B Frater Resmed

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Published on November 28, 2007

Author: Dennison

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Turning an idea into millions:  Turning an idea into millions Bob Frater AO Vice President for Innovation, ResMed Ltd Turning an idea into millions:  Turning an idea into millions Recipe Find someone with vision, superior technical and business skills, broad background training, experience and networks and a desire to succeed Expose them to an significant opportunity where the fundamental issues have been addressed and solutions demonstrated Put together a Board with broad business, technical and networking skills Let them get on with it! A case study of Peter Farrell and ResMed:  A case study of Peter Farrell and ResMed I will discuss the development of ResMed from both an "outside and inside" point of view. The outside perspective is that of a long time customer/ user of ResMed equipment and an inside one from the last four years as Vice President for Innovation. A quick primer on ResMed:  A quick primer on ResMed What does ResMed actually do?:  What does ResMed actually do? ResMed is a Medical Device Company that designs and manufactures equipment for the treatment of Sleep Disordered Breathing Sleep Disordered Breathing is a term that covers sleep apnea, obstructive sleep apnea etc ResMed also has equipment for treating people with diseases requires Ventilatory support and for some of those who suffer from Congestive heart failure ResMed Overview - 1:  ResMed Overview - 1 MBO from Baxter Healthcare in 1989. The leading technological innovator in $1B global SDB market. Presence in over 60 countries; HQ in San Diego with direct offices in Sydney, Oxford, Moenchengladbach, Munich, Lyon, Gothenburg, Singapore, Auckland, Finland and Hong Kong Robust financial performance: 32 consecutive record quarters with LTM revenues of USD$233M+ and LTM net income of USD$40M+ (17.2% of revenues). Ten year CAGR: ~ 40% for revenues / ~50% for net income. Strong, experienced management team (~1400 employees). ResMed Overview - 2:  ResMed Overview - 2 50% of revenues are generated in the US; Germany is 22%; France is 11% (83% of business in 3 countries) ResMed has either the #1 or the #2 market position in all major markets ResMed has made the Forbes 200 Best Small Companies in America for six consecutive years (1997-2002) & Business Week’s & Fortune’s Top 100 Hot Growth Companies for three consecutive years (1999-2001) Historical Revenues FY June 30:  Historical Revenues FY June 30 US$M CAGR 1990-2002 59% CAGR 1997-2002 33% A quick primer on Sleep Disordered Breathing:  A quick primer on Sleep Disordered Breathing The air path:  The air path Normal Breathing:  Normal Breathing Simple Snoring:  Simple Snoring Obstructive Apnea:  Obstructive Apnea Ten Years Ago - April 1993!:  “Among specific sleep disorders, the most serious in terms of morbidity and mortality is obstructive sleep apnea.” “... it is time for the nation to wake up to the staggering impact of sleep disturbances on the health and welfare of our society, an impact that rivals that of smoking.” Ten Years Ago - April 1993! SLEEP APNEA – A MAJOR PUBLIC HEALTH PROBLEM EDITORIAL Consequences of untreated SDB/OSA:  I want to die like my grandfather did - peacefully in his sleep, not screaming like the other passengers in his car… Consequences of untreated SDB/OSA What are the consequences of untreated Sleep Disordered Breathing?:  What are the consequences of untreated Sleep Disordered Breathing? Hypertension Stroke Diabetes Congestive heart failure Peter Farrell understood this, long before the prospective studies came in. He was passionate about the need to treat I am a standing example of somebody treated in time who wouldn’t otherwise be here! Prevalence of Sleep Disordered Breathing (SDB):  Prevalence of Sleep Disordered Breathing (SDB) Primarily Obstructive Sleep Apnea (OSA; ~10% prevalence) Hypertension (40-50% with SDB) Diabetes (~ 50% with SDB) Anesthesiology (PCA) Congestive Heart Failure (~ 70% with SDB) Other: Stroke/TIA (~70% with SDB) COPD (~ 30%; hypercapnic hypoventilation) Missed diagnosis is sadly quite common by PCPs and all medical specialists. Little understanding of any of this back in 1986 but Peter Farrell was quickly convinced of the dire consequences of neglecting treatment NFL Study: Increased Prevalence of SDB among Professional Football Players*:  NFL Study: Increased Prevalence of SDB among Professional Football Players* Eight teams screened in spring training (Bears, Patriots, Titans, Eagles, Redskins, Jaguars, SL Rams, Giants); 302 players; age: 26  3 years of age; BMI: 32  5. 