They are the unsung heroes of New Zealand’s fast growing technology sector, to New Zealand business what Nathan McCullum is to New Zealand cricket. Not as well known or high scoring as their brother, but still full of talent and quietly getting on with the job.
Fisher and Paykel Healthcare (FPH) are one of our premier technology exporters and an exemplar for many other companies on how to market their innovations. The launch of a new product last week will see them pushing past the $500 million in annual revenue for the 2010 financial year.
FPH began life as a division of the bigger Fisher and Paykel company in the 1960s. The organisation wanted to apply some of its manufacturing expertise to a market outside whiteware. They chose products that would help hospital patients, including premature infants, with their breathing.
The business developed to the stage where it was separated off as FPH in 2001, subsequently listing on the New Zealand and Australia stock exchanges, and for a time appearing on the US NASDAQ index.
In 2002 the company launched a new product line aimed at people with obstructive sleep apnoea (OSA). The increasingly common condition, often linked to obesity, exposes sufferers to poor sleeping patterns caused by breathing interruptions. FPH’s OSA devices help these people sleep soundly by keeping airways opened throughout the night.
FPH have gained 7% of that market worldwide, according to Managing Director Michael Danniell in recent media reports. Around 10 million people have been diagnosed with the condition, and the company believes there are over 60 milllion suffers in the developed world. FPH expect annual growth of around 15% in this product line.
Why are FPH such a standout as a technology exporter? I’ll give you a clue – it’s not about the products.
Of course they do a great job of researching and developing products. They have 250 engineering, scientific and medical staff spending 6.5% of their operating revenue on research and development. Patents pour out of the place, with 79 secured in the US and 73 pending; 292 in other jurisdictions and 212 still going through the process. With their legacy of manufacturing expertise I’m sure they do an excellent job of building them too, as well work with a lot of other smart Kiwi suppliers.
Sure FPH’s products are world class. But they have to compete against some large and well funded competitors.
More importantly, and more unusually for a Kiwi technology company, has been the quality of their marketing and sales.
Their market focus has been impressive. 47% of revenue comes from respiratory and acute care products, and the same amount from the OSA segment. 75% of their core product revenue comes from consumables and other accessory products related to the core machines.
Technology companies sometimes get trapped into the product proliferation syndrome. Their technical talents means they can solve a lot of customer problems and tend to build solutions in multiple industries and multiple countries, stretching resources and hampering ability to gain traction in a market.
FPH have focussed on two product streams and done them to a world class standard, building huge amounts of customer understanding as they go.
That customer understanding shows out in their latest product launch, the Icon OSA product. It is designed to fit into the average customer’s bedroom, looking like a bedside alarm clock. They understand the need to not merely make a functionally excellent product.
Compared to typical New Zealand technology, FPH’s sales model is where they really stand out. FPH have a huge distribution capability. They sell directly to hospitals and home care dealers, have over 100 distributors and also supply components to other manufacturers of respiratory devices. This enormous reach means FPH products are used by patients in 120 countries.
A secret to their success has been investing in their own network of staff in key markets, selling directly and working closely with distributions. 500 FPH staff work in 30 countries. Too often companies make the mistake of establishing distribution networks and thinking the job is done. Any successful distribution relationship takes a huge amount of time and effort invested from the manufacturer to make it work – deals are easy to sign but very hard to make work.
Brand too is a strength of FPH. They have used acclaimed brand expert Brian Richards to help develop a strong ‘story’ around their product brands, so end-customers and channel partners can understand the benefits their products offer.
Putting FPH’s scale into perspective, their 2010 revenue will be over 50% of the entire earnings of the wine exports. And the good news is that we have a number of other smart medical technology companies, including local standouts like Enztec and Aranz.
Many of these aspiring FPHs can match the company in terms of their capability to innovate. Building scale requires reaching the same high levels of the market focus and distribution might the ‘little’ Fisher and Paykel brother has achieved.