Respironics Case 07

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Respironics, Inc.

Take a Deep Breath

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Respironics, Inc., is a designer, manufacturer, and marketer of medical devices for the treatment of sleep and respiratory disorders.

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Strategic Direction: Mission, Vision, Goals and Outcomes 1 Mission Basic Purpose: Respironics, Inc. provides solutions for the global sleep and respiratory markets. It designs, develops, manufactures and markets medical services used for the treatment of patients suffering from respiratory disorders. Focusing on emerging market needs, the company is committed to providing valued solutions to help improve outcomes for patients, clinicians and healthcare providers with innovative products and programs. The company’s products are used principally in homes and in hospitals along with alternative care facilities and in emergency medical settings. The company operates in the U.S., Europe, Africa, Middle East, Latin America and Far East/Asia Pacific. The company as a responsible corporate citizen is committed to support the communities in which its associates live and work. It participates in local charities either through charitable donations or active involvement. The company also seeks to engage in activities that contribute to the overall health and well being of the communities that it serves. It is also committed to safe guard the environment in which it operates and hence dedicated its resources to educate its associates, to operate its facilities in a responsible manner, and respect the health and well-being of its customers, patients, employees and those who live in the communities it serves. Vision To be the worldwide leader at anticipating needs and providing valued solutions to the sleep and respiratory markets. Goals and Outcomes The company’s main goal is to leverage its core expertise in treating Obstructive Sleep Apnea (OSA) to develop innovative solutions for the diagnosis, treatment and monitoring of other sleep disorders, since the sleep market is one of the cornerstones of the company’s business strategy. The company is recognized as a global leader and innovator in the sleep disordered breathing marketplace. It is also successful in releasing the new M Series family of CPAP products, the further acceptance and adoption of the company’s ventilation therapies in various geographic markets, and international expansion were also successful.

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The company seeks to make strategic investments and acquisitions of companies, technologies and products to enlarge its existence in the sleep and respiratory markets. Further, the company’s acquisition strategy includes the centralization and harmonization of business processes which often results in the elimination of redundancies, centralization of corporate services functions, and the implementation of standardized processes across several business functions, including information systems, manufacturing, quality systems and marketing.

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(2006). Respironics Annual Report, Respironics Company Website. (n.d.). Retrieved 07 2011, from www.respironics.com.

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Macro Environment2 Political The company's products are subject to extensive regulation by the FDA and, in some locations, by state, local and foreign governmental authorities. The FDA may impose post-marketing requirements, such as labeling and advertising requirements, adverse event reporting, testing and surveillance to monitor products and their continued compliance with regulatory requirements and inspection of products and manufacturing operations. Failure to comply with the applicable FDA requirements could result in fines, civil penalties, suspensions or revocation of clearances or approvals, recalls or product seizures, operating restrictions or criminal penalties. Adherence to such stringent regulation would increase the operating expenses of the company eating away the margins. Economic Respironics markets its products to hospitals, nursing homes and other health care providers. The payments from these customers are reimbursed by the third party payors such as private insurance plans, managed care programs and government programs such as Medicare and Medicaid. The U.S. government, however, intends to cut its spending on Medicare and Medicaid as a part of its Deficit Reduction Act of 2005 for reducing mandatory spending. Reduction in federal spending on Medicare and Medicaid in accordance with the Deficit Reduction act would reduce demand for the company's products. That being said, the healthcare spending in the U.S. is expected to grow over the next few years. Increased healthcare expenditure would ensure substantial revenues from the purchase of medical devices. Stable growth in healthcare spending in the U.S., Respironics' largest geographical market, would ensure revenue growth opportunities for the company. Another economic issue is that due to increase in oil and natural gas prices, the raw material costs of the company that is cost of plastic have also increased. The prices of these raw materials are at high levels and are expected to remain high over the historical averages, consistent with crude oil and natural gas costs. Social There has been a growing incidence of common sleep disorder, OSA. It is believed that OSA would affect 18 million patients in the U.S and it has been associated with increased risk of heart disease, high blood pressure, stroke, and impotency, all of which are on the rise as well. In addition, this disorder received public attention when retired NFL football player Reggie White died in 2004 after suffering from OSA. The rise of noninvasive devices and techniques as alternatives to risky surgeries (UPPP) for treating OSA also means that more consumers suffering from OSA are now willing to pursue these treatment options. The aging population will also project an increased demand for breathing devices that are portable and highly reliable.