52 full sleep studies with AHI cut-off 10/hr. Linemen (high risk) had a prevalence of 34% while overall prevalence was 14%; approx. 5x normal expectations. Both systolic (129  11 vs. 122  9 mmHg) and diastolic BP (84  9 vs 77  8 mmHg) were significantly higher in linemen (p<0.01) *George, et al. New England Journal of Medicine: 348:367-368 (2003) What is the treatment?:  What is the treatment? Positive airway pressure is provided through a mask to keep the airways open This pressure is the same on inspiration and expiration so that it doesn’t require the patient to “work” against the pressure. The patient uses a CPAP (Constant Positive Airway Pressure) machine The technique was invented by Dr Colin Sullivan at Royal Prince Alfred Hospital in 1980 initially using a large blower and a glued-on mask The early equipment used:  The early equipment used Glue-on mask 1985 Vortex blower 1983-88 Glue-on Mask 1985 350 made :  Glue-on Mask 1985 350 made 2003 treatment:  2003 treatment Back to the recipe:  Back to the recipe Recipe:  Recipe Find someone with vision, superior technical and business skills, broad background training, experience and networks and a desire to succeed Expose them to an significant opportunity where the fundamental issues have been addressed and solutions demonstrated Put together a Board with broad business, technical and networking skills Let them get on with it! The person - Peter Farrell:  The person - Peter Farrell Peter C Farrell :  Peter C Farrell Degrees in chemical engineering from the Uni of Sydney and MIT PhD in bio-engineering from the Uni of Washington, Seattle DSc from the University of New South Wales for research related to dialysis and renal medicine. Academic at U of Washington Seattle and UNSW (Prof of Biomedical Engineering) - 150 papers 1984 to 1989 - Baxter in Japan and Australia, including the initial commercialisation 1989 - left Baxter as part of MBO to found ResMed Inaugural Australian Entrepreneur of the Year for 2001. 2002 - inaugurated into the World Entrepreneur of the Year Academy. Some of the Farrell Principles:  Some of the Farrell Principles Evaluating the Business Terrain:  Evaluating the Business Terrain Fundamentals always count; uncover them. A sense of urgency is needed, particularly in execution; nothing worthwhile gets done without it. A little paranoia helps, as well as a thorough understanding of the competition. Insight (Sherlock Holmes/Dr. Watson) A selection template for Applying scarce resources:  A selection template for Applying scarce resources MARKET ASSESSMENT: Is it sufficiently big and accessible? PEOPLE: Do we have access to world-class people? FINANCE: Can we really see a path to the financial resources needed for project completion? TIMING: Will it happen in our lifetime? (The 4/2 rule) TECHNOLOGY ASSESSMENT: What does the competition know now and how could the competitive terrain change? ALPHA FACTOR: Do we really love it? Then do FINANCIAL ANALYSIS to make a final selection. (Break-even, ROI, NPV, EVA, Monte Carlo, etc) The INNOVATION needs to be exciting and intriguing but it also has to pay the rent. Failure to Implement is The Scorpion Under the Rock:  Failure to Implement is The Scorpion Under the Rock REASONS: Sloppy execution Incompetence Fudged data Lack of proper planning Hubris* and complacency * Hubris n : overbearing pride or presumption Ensuring Good Implementation:  Ensuring Good Implementation Develop robust KPls and monitor them Act with a sense of urgency Reward people for being team players Be consistent, listen & act; get robust feedback Develop technology receptors: improve both productivity and innovation The opportunity:  The opportunity The invention Professor Colin Sullivan invented nasal CPAP to treat sleep apnea in 1980:  The invention Professor Colin Sullivan invented nasal CPAP to treat sleep apnea in 1980 Glue-on mask Vortex blower 1983-88 What Peter Farrell saw::  What Peter Farrell saw: An enthusiastic inventor An unrecognised disease An unlikely treatment but, as well, he saw: A