In the medtech industry, if you don’t innovate, you can’t compete.
While innovation and breakthrough technologies may be the core currency at startups, larger medical device firms have more to balance alongside research and development, making strategies for maintaining innovation essential to staying ahead of the curve.
Last month at Device Talks West, Medtronic (NYSE:MDT) neurovascular R&D global VP Nitin Salunke and Avanos Medical (NYSE: AVNS) R&D senior manager Shane Duffy spoke on how internal competition, strong leadership personalities and long-term strategies can help guide innovation at large medtech firms.
At Avanos, R&D investments are a percentage of revenue, Duffy said. The company is invested in maintaining its pace of innovation, he added, spending approximately 70% of its R&D budget on line extensions, platforms and breakthroughs.
To promote innovative ideas, the company is split into three business units which compete amongst each other to gain a percentage of the R&D investment dollars, which Duffy said keeps each division focused on innovation.
“We always want to make sure that we’re also innovating for the future and we’re essentially trying to do our competitor’s job and make sure we innovate ourselves out of our current marketplace and don’t let our competitors do that,” Duffy said. “A breakthrough project for us is something that could completely do one of our current businesses out of business but it probably has something like a one in ten chance of being successful.”
For Medtronic, each of its business units manage their own R&D budgets, but those can vary significantly between groups, Salunke said. For larger business units, like the cardiovascular division, R&D is split into multiple groups – a research group, development group and sustenance engineering group, he added.
For smaller business units, those verticals may be integrated into a single team with differing priorities based on the portfolio and financial aspects of the business.
Medtronic also uses internal competition to promote innovation through its internal financing arm, Medtronic Ventures, which Salunke said functions similar to a VC firm.
“So for businesses, like my business unit, if we pitched idea to Medtronic Ventures saying that ‘this is the therapy space,’ or ‘this is an idea, or this is a company we should consider seriously investing,’ then Medtronic Ventures would invest into that early stage company at a very early part of the fundraising and then we get a first right of refusal.
Choosing where to invest is critical, Salunke said. Business unit heads at the medtech giant are critical in shaping how the divisions function, he added, with some more aggressively chasing breakthroughs and some taking more balanced approaches.
“For example, I’m part of the neurovascular business, which was homegrown here in Orange County. It started as a startup 15, almost 16 years ago, and now we are part of Medtronic and our DNA is very aggressive,” Salunke said. “So we were very heavy into breakthrough technology. That’s how you grow, usually in the earlier stages of businesses, you don’t grow up incrementally, you really create a market or you dominate your market.”
Biz unit leaders actively seek returns on investments for their R&D projects as well, Salunke added.
“One thing I promote internally is that we run R&D like a business. If someone puts a dollar in, we are going to get more than a dollar out, otherwise the business unit person will have difficulty next time making that investment,” Salunke said.
Though internal teams at major medtech firms work hard to innovate, many breakthroughs come from outside and are new to the large organizations, Avanos’ Duffy said, and integrating those new technologies can be tricky.
“If you’re gonna be in platforms or breakthroughs, it’s probably something new to your organization. And it’s not just gonna be new to your R&D team, it’s also gonna be new to your quality organization, your regulatory organization. Potentially in your sales and marketing organizations as well,” Duffy said.
Before loading on new tech, Duffy said that Avanos seeks out talent with subject matter expertise to join their internal teams to help shape the company’s core knowledge. He added that in certain cases, they may also seek external help from consultants and contractors for projects that need extra scale to execute.
Deciding when to seek an acquisition and when to develop internally is also important, both panelists said.
For Medtronic, choosing whether to seek an acquisition or develop a project internally begins with a five-year strategy, Salunke said. If the landscape will allow for the project to be developed through to commercialization internally, Medtronic will usually seek that route, but that’s not always the case.
“Many times, with the shifts in direct competition in the marketplace, we need certain products and technologies now. We don’t have development cycle time left. For those, we go out and then we augment with inorganic acquisition for growth towards organic portfolios,” Salunke said.
Avanos follows a similar process, Duffy said, looking for gaps within current therapy or adjacent therapy spaces and tries to solve for those gaps, either between internal innovation or acquisition.
As for knowing when the moment is right to look externally or internally, Duffy said that it depends on how long it would take in both cases, and the risk involved.
“You have to weigh out, do I build out a whole team that meets the skillset and knowledge of that therapy area? Or can I acquire a team with the knowledge in addition to the revenue as well? You have to weigh them all when deciding how you want to make your investment, and also what time you need to get to the market.”
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