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Technological Ventilators had become substantially more sophisticated than the iron lungs that were first introduced in the 1920s. The sleep and respiratory devices market is witnessing a steady growth on the global level due to rising incidence of chronic obstructive pulmonary diseases, obtrusive sleep apnea and asthma. Initially, respiratory devices were designed and developed for hospitals. However, with increase in awareness amongst the masses and advances in technology, these devices have found a place in sleep labs and outpatient clinics, as well as patients’ homes, thereby increasing their demand. The rise of portable breathing devices is also recent technology that is creating a new demand for more breathing aids with this feature.

2 Pearce&Robinson. ((2010)). Strategic management: formulation, implementation, and control (12th ed.). New York, NY: McGraw-Hill/Irwin. Respironics Company Website. (n.d.). Retrieved 07 2011, from www.respironics.com. Global Markets Direct. (2009). Respironics, Inc.- Strategic Analysis Review

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Industry Environment3 Potential Competitors/ Barrier of Entry There is a growing market base of users in the sleep and respiratory market, which will only expand with the aging population and the rise of chronic diseases that cause OSA. However, brand loyalty remains strong because of the criticality of the use of these products. The users life will often be dependent on these devices. Huge amounts of capital are necessary to enter the healthcare industry, because of the rigid necessity of quality assurance as well as the demand for new innovations and continuous improvement of their products. Additionally, there is a strict standard of federal regulation which must be maintained to avoid severe penalties and recalls, which damage the firm. New entrants will find it difficult to replace older brands on the preferred provider list of major medical insurance companies, which are the main buyers and also to win over patients, who are usually dependent on the machines for daily living and want a product that they know they can depend on. Threat of Substitutes There are “generic” substitutes for many of Respironics’ products, and they are generally available at a lower price, however not too low in a way that it significantly impacts sales of the brand name, because the large suppliers aim to keep their prices competitive and because the cheaper alternatives usually denote lesser quality. Intensity of Rivalry Among Established Firms Respironics has identified fifteen major competitors in the various industries that it serves, all related to sleep and respiratory care. Their largest competitor, ResMed operates on a scale that is about half of Respironics, and the rest on an even lower scale. However, nearly all of them are later entrants into the market and are growing handsomely, along with the industry they are in. They are diversified as well, and some are growing at a faster pace than Respironics. All firms market their products aggressively and are involved in acquisitions and further expansions, and competition is therefore extremely intense. The growth in market share of one comes at the price of diminishing market share of the other(s). Bargaining Power of Buyers The buyers in this industry primarily consist of large-volume buyers like hospitals, sleep centers and DME suppliers. They have many different companies to choose from, as noted above. Respironics, while it does not rely on a few chief buyers to sustain its sales, must market their products aggressively and invest heavily to remain a “preferred provider” to their buyers versus their competition. Buyers usually will purchase devices from more than one supplier as they seek to purchase each product line from the most advantageous supplier, and so they are likely to switch brands if the quality and value-for-cost are not strictly maintained.

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Bargaining Power of Suppliers Although there are numerous suppliers in the industry, Respironics uses those that will work exclusively with them. In many cases, the technical experts from their suppliers have been integrated into new product development and process improvement teams. This strategy allows Respironics to channel development resources toward product innovation and still benefit from the knowledge and experience of our supplier partners. The company also works closely with suppliers to mirror their operations with the needs of its manufacturing plants. Respironics views its suppliers as true partners and challenges them to stay current with industry trends and innovations. The company created a Respironics Supplier Development team, a group of experienced manufacturing professionals that works interactively with the Respironics supply base to adopt best practices and helps them keeps pace with the company’s ever-increasing expectations.

