Payback II: Medical Devices Ride the Cash Curve
The medical device industry has generated returns over the past decade that exceed pharmaceuticals and many other sectors. These returns have been driven by payback on innovation, which the authors from the Boston Consulting Group define as generating cash returns from innovation. Device executives, on the other hand, have generated payback by deftly managing the four S-Factors: start-up costs, speed-to-market, support costs, and scale operations. The challenge for device companies will be maintaining these returns in the face of increased investment in this sector and the threat of health care spending constraints.
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Pharmaceutical innovation is not generating payback, the equation for which--and the cash-flow goals--are changing radically. That means that companies must re-think innovation, based on its ability to help companies navigate the four key S-Factors of the cash curve: start-up costs, speed to market, support costs, and scale operations. Some innovations will negotiate this and generate payback; others with apparently equal potential will dawdle in a single phase, consuming cash.
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