Hi-Tech Fertility Products Analysis

Part
01
of two
Part
01

Medical Products Analysis

Although information on the profitability and break-even points for start-up medical device companies in the US is not publicly available, US medical device organizations overall enjoy profit margins between 20% and 30%.

Profitability Points

  • The most recent analysis (2017) by the US Medicare Payment Advisory Commission (MedPac) found that medical device companies enjoy profit margins between 20% and 30%.
  • An earlier analysis (2013) by Medical Device and Diagnostic Industry news corroborated this figure, by reporting that the highest profit margins in the medical device industry were held by California-based ResMed and Intuitive Surgical, which enjoyed average profit margins of 20.3% and 30.2%, respectively.
  • Meanwhile, the latest available information by Statista (2015) reported much wider ranges for gross and net margins for US medical device companies.
  • Specifically for Baxter, Johnson & Johnson, Boston Scientific, Becton Dickinson, Hospira and Stryker, gross margins ranged from 39% to 69.2%.
  • In parallel, the net margins for these US medical device companies ranged from 19.9% to negative 1.6%.
  • A more current analysis of gross and net margins for medical equipment and supply companies by CSIMarket corroborated these statistics, by reporting similar gross and net margins for Baxter (40.8% gross, 12.1% net), Boston Scientific (70.6% gross), Becton Dickinson (46.8% gross, 6.6% net), and Stryker (65.4% gross, 17.6% net).

Break-Even Points — Helpful Findings

  • According to US-based strategy consultancy McKinsey, the average cost of goods sold for medical device companies is 41%.
  • Similarly, McKinsey reported that supply chain costs represent approximately 40% of corporate expenses for medical device organizations, while a separate 2017 McKinsey analysis found that the direct cost of quality (e.g., quality failures, labor remediation) represents 6.8% to 9.4% of industry sales.
  • Meanwhile, Florida-based CSIMarket reported that medical equipment and supply companies currently average a 2.87% operating margin, down from 3.88% in years prior.
  • Additionally, SelectUSA found that medical device companies spend approximately 7% of their annual revenue on research and development.
  • Meanwhile, PMA medical devices require close to $100 million on average to market in the US, per Los Angeles publication Medical Device and Diagnostic Industry.

Research Strategy

An extensive review of credible media resources and financial reporting by medical device startups revealed no publicly available information related to the profitability and break-even points of early-stage medical device companies in the US. This is likely due to the highly specific nature of this request.

As suggested, the research team expanded the search for profitability and break-even information to all US-based medical device companies. This more expansive search identified a variety of data points and benchmarks related to the profitability of US medical device companies overall, and was provided within the above summary.

Unfortunately, information related to the break-even points of medical device manufacturers in the US was unavailable. This is likely due to the limited available analysis of break-even points in the medical industry as a whole. While such benchmarks appeared to be available for limited sectors of the medical industry (e.g., pharmaceutical drugs), information specific to medical device companies was less common or credible (e.g., MedNexis Medical Equipment Business Plan).

Several strategies were attempted to identify this break-even information, including identifying and reviewing medical device industry reports, relevant US government reports and the annual reports of industry participants. However, the research team was unable to locate either examples or industry averages for the break-even point for US medical device companies. With that said, helpful findings related to cost and operating benchmarks for US medical device companies were identified and provided within the above summary.
Part
02
of two
Part
02

Single-use Medical Products Analysis

The following brief about single-use medical devices primarily consists of financial information for LifeScan's OneTouch, Roche's Accu-Chek and Abbott's FreeStyle diabetes management products. This is followed by general market data, including historical, current and future US medical device sales and predictions, as well as sales data on individual single-use medical products like ClearBlue and FirstResponse.