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Pearce&Robinson. ((2010)). Strategic management: formulation, implementation, and control (12th ed.). New York, NY: McGraw-Hill/Irwin. Global Markets Direct. (2009). Respironics, Inc.- Strategic Analysis Review, (Respironics Annual Report, 2006)

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Competitor Analysis (Positioning)4 The Company believes that the principal competitive factors in all of its markets are product and service breadth, performance, innovation, quality, strong sales channels with thought leaders, sleep labs and homecare providers, efficient distribution, and competitive price. Price competition has become more intense in the last several years. In the case of a number of the Company’s and its competitors’ products, patent protection is becoming more prevalent and of increasing competitive importance. The Company competes on a product-by-product basis with various other companies, some of which have significantly greater financial and marketing resources and broader product lines than the Company. The Company believes that it maintains a strong market presence in several of the major markets and product groups in which it competes. However, other manufacturers, including other larger and more experienced manufacturers of home healthcare products, are active in these markets and the Company expects competition to increase. In its major product lines, the Company competes with two principal competitors, divisions of Tyco International Ltd. (Tyco) and ResMed, Inc. (ResMed). Tyco, which is the Company’s largest major competitor and has the greatest financial resources of the Company’s competitors, offers an array of products that compete with many of the Company’s major products. ResMed competes with the Company in OSA and noninvasive ventilation. The Company also competes with Invacare Corp., Viasys Healthcare Inc., Dräger AG, Getinge AG, Vital Signs, Inc., Monaghan Medical Corp., Fisher & Paykel Healthcare Corp. Ltd., and with divisions of Sunrise Medical, Inc. Additionally, the Company competes with a number of smaller medical device manufacturers and healthcare providers, primarily in local overseas markets and, to a lesser extent, in the U.S.

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The Company’s customer base and the medical device manufacturing industry are undergoing consolidation. Several of the Company’s competitors have been involved in acquisitions. The impact on the Company of this competitor consolidation is likely to be greater competition from medical device manufacturers that can utilize the financial and technical resources that may be made available as a result of the consolidation.

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Respironics Company International Website. (n.d.). Retrieved from www.global.respironics.com.

(2006). Respironics Annual Report

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Global Sleep Therapy Equipment Market Share Chart (Percentages)5 50 40 30

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International Sleep Therapy Equipment Market Share Chart (Percentages) 60 40 20

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Michael S. Matson, S. A. (April 30, 2007). Sleep FQ307 Review and Medtrade Summary . Medical Device Equity Research . Wachovia Capital Markets, LLC Ibid. Ibid.

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Opportunities and Threats8 Opportunities:  Increased healthcare spending in the U.S. The healthcare spending in the U.S. is expected to grow over the next few years. The healthcare spending is growing at about 7% per year. Federal officials have estimated that the healthcare expenditure would grow faster than the general economy, reaching 16% of GDP by 2010 in the U.S. Owing to the rise in the aging population in the U.S., the healthcare market has been on an upturn. The federal government’s two largest health care programs, Medicare and Medicaid, incur the bulk of healthcare spending. Their combined costs are projected to be more than double, to a combined total of $1.2 trillion in 2015 from $473 billion in 2004. An increased healthcare spending would ensure substantial revenues from the purchase of medical devices. Stable growth in healthcare spending in the U.S., Respironics' largest geographical market (accounting for 69.3% of the company's revenues in 2006), would ensure revenue growth opportunities for the company.  Expansion Through Acquisitions In April 2006, Respironics acquired OxyTec a California company engaged in developing an innovative portable oxygen concentrator, which would provide ambulatory oxygen patients greater freedom to be mobile and improve economy associated with the delivery of oxygen to these patients. Moreover, in May 2006, Respironics purchased certain assets of Omni Therm, an equipment manufacturer, supplier, and wholesaler of infant heel warmers, infant warming mattresses and hospital thermometer products. In addition to that, Respironics had acquired Mini-Mitter in April 2005, which was engaged in providing sleep and physiological monitoring products to commercial sleep laboratories and other medical, pharmaceutical and health research institutions involved in clinical trials. These acquisitions have broadened the company's presence in the sleep market beyond its core OSA business through innovative technologies. These strategic acquisitions over the last year would enable the company to enhance its product portfolio. On the flip side, Royal Philips Electronics has tendered an offer to buy out the entire Respironics inc., or perhaps retain it as a subsidiary. Such a move would give Respironics a prestigious name as well as operating and market leverage, and access to supplier and buyer channels of a well-established and robust firm.  Emerging sleep therapy market The company expects that the sleep therapy market would grow at a substantial rate in the U.S. There has been a growing incidence of common sleep disorder, OSA. It is believed that OSA would affect 18 million patients in the U.S and it has been associated with increased risk of heart disease, high blood pressure, stroke, and impotency. It is estimated that the number of OSA patients would grow at a CAGR of 16% from 2005-2010. The OSA devices sales are expected to increase to one million devices by 2010 from approximately 650,000 in 2006. Respironics is specialized in sleep disorder treatment and provides a range of products used both at home and in hospitals. Respironics has an opportunity to gain substantial market share in the growing sleep therapy market. Threats:

