Some observations on the CMR Surgical news over the past few days.
CMR has executed amazing well.
It is exercising a painful yet prudent playbook.
It is math.
– In a startup, time and people cost money.
Approximately four years ago, they were a little over 100 people, as of last week they were nearly 1,100 people. A reduction was required. You either have revenue to sustain that labor burn or you go back to the financing pool. My estimate is another round likely needs to be secured, and the internal investors road mapped the spend and decided that there was a need to lean out. There is also the case for Price’s Law in play here.
– Deep domain knowledge in the CEO role is critical.
Martin Frost got CMR Surgical out of the gate. A new, non-medtech CEO was brought in. Bringing a complex soft-tissue surgical robotic ecosystem to the medtech market, where there is a platinum standard in place (Intuitive) requires a domain algorithm that is critical in such an undertaking. Robotic markets are not alike. Not a personal judgement on the recently departed CEO, it is a statement that you do not bring a knife to a gunfight. New leadership came in and is making immediate adjustments. Bigger isn’t better, better is better.
– The FDA process for soft tissue robotics is a tough road to navigate.
Even with 10,000 procedures in place. Without knowing the basis of the submission and the data the FDA would or would not accept through the activities in the rest-of-the world to date, there may have been a delay pending for U.S. clearance. Time is burn.
– Stay in the fight.
With the latest events in the market by two of the large strategics, CMR becomes an even more legitimate acquisition target. Do they get acquired pre or post FDA clearance? The price obviously jumps post FDA clearance.
– Pick your battleground based on who you are fighting.
Fight a kickboxer in a phone booth, not in a ring. CMR will likely be doubling down on external sales efforts in regions they have less resistance in. Intuitive has done a masterful job to date. In this period, with hospitals still operating at a deficit and installs being slowed, it seems that Intuitive is focusing on market optimization over pure market growth. Smart. Upping an already mind-numbing R&D investment in core technologies $800M+/year), drive more procedures per install, galvanize supply chain, expand complex manufacturing footprint, reduce external vendors, and bring key processes in house with a larger manufacturing facilities closer to key markets.
The medtech industry is watching one of the most complex and expensive markets in it’s history evolve.
Without the risk of extinction, there is no evolution.
We should all be taking notes and not be susceptible to survivor bias along the way.