There is a routine struggle between physicians and value analysis committees (VACs) on price and total value.  For many device companies this means the customer is no longer just the surgeon or implanter.  It means great technology alone will likely not be enough to win or command a price premium.  It means more complexity and time in the sales process, which in turn suggests higher selling costs and pressure on the profit line.

To be clear, this is not a new issue – my first project on the subject was completed in 2008 – and there is no silver bullet.  Customers are unique in decision-making processes, VACs continue to evolve, and the role of the payer is varied.  However, I’ve seen companies have the most success when, despite all the customer variability, they bring structure and consistency to the sales and marketing process.   This doesn’t mean using the same value proposition or approach for every company or every product, but it does mean asking the right questions and the same questions.   The five questions below are meant to be approached sequentially and are critical for any company to consider as it launches or maintains products and services in the market.

1.  Who is involved in making a purchase decision?

A simple question, but often overlooked or misunderstood.  People often mistake this question with: who is the customer?  It is easy to revert to the individual using the product or service (like a surgeon, for example), but it is typically more complex.  There are process steps, value analysis committees, GPOs, umbrella IDN leadership evaluating certain purchases, and a variety of other nuances to consider.  Somebody may not be the direct customer but could have dramatic influence in how the solution is purchased.  Critical to keep in mind.

2. What is each decision maker’s remit?

Understanding what all stakeholders care about is critical and the definition needs to step beyond a medical device company’s universe.  Believe it or not, decision makers at health systems have responsibilities and objectives that go beyond selecting a particular product or managing a particular relationship.  An OR Director may be tasked with reshaping processes, a risk officer may be focused on inpatient management.  Understanding the sum of each person’s job responsibility is crucial to identify ways to engage.

3. How is their success measured and what variables matter most?

As with most jobs, people with focus on the tasks they’re being measured against and place the most emphasis on the “biggest” ones impacting performance or reward.  The same holds true for this diverse set of customers.  The best positioned company will be the one who knows the top-10 objectives for each person in the decision-making process (even if the objectives appear to have nothing to do with the technology or service being offered).

4. How does the proposed product or service directly or indirectly align with customer need?

It is great if your widget or service completely stops misplacement of surgical trays, but if that ranks #9 on a list of 10 objectives for somebody, they may not care.  If a secondary, indirect benefit of your widget or service is the ability to optimize (or predict) how shared resources are used and thereby reduce staffing needs or drive up OR utilization, and OR utilization is #2 on that same list of objectives, then you have a story to tell.

This question or step is perhaps the most nuanced and requires leaps of faith on the part of the product/service provider and the customer.  The company needs to put itself in the shoes of the customer who may not see any linkage whatsoever between a product and an indirect benefit.  We have seen numerous examples of companies falling down here or lacking the vision or creativity to flip the value proposition around to meet the customer.  It requires a trained eye, diligent research, thorough VoC, and thoughtful analysis.

5. How do you focus attention on those benefits that do map to customer needs?

By this stage, the customer is understood and how the proposed offering fits (or doesn’t) with their needs is also known, so the next step is communicating the message.  Using a framework to map customers to goals to the proposed offering is at the center of this step.  Often this requires testing messages or engagement/marketing collateral with customers, conducting benchmarking assessments for how best in class competitors engage with each customer stakeholder, or setting new sales processes, incentives, or objectives to drive the right behavior in the market.

The questions above are not exhaustive, but provide a sound and straightforward place to start.  Executing on this approach requires coordination between sales and marketing functions.  It requires a willingness to challenge existing hypotheses.  It also requires many companies to stop and take a breath before charging into a sale.  In the long-run, a cohesive and structured process to manage multiple customer stakeholders will prepare any company for the variability that is certain to exist going forward.