LifeScan, OneTouch and Platinum Equity

  • LifeScan's OneTouch personal blood glucose meters, testing strips, lancets, point of care testing systems and integrated digital solutions brought in $1.5 billion in net revenue (2017).
  • Previously owned by Johnson & Johnson, LifeScan has been serving 20 million diabetes customers in 90 countries for the past 35 years from its headquarters in Chesterbrook, Pennsylvania and Zug, Switzerland.
  • LifeScan was acquired by Platinum Equity for $2.1 billion from Johnson & Johnson in 2018.
  • Platinum Equity is a 23-year-old global investment firm founded in 1995 with $13 billion in assets and 40 operating companies in a broad range of industries.
  • Platinum Equity is a private investment group specializing in mergers, acquisitions and operations. Access to its Investor Portal is limited to its investors.
  • Platinum Equity was ranked number 22 on the Forbes list of America's Largest Private Companies 2015. The company was founded in 1995 and headquartered in Beverly Hills, California.
  • Also, according to Forbes, Platinum Equity's revenue stood at $12.5 billion in 2016.

Accu-Chek and Roche

  • Roche Diabetes Care, Inc., based in Indianapolis, Indiana, has been the maker of Accu-Chek blood sugar monitoring systems and insulin pumps for the past 40 years.
  • According to Bloomberg Markets, Roche Diabetes Care is a medical equipment and devices company, founded in 2014 in Indianapolis, Indiana, that manufactures medical, surgical, ophthalmic, and veterinary instruments.
  • F. Hoffmann-La Roche Ltd, founded in 1896 and currently operating in 130 countries, is a producer of pharmaceuticals, medical devices, and diagnostics.
  • Headquartered in Basel, Switzerland, F. Hoffmann-La Roche Ltd employs 80,129 people as of 2012, and its subsidiaries include Genentech and Ventana.
  • F. Hoffmann-La Roche's 2013 revenues were at CHF 46.78 billion with CHF 10.5 billion in diagnostics sales and CHF 11.4 billion in net income. The company's total net assets were valued at CHF 21.241 billion that same year.
  • The Roche Group's 2015 financial results indicate a 5% growth in sales, a 4% increase in per share earnings, and an increase in group sales of 5% to CHF 48.1 billion.
  • Roche's 2015 diagnostics sales CER growth shows a 5.9% increase, and a core operating profit margin growth of 18% of sales.
  • In its 2016 Annual Report, Roche reported CHF 50.6 billion in group sales and CHF 11.5 billion in diagnostics sales.
  • In 2017, Roche's diagnostics sales grew by 5% to CHF 12.1 billion and remained stable in North America with double-digit growth in other world regions.
  • Among the highest earning pharmaceutical companies in 2018, Roche ranked second after Johnson & Johnson with revenues of $55.7 billion compared to $52.23 billion the previous year.
  • Roche 2019 revenue was at $61.5 billion, a year-on-year increase of 8.13% from $56.85 billion in 2018, with a net income of $13.5 billion.
  • F. Hoffmann-La Roche's 2020 revenue is expected to reach $58 billion.

FreeStyle and Abbott

  • FreeStyle is a diabetes management device brand owned by Abbott, a 130-year-old producer of diagnostics, medical devices, pharmaceuticals and neutraceuticals in 160 countries.
  • Abbott had a market capitalization of $153.5 billion and $31.9 billion in sales in 2019.
  • More than one third of Abbott's revenues comes from the sales of medical devices, and its revenues from diagnostics have grown from $4.8billion in 2016 to $7.5 billion in 2018.
  • In 2018, 37% of revenues were derived from the sales of medical devices and 25% from the sales of diagnostics.
  • Abbott Laboratories annual revenues grew from $27.4 billion in 2017 to $30.6 billion in 2018 and $31.90 billion in 2019.
  • According to Statista, Abbott's US revenues grew from $9.7 billion in 2017 to 10.8 billion in 2018 and $11.4 billion in 2019. One third of the company's global revenues were generated in the US in 2019.