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 Stringent regulations The company's products are subject to extensive regulation by the FDA and, in some locations, by state, local and foreign governmental authorities. The FDA may impose post-marketing requirements, such as labeling and advertising requirements, adverse event reporting, testing and surveillance to monitor product and their continued compliance with regulatory requirements and inspection of products and manufacturing operations. Failure to comply with the applicable FDA requirements could result in fines, civil penalties, suspensions or revocation of clearances or approvals, recalls or product seizures, operating restrictions or criminal penalties. The company has been required to recall certain defective components or devices supplied by other vendors, kits assembled by the company with incorrect combinations of products and defective devices manufactured by the company. Adherence to such stringent regulation would increase the operating expenses of the company eating away the margins. 8

Global Markets Direct. (2009). Respironics, Inc.- Strategic Analysis Review, (2006). Respironics Annual Report , Respironics Company Website. (n.d.). Retrieved 07 2011, from www.respironics.com.

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 Intense Competition That is Diminishing Market Share The Company believes that it maintains a strong market presence in several of the major markets and product groups in which it competes. However, other manufacturers, including other larger and more experienced manufacturers of home healthcare products, are active in these markets and the Company expects competition to increase. In its major product lines, the Company competes with two principal competitors, divisions of Tyco International Ltd. (Tyco) and ResMed, Inc. (ResMed). Tyco, which is the Company’s largest major competitor and has the greatest financial resources of the Company’s competitors, offers an array of products that compete with many of the Company’s major products. ResMed competes with the Company in OSA and noninvasive ventilation. The Company also competes with Invacare Corp., Viasys Healthcare Inc., Dräger AG, Getinge AG, Vital Signs, Inc., Monaghan Medical Corp., Fisher & Paykel Healthcare Corp. Ltd., and with divisions of Sunrise Medical, Inc. Additionally, the Company competes with a number of smaller medical device manufacturers and healthcare providers, primarily in local overseas markets and, to a lesser extent, in the U.S. The Company’s customer base and the medical device manufacturing industry are undergoing consolidation. Several of the Company’s competitors have been involved in acquisitions. The impact on the Company of this competitor consolidation is likely to be greater competition from medical device manufacturers that can utilize the financial and technical resources that may be made available as a result of the consolidation.

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Deficit Reduction Act Respironics markets its products to hospitals, nursing homes and other health care providers. The payments from these customers are reimbursed by the third party payors such as private insurance plans, managed care programs and government programs such as Medicare and Medicaid. The U.S. government, however, intends to cut its spending on Medicare and Medicaid as a part of its Deficit Reduction Act of 2005 for reducing mandatory spending. The U.S. government under the Deficit Reduction Act intends to reduce its spending on Medicaid by $5 billion and Medicare spending by $6 billion over the next five years. Moreover, the U.S. government is considering $36 billion in savings on Medicare and a billion dollars in savings on Medicaid. The U.S. government intends to reduce average annual growth of Medicare from 8.1% to 7.7% and that of Medicaid from 6.9% to 6.6% over the next five years. Reduction in federal spending on Medicare and Medicaid in accordance with the Deficit Reduction act would reduce demand for the company's products.

