Medical Device Link.

Originally Published MX May/June 2003

FINANCE

Since starting a medtech business can be prohibitively expensive, smaller companies often don't have much choice about whether or not to outsource The cost of office space, manufacturing facilities, cleanrooms, laboratories, equipment, and staff adds up fast. Following are some key factors that company executives should consider when thinking about how much of their business to outsource.

The Upside

     Company can:

• Maintain ownership of the product and the direction of the company.
• Achieve greater flexibility and spontaneity; several firms may be working on components and other projects simultaneously.
• Obtain expertise and experience from top talent, no matter where in the world that talent is located.
• Increase the value of the company by 50%, while minimizing capital outlay.
• Accomplish the same tasks as fully staffed and equipped companies at just one-sixth to one-fourth the cost, since it's paying only for the time experts are spending on its project rather than for full-time help.
• Acquire knowledge from top talent—including how to perform tasks and develop processes in unfamiliar areas—which can later be incorporated into internal departments.
• Build a reputation in the medtech industry while building relationships with top firms.

The Downside

• Venture capitalists and other investors often like to see a company own tangible assets.
• The company may lose day-to-day oversight of the product.
• Cost of goods sold will be higher, since the company is paying for the outsourcer to earn a profit.
• Some risks to IP may occur; therefore, the contract needs to clearly state that the host company owns all intellectual property.
• Contracts with outsourcers may affect the future sale of a company, especially if it's difficult to end the contract or an outsourcer owns a particular component or process.

Copyright ©2003 MX