Market growth

  • In 2016, Statista predicted that the US medical device sales in 2017 would be around $155 billion.
  • Four years earlier, the US was the largest target market for medical devices comprising 45% of the global share with a projected growth of 6.6% annually.
  • Also in 2014, Johnson & Johnson's revenues amounted to $35 billion in the US and $74.3 billion globally. $27.5 billion of its US revenues came from the sales of medical devices and diagnostics.
  • The pregnancy test kit, First Response, generated $82 million in sales in 2013 which made it the top selling OTC brands in the US.
  • In 2019, First Response, once again, generated the highest revenue among pregnancy test brands in the US with $86.8 million in sales.
  • The Clearblue digital pregnancy test generated $82.6 million in US sales in 2019.
  • A forecast report and opportunity assessment for the years 2012 through 2027 published by Future Market Insights showed that most women in the US tend to purchase digital pregnancy tests repeatedly and prefer drug stores over pharmacies.
  • A 2017 survey of pharmaceutical and medical device technology CEOs by PA Consulting revealed that the majority wished to reduce the time to market period through technology reuse, outsourcing and standardization.

Sources
Sources

From Part 02
Quotes
  • "Evaluate MedTech estimated that worldwide sales of medical devices in 2017 were US$386.8 billion. Cardiology was among the largest groups, with $44.6 billion in sales. The Emergo Group estimated US sales to be $147.7 billion and sales in India to be $3.5 billion. The average annual growth of the device market since 2009 has been about 16%. Also, since about the year 2000 a thriving third-party reprocessing industry has emerged in North America and Europe. Only about 2%–3% of all devices can be safely reprocessed.6 By 2016, global revenue of independent SUD reprocessors was estimated to be $1.054 billion.7 Estimated sales of third-party reprocessors in the USA was $848.5 million."
Quotes
  • "Johnson & Johnson (NYSE: JNJ) received a binding offer from Platinum Equity, a leading private investment firm, to acquire its LifeScan business for approximately $2.1 billion. LifeScan is a leader in blood glucose monitoring products with 2017 net revenue of approximately $1.5 billion."
Quotes
  • "For more than 35 years LifeScan has continuously moved diabetes care forward through advancing technologies and developing products defined by simplicity, accuracy, and trust. From OneTouch® brand blood glucose meters, test strips, and lancets to integrated digital systems, therapeutics, and hospital point-of-care systems, LifeScan is committed to offering best-in-class products and technology-driven solutions. Through our partnerships with industry leaders such as Welldoc and Sanvita Medical, we will usher in the next wave of patient-centered care that helps people better manage their diabetes, related conditions, and ultimately their lives. LifeScan is a world leader in blood glucose monitoring – globally more than 20 million people depend on our iconic OneTouch® brand products to help them manage their diabetes."
Quotes
  • "The vision of Roche Diabetes Care is to help people with diabetes everywhere in the world think less about their daily diabetes routine so they can get true relief, day and night. For over 40 years and with its Accu-Chek brand, Roche Diabetes Care has been dedicated to enabling people with diabetes to live life as normal and active as possible, as well as empowering healthcare professionals to optimally manage their patients’ condition. The current Accu-Chek portfolio offers people with diabetes and healthcare professionals innovative products and impactful solutions for convenient, efficient and effective diabetes management. This includes blood glucose meters, lancing devices, insulin delivery systems, and digital solutions for data management, advice, coaching and education. We are looking for opportunities to continuously improve and innovate our portfolio in order to further improve medical outcome and the quality of life of people with diabetes."
Quotes
  • "Diagnostics Division sales grow 5%, primarily due to immunodiagnostics sales. Diagnostics Division sales increased 5% to CHF 12.1 billion. Centralised and Point of Care Solutions (+7%) was the main contributor, led by the growth of its immunodiagnostics business (+13%). In regional terms, growth was driven by Asia–Pacific (+15%), with continued strong growth in China (+21%). Sales increased 2% in EMEA2, 10% in Latin America, and were stable in North America."