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Internal Environment 9 Finance Whereas the functions of sales/marketing and research/development were decentralized and managed by the heads of the different business units and groups, all finance related functions were centralized at Respironics’ Murrysville headquarters. Information management was totally integrated for Respironics global operations, with SAP enterprise business software. The CFO received daily, monthly and quarterly reports so that he could react quickly to an aberration. Regarding financing acquisitions, an acquisition candidate was screened to see if they represented a strategic fit, as well as a financial fit for the company. Net present value was calculated, as well as years to pay back, dilution and accretion. Case studies featuring acquisitions and other contemporary business issues were used to provide managers with relevant training. Marketing To emphasize the market-needs approach, several changes were made at the beginning of fiscal year 2006, including an alignment of the business from four divisions into three groups: Sleep and Home Respiratory Group (Don Spence, president), Hospital Group (Derek Smith, president) and International Group (Geoffrey Waters, president). The first two groups reflected the location of a patient’s diagnosis and treatment. Both groups had their own domestic sales forces. Sleep area sales representatives called on operators of sleep clinics (to sell sleep diagnostics equipment and services) and on DME distributors (to sell CPAPs, surgical masks, ventilators and oxygen concentrators). Hospital Group sales forces visited pulmonologists, who managed intensive care units in hospitals, and marketed ventilators. The International Group was organized into its three regions: Europe Africa and the Middle East, Asia Pacific and Latin America. Sales associates sold sleep and ventilator products in over twenty-five different countries. Operations Respironics has achieved global leadership in the respiratory medical device industry through a focus on developing innovative products and programs that not only help improve patients lives, but also enable the homecare provider to efficiently manage those patients through the various stages of therapy. Respironics is more than just a box builder, they integrate features into their products that benefit the patient and improve the ease and efficiency by which the medical professional interfaces with that patient. The manufacturing model is better described as virtual integration than vertical integration. The goal is to develop a close partnership with 30 to 40 key component suppliers. In many cases, the technical experts from their suppliers have been integrated into our new product development and process improvement teams. Respironics views its suppliers as true partners and challenges them to stay current with industry trends and innovations. The company also works closely with suppliers to mirror their operations with the needs of its manufacturing plants. The company uses SAP for its main software system and recently completed implementation of the supplier portals functionality, which enables Respironics’ suppliers to view real-time demand and quality information for the parts they supply via a Web-based interface.

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Human Resources Respironics made a commitment to be viewed as the area's best place to work. A group of people from the human resources and the quality departments thought that an employee survey would provide valuable input toward this goal. The surveys gave a rich insight into how the employees perceive Respironics and the business, and how satisfied they were with the quality of work life. In general, employees reported that they felt they knew the business. They were generally satisfied with their benefits and their work life. They perceived management as generally approachable, and held the company in high regard. Respironics employed 4,700 employees in 2006.

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Marano, R. (January 1, 2006). Market Maker. Smart Business Pittsburgh) Respironics Human Resources . (n.d.). Retrieved from http://interlinkbusiness.com. ) Respironics - Promoting best practice in Manufacturing. (n.d.). Retrieved from The Manufacturer.com

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What is the firm’s distinctive competence & competitive advantage? Respironics identifies its key competencies:10 Market Foresight Teaming Learning Agility In its words: A long history of innovation, a deep understanding of the sleep and respiratory markets, and an appreciation of its customers’ needs, positions Respironics for continued leadership in the sleep and respiratory markets.

Strengths and Weaknesses 11 Strengths  Financial strength Respironics’s performance over the past few years was robust among all its segments. The company had recorded a strong growth in its financials. For the fiscal year 2006, the company recorded revenues of $1,046.1 million an increase of 14.8% over the year 2005. For the five-year period, (2002-2006) the company’s revenues grew at a CAGR of 20.6%, which is higher as compared to industry average of 16.9%. The company has generated substantial revenues from all its geographical segments. For the fiscal year 2006, U.S., the company's largest geographic market, accounted for 69.3% of the total revenues, followed by Europe, Africa and Middle East (15.6%), Americas (4.2%) and Far East/Asia Pacific (10.9%). The Domestic Sleep and Home Respiratory Products division of the company contributed 51.2% of the total revenues during fiscal year 2006 followed by Domestic Hospital Products (18.1%), and International Products (30.7%). All the divisions of the company have recorded significant growth. Financial strength would enable the company to perform better.

