Ajax Health: A New Model for Medical Technology Innovation

This case teaches key success factors for both startups and established medtech firms. It examines how to structure a firm to maximize financial returns. Medtech entrepreneur Duke Rohlen is proposing a new model for innovation and business growth. From 2007 to 2019, Rohlen sold four medical technology (medtech) companies, all of which were acquired 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 then saw that the companies acquiring his startups were sold to larger firms, in short time spans after the initial sale, at prices significantly higher than their pre-acquisition value. Rohlen observed how much value his companies had created for others after he sold them: $1.5 billion for Covidien (after sale of FoxHollow 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 wondered how he could still create innovative new products yet capture a higher portion of the financial returns. He proposed a new model for innovation and business growth, called 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 plans to invest $1.3 billion to prove the model's viability. For $1 billion, they're submitting a bid to buy Cordis, a 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, and private equity. Ajax Health is headquartered in California, and Cordis is a worldwide company with headquarters in Florida. Rohlen's previous startups included FoxHollow Technologies, CV Ingenuity, Spirox, and EPIX Therapeutics.