The build-to-buy model was a topic of many conversations at the LSI Medtech Summit, as one of the exciting emerging themes in how innovation is funded, developed, and delivered to market in the medtech industry. This is particularly relevant to companies looking for new and efficient ways to commercialize innovations and has ultimately made it an important topic of discussion as it relates to medtech partnerships more generally.
Understanding the Build-to-Buy Landscape
Understanding the build-to-buy space requires looking beyond a single structure; it comprises several types of collaborative arrangements between innovative companies and established medical technology companies.
For example, some large corporations provide funding to small companies at the pre-revenue stage of development in a specific clinical area, with an eye toward acquiring those small medical device companies as part of their portfolios after they have been developed.
Regardless of the differences between these two examples, all parties sharing the same objective: to reduce the risk associated with developing transformational and/or disruptive technologies, while providing access to some level of innovative technology.
Value Creation Across the Ecosystem
Building-to-buy partnerships can offer significant benefits to both parties if executed correctly. For startups, they can provide access to capital, validation, and a path to market more easily than if they were to try to obtain financing and another way themselves.
For established companies, this provides early visibility into emerging technologies and a better understanding of them prior to completing any acquisition.
This can help accelerate innovation cycles and bring new technologies closer to use in clinical settings more quickly than would otherwise occur; however, success is highly contingent on the alignment of expectations and execution from day one of the partnership.
Real Problems with Execution in the Real World
While the build-to-buy model is attractive in concept, it often does not translate to ease of execution. The single largest area of concern in this model is uncertainty, as the strategic priorities of large organizations generally change over time and, with those changes, so too do the leaders of those organizations who typically make the ultimately decision for whether an acquisition is completed.
Timeliness also plays a critical role in the success of a build-to-buy engagement,, as developmental timelines in the medical technology industry can be very lengthy. The company of your potential partner, however, has a frequent planning cycle, which can create considerable friction as projects work to meet key milestones.
Separation and Risk ‐ Post Acquisition
Integration adds another layer of complexity for the acquiring company, in addition to the deal made to pursue an acquisition opportunity. When a start-up company is acquired by a large company, one of the greatest risks of integration is losing or diluting the primary characteristics that made the start-up attractive (speed, focus, specialized expertise) if the team is not maintained and appropriately compensated.
To preserve the long-term value of an acquisition, it is critical to maintain continuity across talent, culture, and product direction. Congratulations if you have just had a successful acquisition. If any of the three areas is not maintained, a company could find itself significantly disappointed at the end of the acquisition cycle because it does not realize the expected return on investment.
What This Means for Structure and Alignment
A key takeaway from the LSI Medtech Summit was the need for clarity in how to structure these agreements. The most effective build-to-buy agreements are those that define expectations and performance measures for an acquisition as an integral part of the initial contractual documentation.
This reduces uncertainty for both the buying and selling parties and helps ensure that everyone remains aligned after the contract is signed. Furthermore, to minimize friction and build trust over time, both parties need clearly defined governance structures and decision-making processes.
Trust Alongside Long-Term Relationships Between MedTech Firms
Even with contracting, financing, and other considerations, the fundamental aspect of successful relationships is trust. The medtech industry is highly interconnected, and reputation and consistency play a major role in determining the potential for future collaborations.
Both parties must look beyond immediate deals and consider how their actions today will affect their credibility and ability to build a partnership in the future within the larger medtech economy.
The main components of developing trust in medtech partnerships are as follows:
– Consistent decision-making processes, including honoring commitments made to each other.
– Transparency of communication between the startup and strategic partners.
– Alignment of long-term objectives of both parties beyond their initial transaction objectives.
– Stability in senior management and the strategic direction a company is taking.
– Clear expectations surrounding roles and responsibilities and expected outcomes.
– Mutual respect for timelines and realities of innovation and development.
– Awareness of reputation within the overall medtech ecosystem.
– The ability to adapt collaboratively if priorities should change.
The basis for developing trust in medtech partnerships is contract-based; however, it is reinforced by consistent, reliable actions that build confidence over time.
Final Perspective from LSI USA
The discussions at the LSI Medtech Summit highlighted that the build-to-buy model is neither inherently effective nor inherently flawed. Its success depends on how well incentives, expectations, and execution pathways are aligned from the outset.
When built on clear structure, shared understanding, and mutual trust, it can be a powerful mechanism for advancing innovation in medtech. Without those foundations, it risks creating uncertainty rather than accelerating progress.
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