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Medtech Business Models: All Razor And No Blades – Is “Big Iron” Back In Vogue?

 
• By Mark Speers

The conventional wisdom in the medtech industry is to pursue the “razor-razor blade” business model, as each placement of capital equipment generates a lucrative annuity of recurring revenues from disposables. The corollary to this conventional wisdom is that so-called “big iron” is to be avoided as, in sharp contrast, it suffers from greater early cash requirements and longer sales cycles that create difficulties forecasting quarterly revenues, and provides no annuities. But that view is no longer the only one that counts, Health Advances CEO Mark Speers argues.

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Big iron companies are challenging conventional business models • Source: Shutterstock

The razor-razor blade business model is pervasive in the medtech industry. As the conventional wisdom, it has a compelling logic. Each equipment placement leads to a lengthy revenue annuity. For example, over their seven-year lifetimes, the average volumetric infusion pump will consume over 1,500 proprietary IV set cassettes and the average breast biopsy device will consume about 3,500 needles.

For most razor-razor blade companies, disposable revenues dwarf capital revenues. For example, desktop chemistry analyzer company Abaxis Inc.’s revenue...

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