Shore Capital Medical Device Insights: 10 Tips to Building a Great Business and 3 Trends Impacting Investor Outlook

Partner Don Pierce shares his learnings from three recent, successful investment exits and thoughts about the next 12 months.

The past 18 months have challenged the Medical Device industry. Small and medium-sized business owners, executives, and investors have experienced growth headwinds. For investors, a combination of macroeconomic factors including inflation, rising interest rates, and a potential recession are making it tougher to predict market trends and make good deals. For entrepreneurs, supply chain issues, skilled workforce shortages, and the ever-shifting healthcare landscape add day-to-day and strategic complexity to growing a business. Amidst this environment, Shore Capital Partners medical device team executed 3 successful exits, 1 platform investment, and 5 add-on acquisitions of Class II manufacturers (makers of moderate-risk products requiring stricter regulatory controls for safety and effectiveness).

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Don Pierce on Microcap Moments Podcast: Medical Device Ventures, From Concept to Commercialization (Photo: Business Wire)

Shore’s strong results are a combination of its value creation playbook and industry-specific strategy, led by Don Piece, Partner. Don has chaired 5 companies, including Shore’s current investments in AA Medical and C2Dx, and recently recorded a podcast titled: Medical Device Ventures, From Concept to Commercialization. The full episode is available here.

Don notes that while there are “the same types of regulatory focus within healthcare, on the device side, we're obviously making and manufacturing the product. So, you've got different types of things that you're focused on when you're manufacturing businesses as opposed to serving customers on a daily basis from a physician practice perspective, obviously … and we have seen increased focus on device businesses on cashflow on maybe without that same level of growth [as healthcare services or technology], but still profitable businesses and cashflow businesses, especially in this current environment.”

Don's 10 tips to building a great medical device business:

1. Foster Innovation: Encourage entrepreneurial thinking within your team, especially from those who are on the front lines, such as doctors and medical staff who can provide firsthand insights into practical needs and improvements.
2. Understand the Supply Chain: Develop a comprehensive understanding of the supply chain, from product design to delivery. Recognize the importance of each phase, including manufacturing and regulatory considerations, to ensure efficient and compliant operations.
3. Embrace Global Perspectives: Operate with a global mindset, considering not only the local but also the international regulatory and market environments. This broad perspective can enhance your company’s adaptability and reach.
4. Focus on Quality Manufacturing: Prioritize high standards in product manufacturing. Since medical devices directly impact patient health, maintaining quality and compliance with regulatory standards is crucial.
5. React Proactively to Market Changes: Stay agile and be ready to pivot your business strategy in response to global events, like the pandemic, to meet emerging market needs effectively.
6. Invest in R&D and Regulatory Expertise: Allocate resources wisely to R&D and regulatory affairs. Understanding and navigating the regulatory environment is essential for launching successful products.
7. Build Strategic Partnerships: Collaborate with a variety of stakeholders, including KOLs (Key Opinion Leaders), to validate and enhance product development and market strategies.
8. Utilize Data and Feedback: Leverage data from market research and feedback loops during product testing phases to refine designs and ensure they meet broad market needs.
9. Cultivate Leadership and Communication: Promote strong leadership and clear communication within your team. These qualities are indispensable for managing complex projects and aligning various departments towards common goals.
10. Stay Mission-Driven: Keep your company’s mission at the forefront of your strategy to motivate your team and guide your business decisions, ensuring that your efforts contribute to meaningful outcomes in healthcare.

While Don expects continued industry consolidation, he notes, “if you continue to build good businesses in growing end markets, that it really presents an opportunity for you to be acquired by some of those larger strategics.”

Don's three key trends impacting medical device investments in 2024-2025:

1. Increased Regulatory Focus: The medical device sector will continue to navigate a landscape of stringent regulatory requirements. Companies must prepare for longer lead times in product development and approvals due to tougher regulations across different countries.
2. Global Supply Chain Challenges: The pandemic highlighted vulnerabilities in the global supply chain for medical devices. Moving forward, companies will need to strategize on more resilient and flexible manufacturing and distribution processes to handle disruptions and meet global demands effectively.
3. Innovation and Adaptability: The ability to pivot quickly and innovate will be crucial. Medical device companies will need to stay agile to adapt their products and operations in response to changing healthcare needs and market conditions.

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