patient whose sleep patterns and life had been restored Most importantly, he was able to see that this was a real opportunity and convince Baxter to invest Baxter signed a deal with Professor Sullivan & Sydney University in 1986 The Board:  The Board Board Members:  Board Members Dr. Peter C. Farrell Chairman and President, Chief Executive Officer, ResMed Inc Donagh McCarthy President Renal Management Strategies Inc., an affiliate of Baxter Healthcare Corporation Dr. Gary W. Pace President and Chief Executive Officer, Research Triangle Pharmaceutical Inc. Dr. Christopher G. Roberts Executive Vice President, ResMed Inc Michael A. Quinn Formerly CEO of a medical device company Director of listed and unlisted companies Professor Christopher A. Bartlett Thomas D. Casserly Chair of Business Administration at Harvard Business School Louis A. Simpson, President and Chief Executive Officer, Capital Operations of GEICO Corporation. Getting on with it:  Getting on with it Peter has always promoted the “triumvirate of health” :  Peter has always promoted the “triumvirate of health” Business Strategy:  Aggressive product development, innovation, and globalisation Research must be focussed on customer needs Expand and deepen geographic presence Increase public and clinical awareness Predispositions to OSA Physicians and specialists (cardiologists, neurologists, pulmonologists, endocrinologists, hypertensionologists, otolaryngologists) Expand into new markets New medical applications for nasal CPAP Ventilatory assistance to home and hospital patients Diabetes, hypertension, stroke, and congestive heart failure Business Strategy Research Focus:  Research Focus Research must be focussed on customer needs Links must be established with thought leaders in the market, and research community, with mechanisms for communication and assessment ResMed: Collaborates and sponsors both fundamental and clinical research in hospitals and clinics, Australia, UK, USA Germany Presents results at international scientific meetings Maintains literature awareness Ensures that many clinicians evaluate prototype products well before a final design is decided Protects intellectual property by patents and trade marks Distribution Strategy:  Distribution Strategy Direct in certain key markets: USA UK Sweden France Switzerland Germany Singapore/SIM Australia New Zealand Hong Kong Finland Specialty distributors: ARS (Canada) Teijin (Japan) OEM customers: Puritan Bennett; Allegiance ResMed Challenges:  ResMed Challenges Ignorance among both the public & physicians Reimbursement anomalies & inefficiencies. Complacency in the system; consumers don’t have any control. Execution of ResMed’s strategy. Slide43:  Summary ResMed Summary:  Leading provider of innovative SDB products Solid financial performance with 31 consecutive record revenue and profit quarters since June 1995 IPO Global presence (>60 countries) Strong, experienced management team Clear focus on a fast growing SDB market ResMed Summary Elements of a successful business:  Elements of a successful business Generally the best people with the best strategies get the best results Leaders need to understand both the business and the technology upon which it is based Building a successful business requires exceptional vision and drive It requires understanding of the playing field and the strategy and tactics of the game Luck helps, but successful entrepreneurs make their own luck Successful Businesses:  Successful Businesses Building a successful and sustainable business requires, inter alia, two sets of values: Moral values Economic values Ethics and responsible action are critical components They have played a crucial role in the building of ResMed Conclusion:  Conclusion It is fairly obvious that Peter Farrell was, and is, someone with superior technical and business skills, broad background training, experience and networks. He certainly had a desire to succeed The opportunity was there! His undertaking of the initial commercialisation, his organizing of the MBO and subsequent performance certainly revealed that he had the vision and guts for the task He had the right people on the Board and he employed good people In the end, turning an idea into millions is easy - simply find your Peter! Slide48:  RESMED It’s Time to Wake Up to Sleep

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