|Frost & Sullivan Market Insight||Published: 5 May 2003|
A self-taught computer programmer, Vilsmeier prepared the ground for his enterprise at the age of 21 when he published a book entitled "3D-Grafics with GigaCAD on the C64/C128 PC". With more than 50,000 copies sold, it turned into a bestseller in its category.
In 1989, Vilsmeier enrolled at the Technical University of Munich to read Computer Programming and The Theory of Medical Technology at the University. However, his enterprising nature and his burgeoning business in computer-assisted medical technology left little time for theory. While still in the first semester, Vilsmeier founded BrainLAB GmbH from the proceeds of his book. Only a year later, BrainLAB software had its debut at the University of Vienna. During the following years, Stefan Vilsmeier spear-headed new developments in the area of neuronavigation and radiotherapy and signed a comprehensive cooperation contract with Varian Inc., the biggest manufacturer of radiotherapy products worldwide. This partnership formed the basis for Vilsmeier’s breakthrough in the US market. Today, BrainLAB AG generates about 50 % of its revenues in the US and has strategic partnerships with some of the world’s leading healthcare companies.
Stefan Vilsmeier currently employs about 480 people in 15 countries, offering products and services to customers in over 100 countries. BrainLAB is headquartered in Munich, Germany and operates as BrainLAB AG, a public limited company.
For his outstanding contributions to the national IT industry and to Bavaria as an economic center, Stefan has been honored with several awards. In December 2002 the World Economic Forum (WEF) selected him as one of their "Global Leaders for Tomorrow 2003." In the same year, Ernst & Young, a provider of Management Consulting and IT Services, honored him with the title of "World Entrepreneur of the Year 2002" after he had already been awarded the national title in 2001. At the Bavarian Innovation Awards in 2000 Stefan was the only nominee to receive a special award for innovative leadership methods and marketing concepts. He was also presented with the highest decoration of the State of Bavaria by its Minister Edmund Stoiber. To date, Vilsmeier remains the youngest recipient of this prestigious decoration.
Frost and Sullivan: BrainLAB has come a long way from the first sale of a system in 1993 to build a prominent name in the image guided surgery market. Can you comment on your present position in this market? What is your key to success?
Stefan Vilsmeier: BrainLAB has always focused on software as a core piece of its business and as a software provider we view ourselves as being in a leading position with a strong global market share. Today, BrainLAB has about 1,000 customers worldwide. When we started in this business we had very limited resources compared to most of our competitors but the driver for our success has always been technology and innovation. If you really go down to the roots of what has made BrainLAB successful, I would say there are three key drivers. One is the people. We have always focused on hiring inventive people, people with passion, a commitment to success, and people from a number of different countries. I believe diversity and culture is important to stimulate ideas; so people are the key.
The second driver is the company culture. As the company has grown it has been very important to me to make sure that we would maintain a culture where people have more flexibility in making a decision in comparison to most other companies. For example, I personally have learned quite a bit about this business from the people that have worked for me; since I have never worked with any other company. I believe that people should always be very open in admitting mistakes. This has contributed to creating a culture where people are encouraged to make independent decisions, analyze those decisions, admit their mistakes, and move on, which I think is the key criteria of entrepreneurship.
The third important driver for success is access to customers, which is deeply imbedded in our culture. This applies to all departments from people working in accounting or marketing or development. Right as we speak we have a workshop going on with our key customers from Germany, which is organized with full participation from many people working in our R&D group to get direct and immediate feedback from our customers.
We have continuously used these three strengths to address unmet clinical needs in a number of different sub-specialties.
BrainLAB remains strong in the areas of software integration and fusion. Software, on the one hand, is used for the development of our current technology base that we can leverage in new applications and can rapidly merge into new medical sub-specialties. On the other hand, integration is important because we have a good understanding of surgical requirements and of efficiency in workflow, which is driven by our interaction with our customers and also has been critical to our successful relationship with a number of larger companies. We have alliances with the market leaders in several fields such as Varian Oncology systems in radiation oncology, Johnson and Johnson in Orthopedics, and Siemens in diagnostics. Our surgical workflow know-how and our ability to integrate different technologies using intelligent software is critical too. We have a global sales and service infrastructure that enables us to get our technology into the hands of our customers very rapidly so when we introduce new technology we can launch it simultaneously in various markets around the world.
The best way to describe BrainLAB is to call it the ‘Microsoft of image guided surgery’. A lot of companies in the medical field provide hardware to enable certain solutions; however, we think software is the key technology component to facilitate better outcomes, to enhance surgical processes, and to improve our customers' success rates in patient care. There are very few companies that have focused on software as a key driver for their success. If you look at any one of our competitors, you will find that they are more or less looking at software to help their core business which is outside of software. They want to either sell more implants or sell more microscopes; therefore software becomes a part of their mid-term strategy. For BrainLAB, software is our core business, and we believe we are good at it.
Frost and Sullivan: Advancement in technology has been a key to growth in the fast evolving image guided surgery market. Could you expand on technology innovations BrainLAB has produced in the last two years? What does this mean to the physician and the patient?
