logo

Tag : growth

Don’t Fail Because of Scale

Lean operations can help ensure the survival of your life science tools company.We see it again and again, and it’s often the fault of investors. A promising technology, a talented team, and what would otherwise be a great young company fail. A life science tool doesn’t become the blockbuster it was pitched as, and because the company was created with the vision of huge sales numbers that never materialized, it goes under. Often it doesn’t go under until multiple additional rounds of financing are pumped into the fledgling company. The company never goes into the black because everyone bet too big, and everyone loses.

You don’t have to have a blockbuster product to be a successful life science tools company. Realism is every bit as important as ambition. If you bet big then you often grow too fast, take on too many liabilities, and end up with a structure that relies on a great deal of success to support. If you can employ lean operations and build success a little at a time, however, your life science tools company will have far more staying power.

We know that not every company or technology is amenable to slow growth. Some take massive resources just to develop and therefore necessitate a bigger payout. However, every company can, in some way, become leaner. In doing so, you can greatly reduce your business and financial risk.

The specific ways that companies can / should lean their operations is heavily dependent on each company’s needs and situations, but we’ve provided a few ideas just to get your creative energies flowing:
• Outsource! (administrative duties, financial / billing, warehousing, manufacturing, etc)
• Leverage a contract (commission-based) sales force, or only sell through distributors
• Release beta units into the market with fewer features to test both the market and your technology prior to full product launch
• Virtual operations

With leaner operations, young life science companies can reduce the threshold to becoming sustainable and successful. Planning on rapid growth or huge sales feels good, and sounds good to investors, but often leads to unnecessary risk taking.

"Looking for the right strategy for your life science tools company? Are you looking to overcome challenging conditions such as low product adoption, rapidly dwindling cash reserves, or entrenched competition? We won’t tell you not to worry, but your situation can be improved. BioBM’s life science business consultants can help you devise a strategy to turn your life science tools company around and put you on the path to profit. Contact us to speak with one of our consultants today."

Slowing Global Economy

Image courtesy of ponsulak and FreeDigitalPhotos.net.You see it on the television, you read it in the newspapers – the global economy is slowing. The IMF has cut GDP estimates for the world as a whole to 4.0%, highlights the threat of renewed recession in the US and EU, has curbed estimates on China slightly, and projects a sharp drop-off in India’s economic growth compared to last year. Other economies are projected to show sharply weaker growth as well. Huge public debts also threaten austerity in major economies. All in all, the global economy is in a very precarious position … but what does that mean for you, the manufacturers and distributors of life science research tools?

Overall, the global life sciences research market will likely contract, and we are already seeing supporting evidence of such. The proposed 2012 NIH budget is trimmed by a modest 0.6%. I expect European and Japanese life science R&D spending to be trimmed by a similar amount. While many developed economies are struggling with debt, investments in research don’t seem to be high-priority chopping block items. What about the massive $100bn+ pharmaceutical and biotech research and development budgets? Well, while one may reasonably postulate that people in developed economies are losing their health care along with their jobs and this would lead to falling revenues, that does not seem to be the case. In fact, the largest threat to pharma / biotech seems to be generics, but even then global sales growth is still projected to be positive, albeit diminished. That being the case, don’t expect private-sector R&D to grow, but it shouldn’t shrink either. Overall, we will likely see only a very modest contraction in overall life science R&D spending. That’s good news.

The bad news is that this cuts the “growth” out of the market, although this is worse news if you’re a large company or an established player in your market segment. These companies rely more on growth in the market in order to grow themselves (at least organically), and companies with a high market share or those that have seen their market share plateau are more likely to see a sales contraction from a contraction in global life science R&D funding. Smaller companies that have plateaued will need to assess their technology and competencies in order to develop plans for value-added innovation in current markets and / or expansion into new markets in order to sustain growth, or else they will simply contract with the market. Larger companies with more cash will likely use M&A to achieve growth. Look for them to acquire early-stage companies with very promising high-impact technologies as well as established small-to-mid size companies that have high-quality product lines that are complimentary to their own.

