New Technology Life Cycle

Sizing up the market opportunity for a new technology is much more than just units x price. There other moving parts to consider. First and foremost, investors must be able to identify where a product or technology is within its life cycle (see Fig. 1). We segment the new technology lifecycle in devices into five stages:

1. Proof of Concept. Stage 1 begins when a company identifies an unmet clinical need and initiates a program to develop a method of capitalizing on the opportunity. Research and discovery (R&D) dollars are dedicated to basic science and bench tests to determine the feasibility of the project and whittle down the possibilities to a particular angle of pursuit. The company moves on to animal tests for its technology and, after becoming comfortable with its approach, to human clinicals. Toward the end of stage 1, companies build out their sales infrastructures to prepare for commercialization.

2. Introduction. Approvals are granted in Europe (CE Mark) and the United States (Food and Drug Administration [FDA] approval), and the market begins to take shape as products are launched and companies generate revenue. The technology is quick to penetrate thought leaders and tech-savvy early adopters, although the majority of the clinical community is much slower to catch on. Thus, companies spend a lot of money on raising awareness, training physicians, and providing high-level service.

3. Growth. Use passes some rate-limiting step (e.g., physicians find a comfort zone with the technique, awareness spikes following a major clinical symposium, reimbursement is put in place). Feedback from the clinical community in stage 2 helps manufacturers refine the original designs and improve their marketing message. Competition often emerges toward the middle of stage 3, but the pie is still big enough for each participant to grow. Profitability of the device improves as companies get better at manufacturing and benefit from increased volumes. Toward the middle of stage 3, the late adopters—the less tech-savvy physicians— start to capitulate as the clinical data become robust and irrefutable, and the technology becomes the standard of care. Finally, helping to offset decelerations in the US and European markets, the devices garner approval in Japan, where units pale in comparison but the opportunity is attractive owing to incredibly high average selling prices.

4. Survival. The penetration curve begins to slow, and the market starts to feel crowded. The technology curve flattens as new product introductions become more of a tweak of previous versions than anything radically new. Growth becomes a market-share game.

5. Maturity. Penetration peaks, competing technologies become nearly indistinguishable. Market value and profit margins erode as discounting becomes an effective tool for maintaining share. What was once a growth driver now weighs on the company's overall growth rate, presenting a difficult decision of what to do with the franchise. Withdrawing the product or divesting the business is accretive to the company's growth rate; however, management teams must take into consideration the importance of the brand to the success of other business segments and the impact of eliminating the associated stream of cash flow.

Importantly, this model is just the starting point in delineating the lifecycle of a new technology. In some cases, the curve may look considerably different. One shortcoming of this approach is that time is not the only independent variable; rather, the evolution of the market can be influenced by factors such as management decisions and public policy. There are two key considerations that influence the shape of the curve: amplitude and slope.

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