The medtech industry is going through some fundamental transformation. This is especially true when it comes to pricing pressure and the companies’ dilemma on how best to use R&D capital. Paul LaViolette, managing partner and chief operating officer of SV Life Sciences Advisers explained "I used to spend 9% of sales on R&D. I can’t do that anymore because I am investing in growth drivers that are not technology related, so I am reducing my R&D as a percentage of sales". He also realized that companies are using some of the R&D budget on maintaining market leadership in areas they already excel in.
And the next big medtech trend is related to it: "If you look at the big outsourcing trends over the last 10 years, it was contract manufacturing. I think the big trend in the next 10 years is going to be contract development”. Now, contract development companies developed engineering talent that is as good as what large companies have. LaViolette added that going the contract development route is also cost effective for medtech companies.
"Why should I hire 20 FTEs (full-time equivalents), put them on my benefits program, my retirement program, everything else when I can contract that out if I have faith that the contracted strategy can deliver the same benefit?” he asked rhetorically. "If it works out well, it can be part of my long term franchise strategy. Then I'll hire internal resources to support it."
However, LaViolette made it clear that “contract development allows companies to share the risk of developing new programs where they don't have the engineering skill sets internally.” Medtech companies are not going to do that if they are already the market leader.