Quotes
  • "For these rankings and company profiles, FiercePharma consulted company earnings reports, securities filings, earnings transcripts and analyst reports, plus our own archives. We segregated Bayer’s crop sciences unit as too far removed from human or animal health but included healthcare businesses at other top drugmakers, such as J&J’s medical devices and Roche’s diagnostics divisions."
Quotes
  • "Roche (NASDAQ: RHHBY) will release its Q4 and full-year 2019 results on Thursday, January 30, and it will likely deliver 6% earnings growth for the full year, according to our estimates."
Quotes
  • "We invest around 9 billion Swiss francs in Research and Development every year because innovation is our lifeblood. This is amongst the highest Research and Development spends in the world across all industries."
Quotes
  • "1897-1914 Expansion and internationalisation Roche soon expands its business activities. From 1897 to 1910, the factory in Grenzach, Germany, is enlarged and the lion’s share of manufacturing moves there. Fritz Hoffmann-La Roche and his new partner Carl Meerwein waste little time in building a network of European and overseas agents and subsidiaries. By 1914 Roche has offices in Milan, New York, St. Petersburg, and London, among others."
Quotes
  • "The FreeStyle family of products helps you minimize the pain and inconvenience of testing by delivering fast, highly accurate results that require just a tiny drop of blood."
Quotes
  • "From removing the regular pain of fingersticks as people manage their diabetes to connecting patients to doctors with real-time information monitoring their hearts, from easing chronic pain and movement disorders to testing half the world’s blood donations to ensure a healthy supply, our purpose is to make the world a better place by bringing life-changing health technologies to the people who need them. That’s our commitment to helping you live your best life."
Quotes
  • "Abbott Labs (NYSE:ABT) generates its revenues from Medical Devices, Nutritionals, Diagnostics, and Generic Pharmaceuticals business. Medical Devices is the largest segment, and accounts for more than one-third of the company’s total revenues and profits. The company’s acquisitions of St. Jude Medical, and Alere, has strengthened its Medical Devices and Diagnostics business in the recent years. We forecast mid-single-digit revenue growth for Abbott in 2019, led by steady growth across its businesses. Abbott’s Diagnostics business includes systems and tests such as immunoassay, assays used for screening for drugs of abuse, cancer, therapeutic drug monitoring, fertility, physiological diseases, and infectious diseases. The segment revenues have grown from $4.8 billion in 2016 to $7.5 billion in 2018, primarily reflecting the impact of the Alere acquisition. We expect the division’s revenue to grow in mid-single-digits in the coming years."
Quotes
  • "Some of the hottest areas we’re working on are in our diagnostics and devices businesses, including: The FreeStyle Libre System, our revolutionary glucose-monitoring system, now has more than 1 million users throughout the world, and we’re building capacity to serve several millions more."
Quotes
  • "This statistic shows Abbott's revenues from 2017 to 2019, sorted by country. Abbot was a U.S.-based global pharmaceutical and healthcare products company. In January 2013, Abbott was separated into two companies: Abbott Laboratories and AbbVie. Abbott Laboratories is specialized on medical products, while AbbVie is responsible for research-based pharmaceuticals. In 2019, with some 11.4 billion U.S. dollars, Abbott Laboratories generated over one third of its revenue in the United States."
Quotes
  • "This statistic represents the projected market size of the U.S. medical device industry in 2015 and 2017. It is expected that by 2017, U.S. medical device companies will amount around 155 billion U.S. dollars. Size of the U.S. medical device industry In 2014, the United States was the largest target market for medical devices, with an estimated global market share of around 45 percent. In light of citizens’ increased access to health insurance, this industry is projected to grow at an annual rate of 6.6 percent from 2012 through 2017. The most important company within the U.S. medical device industry remains Johnson & Johnson. The New Jersey company is not only known for its medical device and diagnostics products, but also for its pharmaceuticals and consumer products. Johnson & Johnson generated about 74.3 billion U.S. dollars in revenue globally - with just under 35 billion U.S. dollars originating from sales to customers in the United States in 2014. That year, the company raked in around 27.5 billion U.S. dollars in revenue from its medical devices and diagnostics segment, the majority of which was derived from orthopedic device sales. Johnson & Johnson also invests heavily in research and development, having spent almost 8.5 billion U.S. dollars in 2014. Of the company’s total R&D expenditures, some six percent went to the medical devices and diagnostics segment."