Contrary to general consumer behavior, we are unlikely to see a move to lower-cost products within the research tools market. Less research funding generally means less labs or smaller labs, not across-the-board cuts in funding to all labs. In other words, the dollars spent per researcher will likely be roughly the same, but the overall number of researchers will decrease, spreading the contractile pressure fairly evenly across all laboratory products instead of driving researchers to lower-cost products. Practically speaking, this means that manufacturers and distributors who sell products that compete on price will feel the squeeze just as bad, if not worse since many of these “generic” or “commodity” type manufacturers do not have the technology and R&D capability to expand into new markets. As these companies have thin margins and already focus on efficiency, thereby not leaving much more room to squeeze out additional efficiency, they will feel the pain of any contraction quite acutely if they haven’t been saving cash.

On the other hand, small and mid-size companies that rely more heavily on technology adoption for growth will likely still have strong performance, as companies will still want to put their research dollars into tools that make research faster, better, and easier. These companies don’t rely so much on market growth since they are, in effect, building sub-markets and carving out new space. While their effective “ceiling” may be decreased, this will likely affect them only minimally since they are still in the growth phase and have not come close to reaching their maximum potential. One exception to this could be those companies that manufacture high-value capital equipment that is most often purchased to upgrade from an older instrument and / or technology. Look for sales in these products to decline somewhat as organizations look to decrease their R&D overhead by decreasing funding to core facilities and putting off large, non-critical purchases. With few exceptions, however, scientists will continue to adopt new technologies.

Another way a contraction will affect the life science research tools market is by decreasing marketing ROI. With an overall decrease in spending, there will be more marketing dollars chasing fewer customers, so marketing ROI will likely decrease by a few percentage points, especially since new players in the market will likely continue to enter given its size and comparative stability, and also to seize opportunities created by new technologies. While sales forces can shrink to demand, the channels through which marketers need to reach customers do not shrink, and this puts a fairly strict limit on how much a marketing budget can contract without negatively affecting sales.

A contracting global economy certainly will not effect the research products markets as much as it will the consumer markets, and this is very good news for those in the space and for the future of biomedical research a a whole. Nevertheless, any slowing or contraction presents risks. By understanding the situation and the likelihood of future possibilities and preparing for what may lie ahead, life science companies can plan for and mitigate those risks to help ensure continued success.

"Are you ready for a contraction or other market disruptions? With a troubled global economy, now is as good a time as any to plan for scenarios which may negatively impact your life science business. If you’re not sure of how you can protect yourself from downside risk, ask the experts at BioBM Consulting. Our business consultants can help you develop a strategy and plans-of-action that will cushion your company from macroeconomic hardships beyond your control."

Acquisition vs. R&D

There is a recent article in Genetic Engineering & Biotechnology News discussing large life science tool companies and how recent growth (and by “recent” I mean the past half decade or so) of these large companies can be largely ascribed to acquisition. David Green, the president of Harvard Bioscience, was quoted as saying that “The average organic growth in the life science instrumentation industry, with the exception of sequencing-based businesses, remains a modest 3–6%.” I can only presume he’s speaking about public companies, which are generally much larger than the average company and therefore more constrained in terms of their potential growth.

This, I argue, is not surprising at all. Larger companies are simply better suited to buy than develop. Given that various granting agencies (for example, the NIH) pump billions upon billions of dollars a year into life science research, wouldn’t it be expected that the more common option for large companies would be to eat up the newly formed companies that are so often a product of that investment?

Now this is not the case in all fields. The technology that moves forward some sectors of the life science tools market are far less frequently products of grant-funded research. In these sectors, R&D spending is necessary and there will often be fewer start-ups to acquire. Companies in these sectors may be limited to the number of viable acquisitions possible or reasonable and therefore must find ways to grow organically.

Regardless of the sector, this is good news for small life science companies founded on solid, promising IP that are looking to get bought out. It seems there are plenty of behemoths with deep pockets who are willing to throw plenty of money around for the right opportunity. However, for those who don’t have that killer technology, whose product portfolio doesn’t fit excellently into that of a much larger company, or who simply wish to remain independent, you have no option but to grow organically. That, my friends, is a topic for another day.

"Looking to get bought out or wondering if it would be a good option for your company? Simply looking for ways to drive organic growth? Call BioBM Consulting and speak with one of our expert life science business consultants. We can analyze your situation and collaboratively help you figure out the best options for you."