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 Market leadership Respironics is a leading global company in the Obstructive Sleep Apnea (OSA) market. It is a well-recognized brand in the diagnosis and treatment of sleep-disordered breathing. The company's sleep therapy products such as CPAP devices and bi-level positive airway pressure electro-mechanical devices are used for the treatment of OSA. It also offers variety of technologically advanced clinical products used in sleep laboratories to diagnose sleep disorders. Under its OSA product line, Respironics offers new M Series REMstar and legacy REMstar family of CPAP devices and the BiPAP Series of bilevel devices. In addition to that, it also offers related accessories such as humidifiers, masks, tubing, filters and headgear. The company's market leadership in the OSA market would help the company to launch more innovative solutions.  Potent R&D The company's potent research and development activities had made Respironics a leading company in the sleep and respiratory market. The company has incurred R&D expenses of around $58.9 million (6% of net sales) in fiscal 2006, $45.6 million (5% of net sales) in fiscal year 2005, and $29.5 million (4% of net sales) in fiscal year 2004. With high investments in R&D the company had introduced many new products across all its major product lines. The recently launched new products include the REMstar M Series sleep therapy device system; the ComfortFull 2 and ComfortLite 2; software enhancements for the Alice sleep diagnostic device; the Synchrony II noninvasive ventilator and the Virtuox overnight oximetry testing software. The new hospital products include the Cadence Breathing System; the LoFlo C5 Engine; the Espirit ventilation system; the Esprit - NICO interface; and the I-neb Adaptive Aerosol Delivery System. Potent R&D has enhanced the product portfolio of the company. 10

Source: Company documents Respironics Company Website. (n.d.). Retrieved 07 2011, from www.respironics.com.

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Global Markets Direct. (2009). Respironics, Inc.- Strategic Analysis Review

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Weaknesses  Lack of diversification The company generates revenues from the sleep and respiratory product line. It is specialized in OSA market and generates most of its revenues from this market. The company's competitors such as Tyco International, Viasys, Invacare and Vital Signs operate in various segments having a competitive edge over the company. Tyco International operates in electronics, security, healthcare and engineered products markets. The other competitor such as Vital Signs operates in anesthesia, sleep disorder, respiratory/critical care, interventional cardiology/radiology and pharmaceutical technology services markets. Moreover, the company generates around 70% of its revenues from the U.S. region. The company's competitor Fisher & Paykel Healthcare has a diversified revenue base, generating 47% of the revenues from North America, 29% from Europe and 24% from Asia Pacific and other. Lack of diversification and concentrated presence would make the company vulnerable to risk associated with single segment and single economy.  Voluntary product recall The voluntary product recalls has affected the company’s reputation. In May 2006, Respironics voluntarily recalled its 269 PLV Continuum Ventilator of all models and serial numbers. The ventilators were reported to stop providing mechanical ventilation, which could cause serious injury or death. The company directed the customers to quarantine all PLV Continuum Ventilators and to use other ventilator models. The company had distributed these ventilators in the U.S., Australia, Argentina, Canada, Japan, Hong Kong, Netherlands, Saudi Arabia, and Taiwan. Moreover, the company is also expecting to conduct a voluntary product recall of a heated humidifier device used with its older CPAP systems in October 2006. The company estimates that about 172,000 humidifiers, produced three to five years ago are to be recalled and this would cost around $5 million. Such product recalls have been adversely affecting the company's brand image.  Low returns The company has been recording low returns over the past few years. Although the revenues of the company have shown strong growth, its returns were not impressive. The average return on equity of the company for the five-year period (2002-2006) was 13.7%, which was low as compared to the industry average of 15.7% for the same period. In addition to that, the company has also recorded weak margins. The low returns and weak margins depict the management's inability to utilize its assets in profitable avenues.

What is the central problem or strategic issue?

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The issue at hand is that a decision must be reached regarding which direction to lead the company. They are the current leader in their industry, however recently some chinks in their armor have been detected. Rivals are beginning to cut into their dominance, and Respironics is losing market share to competitors. In addition, regulations are very demanding on their resources, and they are being threatened by new legislation that is unfavorable to them. It appears that they lack the diversity to conquer these forces alone, and their robust financial position will allow them to make some fortifying investments. They can either expand operations on their own, or give themselves in to a larger firm, and reap the benefits from basking in the halo of goodwill and heavy market presence and expansion of marketing and product channels.