Quotes
  • "This statistic shows the top ten OTC (over-the-counter) brands for diagnostics by revenue in 2013 in the United States. In that year, First Response, a pregnancy test kit, with some 82 million U.S. dollars generated the largest revenue among such OTC brands."
Quotes
  • "According to a survey conducted by the U.S. Department of Health and Human Services, only 4.8% of fertile women aged 15–44 years who were part of the study group took the test a single time, 53.4% women took the test twice and 27.7% of women took more than two tests within a month to confirm results. Among the various distribution channels, drug stores dominated the U.S. digital pregnancy test kit market in terms of revenue in 2017, and the trend is projected to grow throughout the forecast period."
Quotes
  • "In 2019, First Response generated the highest revenue among pregnancy test brands after private label brands in the United States with sales of about 86.8 million U.S. dollars. The Clearblue brand generated sales of approximately 82.6 million U.S. dollars."
Quotes
  • "ResMed One lesser-known medical device manufacturer with strong profits is ResMed. With a 20.3% profit margin, ResMed manufactures medical devices for sleep apnea. According to some market analysts, the global sleep apnea market is slated to double in size between 2011 and 2017. Based on this, ResMed could be poised for significant growth in the future. Medtronic. Another medical device manufacturer with strong profitability is Medtronic, a global medtech giant. The company currently has a 21.3% profit margin. One of Medtronic's competitors, St. Jude Medical, has also seen some of the same cardiac pressures as its arch-rival. St. Jude Medical has seen 7% growth in its atrial fibrillation division in the first half of the year. Intuitive Surgical. While Intuitive Surgical has been plagued with a significant number of lawsuits, regulatory issues and bad press in 2013, the company has experienced significant growth in recent years and it became one of the most profitable device firms in the United States."
Quotes
  • "This statistic depicts the gross margin and the net margin of selected top global medical device companies as of 2014. In that year, Boston Scientific had a gross margin of 62.7 percent, while the net margin stood at -1.6 percent."
Quotes
  • "Firms including American Medical Systems (NSDQ:AMMD), Intuitive Surgical (NSDQ:ISRG) and Synthes all managed to maintain healthy net profit margins. Others, such as Biomet, NuVasive (NSDQ:NUVA) and Wright Medical (NSDQ:WMGI), fared worse."
Quotes
  • "The PA Consulting Group recently surveyed 40 senior executives and representatives of medical device developers in the U.S. and Europe on the topic. Respondents were asked to evaluate their own company’s status and planned improvements, as well as their view of competitors’ time-to-market and cost-to-market. Slightly more than half of the participants represent medical device technology companies (55 percent), while the remainder hailed from pharmaceutical companies with a medical device division. More than half of the companies (57 percent) in the research reported revenue of more than $5 billion in 2014, designating them as “important players” in the industry. Regardless of the company size, respondents, on average, are targeting a 25-percent reduction in both development time and development/production costs, over the next five years, to remain competitive. While product innovation in medical devices was the top priority for companies seeking to bolster business — according to 66 percent of respondents — reducing time to market followed closely as a principal issue for 56 percent of the survey participants. Many respondents said they aim to accelerate their time-to-market efforts in the next five years, with the top levers toward achieving that goal being reuse of technology, focusing on core competencies and outsourcing other activities, managing strategic partnerships, efficient resource planning, and modularizing/standardizing parts and systems."