Rather than try to serve every possible customer in the medical device industry, Rose Technologies Co. is happy to grow with customers in its niche.
Throughout its evolution from a company that designed and built machines for the medical device industry to a contract manufacturer for medical device OEMs, Rose Technologies has been focused on organic growth.
That philosophy fits the mindset that founder and President Todd Grimm set out in October 1998 when the veteran medical device engineer cashed in his Medtronic stock and formed his own company, the Grand Rapids-based Rose Technologies.
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From very humble beginnings — Grimm worked for three years after launching the company without paying himself a salary — Rose Technologies has evolved its focus to serve a mix of startup medical device companies looking to start pilot production to established companies in need of custom-made products in one of Rose Technologies’ core competencies.
Today, the company employs about 35 people and had annual revenues around $4 million last year. It also recently expanded, adding a third clean room at its facility and broadening its ISO certification to be able to manufacture, assemble and package finished products that can be sent to a sterilizer and drop-shipped directly to a customer’s warehouse.
Grimm describes the company’s growth pattern as an intentional evolution. He may have started Rose Technologies as a machine builder, but the end goal was always to become a manufacturer, he said.
“The reason I started out that way was I didn’t have the funds — and I wasn’t going to go borrow the funds — to build the brick and mortar and the infrastructure to be able to attract manufacturing business,” Grimm said. “I’ve been in the medical device industry for 30 years. … I always had a flair for the manufacturing.”
With a conservative approach to business, Grimm helped shape Rose Technologies’ slow-and-steady growth. Drawing on manufacturing engineering talent in the region, the company started by making machines, but Grimm and his colleagues quickly grew tired of the sleepless nights and the endless rollercoaster business cycle in that market segment.
“As soon as that machine left our dock, it left our control,” Grimm said. “The customers would do things to them, they wouldn’t tell us about it and then they’d expect us to take care of them. I had machines in China, California and Minnesota, New Jersey and New York, and I’m getting calls at 9 or 10 o’clock at night that they’re not working. I lost a lot of sleep over the machines. Once we decided to stop building machines for outside companies, I got much better sleep.”
Grimm said the company learned that machine building was a “very tough industry” that proved “brutal from a couple of fronts.”
“We’re all engineers and we weren’t real good at the sales end of it,” he said. “We would get a job and then take all our focus and not pay any attention to the next job.”
The result was that the company’s income was constantly up and down, he said.
“I was losing money and working 70-hour weeks. After three years, I started asking myself, ‘What are you doing?’” Grimm said. “I can remember telling myself, if I’m not drawing a salary in six months, then I’m done.”
But then Grimm and his colleague’s hard work started to pay off. Within his self-imposed six-month deadline, Rose Technologies had its first manufacturing contract with his former employer, Medtronic.
The first manufacturing contract opened the gates for additional contracts, and Rose Technologies continued to grow as those projects added up. Thanks to that more diversified customer base, the company added more processes to its roster of capabilities, which resulted in the need for the recent expansion.
“A lot of our customers are startup customers that are coming right up to their clinical phases where they’re getting ready to start using the product and testing the product in the market,” Grimm said. “They’re probably past their animal studies and they’re ready to use the device in humans. They need to get beyond building four or five prototypes to starting pilot production runs. That’s where we typically get involved.
“From a design standpoint, we will assist the customers in designing the product for manufacturing. We don’t focus on the clinical side. They’re the experts at that. But they don’t know how to manufacture. And now they need some assistance to take that prototype and develop it into a product that can be manufactured. That’s the service that we offer, and we get paid to do that, but our goal is to get the manufacturing. That engineering service is a service we offer to attract the manufacturing.”
Value, not commodity
Rose Technologies prefers to work in niche medical device markets involving 5,000 to 10,000 units per year, although some products are approaching the 250,000-unit mark, Grimm said. Sticking to smaller product runs ensures the company avoids becoming a commodity business, he said.
“We want to stay in the niche markets and do the challenging things,” he said.
As it turns out, some of Rose Technologies’ customers also appreciate the company’s place in the market.
Austin, Texas-based Apollo Endosurgery Inc. originally hooked up with Rose Technologies several years ago to develop and launch a new product, the Overtube Endoscopic Access System, a device that allows physicians to provide endoscopic (through the mouth) treatment rather than resort to more invasive laparoscopic procedures. Because the Overtube goes through the mouth and into the esophagus, it has to be smooth and flexible, said Charlie Dean, director of research and development at Apollo, which subcontracts all of its manufacturing and assembly work to other companies. Rose offered a proprietary tube assembly coating and processes that Apollo needed to make the custom product.
“At Rose, our product provides significant revenue (and) our product is significant to them,” Dean said. “We’re not 1 million of 200 million (products). We’re a significant piece of the pie.”
As the relationship between the two companies developed, Apollo ended up partnering with Rose Technologies to help the Grand Rapids company expand and get the certifications it needed to provide full assembly of the Overtube product.
“It was something we wanted and Rose wanted,” said Dean, who noted the Overtube product launched ahead of schedule and within budget. “The whole team was excited to launch the product. It’s a benefit for patients and a next step for Rose. We gave them the impetus to do that. They did all that work themselves, but we funded some of it as part of that partnership.”
Importantly, Dean said Rose Technologies’ execution on its core competencies really sealed the deal for the two firms’ relationship.
“We found (Rose) because they did a few things really well that were core to our device,” Dean said. “We couldn’t have found any old CMO and have them try to make the coated tube. … Rose made the tube and the subassembly — and then we bolted on the assembly of device, which was easy to do. That’s key for these (contract medical device manufacturers). They’ll struggle if they try to do everything. They don’t need to try to do everything. They can’t compete with a $100 million CMO, and our staff doesn’t want to work with those either.”
While Rose Technologies successfully evolved into contract manufacturing, “we quickly realized we needed more customers” after that first contract with Medtronic. Four years ago, the company hired a West Coast firm to represent its capabilities with various manufacturers, which resulted in a more diversified customer base, Grimm said.
“It’s healthier than it was, but it’s still not where we want it to be,” he said of Rose Technologies’ base of customers. To that end, Rose Technologies plans to hire an in-house director of sales and marketing for the first time in the company’s history. “Jobs came to us, but not quick enough. We should be a $5-10 million company right now. That’s where we hope to be in three or four years.”
Grimm credits adviser and mentor Ron Williams, the former president of Grand Rapids-based medical device maker DLP Inc., for convincing him to create the new sales and marketing director position.
“For two years, he’s been after us. His words were, ‘You need somebody that’s thinking sales when their feet hit the floor in the morning, and you guys aren’t doing that. That’s not your focus,’” Grimm said. “We just couldn’t get ourselves to let go of that money.”
Even after the new person does come on board, Grimm expects little impact on the company’s pipeline until at least 2014 since many of the products take about a year from signing a contract to move into production. Rose Technologies forecasts growth of about 10 percent for 2013.
“Personally, I think it will be higher than that, but we’re being fairly conservative with our estimates,” Grimm said. “We’re engineers, we’re not marketing guys, so we try to be realistic. I’m hoping that it’s more than that.”
One potential source of headaches in the coming year: A 2.3 percent federal excise tax on medical devices that comes online this year as part of the Affordable Care Act. While Rose Technologies will not be directly affected by the tax imposed on the sales of devices by manufacturers and importers, it could force customers to be more aggressive with seeking price concessions, Grimm said.