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Summarize your findings in a SWOT table Respironics, Inc., SWOT Analysis , 2007 Strengths Financial strength Market leadership Potent R&D Opportunities Increased healthcare spending in the U.S. Expansion Through Acquisitions Emerging sleep therapy market

Weaknesses Lack of diversification Voluntary product recall Low returns Threats Stringent regulations Intense Competition/Diminishing Market Share in a Key Industry Deficit Reduction Act

What are the strategic options based upon SWOT analysis? Based on the analysis, Respironics has two options: 1. One option would be to take advantage of their rising cash balances and potent R&D and fight to remain independent by acquiring a smaller firm in the industry that would boost sales and product line, and diminish the threat of competitors substantially. After many successful prior acquisitions, the company is in a position to evaluate which company would help them remain dominant in a growing industry. On the short list might be Resp. Care, a startup, which had just introduced an inexpensive hybrid CPAP system, and Restore Medical, another startup, which had invented an implant procedure to reduce vibrations that caused snoring. Aspire Medical, a small, privately held medical device company, was conducting clinical trials of an implantable device to treat tongue-based breathing obstructions. Or, they can make a really bold move, such as borrowing additional funds, to acquire a major competitor in the sleep therapy equipment market. This would most likely be ResMed or F&P.

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2. The other option is to consider the offer from Royal Philips Electronics to acquire them as a subsidiary. Help from a larger company would enable them to retain their position as global market share leader in the OSA market, without going through the immense capital expenditure and risk. Royal Philips would surely add prestige and diversity to their name, and would buffer them against budget reductions and smaller-scale competition. It would be a formidable challenge for their rivals to compete with such a grandiose firm. They would also gain access to a wider market base and better suppliers.

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What are your final recommendations? Based upon my knowledge from the textbook and outside research, I aver that it would be in Respironics best interest to remain independent. The company has remained this way successfully for 30 years, and they are seeing a remarkable growth in revenues each quarter. Horizontal integration is the key. By acquiring a smaller competitor, Respironics will attain critical resources that it needs to improve overall profitability. It can expand its global operations, increase its market share, improve production capabilities and economies if scale, broaden its product line and increase its efficient use of capital. I believe that F&P would be a wise decision strategically, because they are a strong enough presence in the market to be an asset to Respironics, who would gain their resources, market share, and product line. ResMed is not likely to agree to be bought out when they are at such a successful point, and in fact merging with F&P would likely impede ResMed’s ability to compete.

What are some actions they need to take to implement and evaluate those recommendations? Firstly, Respironics must determine if this represents a strategic fit, as well as a financial fit for the company. Net present value, as well as years to pay back, dilution and accretion must be calculated to evaluate the long term overview. They must also determine if they have sufficient cash on hand, and the availability and cost of financing. Acquiring F&P would entail streamlining production and manufacturing with the new company’s devices, and deciding which of each firm’s products and services to drop or retain. It would also enable them to capitalize on new innovations from F&P to strengthen their existing and future products.

Bibliography Global Markets Direct. (2009). Respironics, Inc.- Strategic Analysis Review. Marano, R. (January 1, 2006). Market Maker. Smart Business Pittsburg . Michael S. Matson, S. A. (April 30, 2007). Sleep FQ307 Review and Medtrade Summary . Medical Device Equity Research . Wachovia Capital Markets, LLC. Pearce&Robinson. ((2010)). Strategic management: formulation, implementation, and control (12th ed.). New York, NY: McGraw-Hill/Irwin. Respironics - Promoting best practice in Manufacturing. (n.d.). Retrieved from The Manufacturer.com. (2006). Respironics Annual Report. Respironics Company International Website. (n.d.). Retrieved from www.global.respironics.com.

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Respironics Company Website. (n.d.). Retrieved 07 2011, from www.respironics.com. Respironics Human Resources . (n.d.). Retrieved from http://interlinkbusiness.com.

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