Ajax Health: A New Model for Medical Technology Innovation

This case teaches key success factors for both startup and established MedTech firms. It examines how to structure a firm to maximize innovation and financial returns with organizational structures that better align the incentives for the different skill sets required, such as R&D Innovation. MedTech entrepreneur Duke Rohlen created Ajax under this new model for innovation and business growth. From 2007 to 2019, Rohlen sold four medical technology (MedTech) companies, all at significant multiples of the capital invested. While the average MedTech startup exited 8.6 years after starting, Rohlen’s companies had an average time to exit of 40 months. Rohlen also observed that the companies acquiring his startups were sold to larger firms at prices significantly higher than their acquisition value, such as $1.5 billion for Covidien (after sale of Fox Hollow to ev3), $1.1 billion for Philips (after sale of CVI’s Stellarex from Covidien to Spectranetics), and $280 million for Stryker (after sale of Spirox to Entellus), for a total of about $2.9 billion. Rohlen’s new firm Ajax is structured to create innovative new products yet capture a higher portion of the financial returns. He called it the Chassis and Growth Drivers model. Partnering with major private equity firms Hellman & Friedman and Kohlberg Kravis Roberts & Company (KKR), Rohlen's firm Ajax Health may invest $1.3 billion to prove the model's viability. For $1 billion, they're submitting a bid to buy Cordis, a well-known but tired maker of medical devices for cardiovascular and endovascular procedures. Cordis was formerly a standalone business before it was bought by Johnson & Johnson and then its current owner and seller, Cardinal Health. If their bid is successful, they will invest an additional $300 million to fund an off-balance sheet accelerator, which will develop innovative new products that will drive revenue growth for Cordis.

Should Rohlen and his partners invest the $1.3 billion to implement this model, and why or why not? Was Cordis the right opportunity for Rohlen and his team?

This case is suitable both as a general business case for MBA students of any level and as a case for courses focused on the healthcare industry, entrepreneurship, reviving tired firms, medical technology, organizational structure, and private equity. Ajax Health is headquartered in California, and Cordis is a worldwide company with headquarters in Florida. Rohlen's previous startups included Fox Hollow Technologies, CV Ingenuity, Spirox, and EPIX Therapeutics.