Stefan Vilsmeier: Physicians have a continuous desire to improve their processes and provide better care to their patients. Patients are obviously trying to continuously improve their quality of life. Patients are becoming increasingly educated about various medical technologies, and thus they get extremely involved in determining their destiny. A lot of times we enter into a clinical sub-specialty or look at certain surgical techniques and we benefit from the fact that we came in as an outsider. Thus by not having a preoccupied mind, we were open to asking questions and challenging the existing technology which is what triggered some key innovations.
For example in neurosurgery, a key innovation in 1998 was the introduction of the first image guided system that worked without a mouse or keyboard. It occurred to us that a mouse and keyboard were devices that do not belong in an operating room and while we were amongst tough competition with other vendors, we went back to the drawing board. We analyzed what features surgeons really use. The log files created by our system identified what buttons were pressed at which point in time. We had an internal contest to see who could come up with additional ideas to minimize the interactive steps required to have control of the software. Within 12 months, we introduced a wireless image guided surgery system, which was the first of its kind. At that time every other image guided system required all the instruments to be purchased from the vendor and all the instruments needed to be wired. We were able to attach some silver marker spheres onto any instrument and register the instruments that the surgeon had already been using before.
Providing such technology within 12 months, at that time, was almost impossible. However, the project manager in charge did not know it was an impossible task. Instead of questioning whether it was possible or not, he just focused on the project and got it done in a very short period of time.
A few years later, we launched another key innovation which was our z-touch laser registration pointer, which completely eliminates the need for attaching special markers that were required for diagnostic examination. This was a major process improvement that added flexibility in scheduling surgery and increasing accuracy and set up for the procedure. Another key innovation was the use of fluoroscopic images through non-invasive registration of a patient’s spine. By taking fluoro shots and matching them with CT datasets of the patient, surgeons can conduct less invasive procedures for spinal surgery; this is technology that up to this point only BrainLAB can offer. Again and again we have tried to reposition ourselves as a leader by continuously improving surgical practices and we have built trust within the surgical community.
One of our most recent innovations was the development of BrainSUITE, less than a year ago. BrainSUITE is a completely integrated operating room that has all the elements needed by neurosurgeons in an operating room of the 21st century; including an MRI scanner for updating the images used for the surgery in real time and to verify that tumors have been completely resected. The product was launched less than a year ago and we expect to soon install the very first unit at Staten Island University Hospital in New York.
A lot of people believe that image guided systems for neurosurgery already have all the features required, but those who think so should be ready for a couple of surprises.
Frost & Sullivan: Image guided markets have witnessed an increase in the number of applications expanding from cranial and ENT to orthopedics with more applications expected in the future. In your opinion, which applications hold the highest growth potential? Why?
Stefan Vilsmeier: For BrainLAB, it is important to be engaged in a number of different clinical sub-specialties. We have seen a lot of synergies between technologies from one area to another. However, the area of application with the biggest potential going forward is clearly orthopedics and trauma. It is a huge market if you look at the sheer number of surgical procedures being performed and the number of orthopedic surgeons. There are new surgical procedures that are now being defined and invented by various implant companies. We find ourselves in the position of being the ‘Switzerland’ of image guided surgery in orthopedics because we are able to provide software to complement the hardware of various providers. Having a system with an open platform supporting different implants has been crucial. The fact that we are a company that is not attached to one single implant company puts us into a unique position where we can collaborate with a number of different orthopedic companies simultaneously. This is the strategic advantage I feel that BrainLAB has. At the same time we have the necessary infrastructure in place to support the systems we have installed around the world. This is a market that is taking off at an incredible pace, a market that seems to grow much faster than neurosurgery did six years ago.
BrainLAB has invested very aggressively in building an infrastructure for marketing and R&D in the area of Orthopedics. I started to get concerned that we may have invested too aggressively, however the recent Academy of Orthopedic Surgeons meeting in February in New Orleans convinced me that we just had the right instinct and that - on the contrary - we probably did not invest enough in this new developing market. We are excited about the market position we have in this area. This is a market that will probably grow to at least $500 million in the next five years and we are well positioned to gain considerable market share.
Frost & Sullivan: Rapid growth in the image guided surgery market has increased competition. What do you think is the main competitive advantage that BrainLAB has? In which areas of the market can BrainLAB make a difference in the long term?
Stefan Vilsmeier: The market is very competitive and there are new companies entering the market from time to time. However, we have seen at the same time, a major consolidation in the neurosurgery market and we are already seeing consolidation in the orthopedic market. It seems that it is necessary to have a certain market share of probably 25-30 percent in the image guided surgery market to make a sustainable business as far as providing the necessary investment that’s required to keep products up to date and to have the sales and service infrastructure in place that’s necessary to support the products.
The biggest advantage BrainLAB has today is innovation and the perception that is associated with it. People that are open to new technology are really looking toward the market leader. We have built a lot of trust with more than 14 years of history and credibility as we continue to provide the most innovative solutions for the market. The key advantage that BrainLAB has as a company is independence. There is an increasing number of companies selling hardware; whether it is implants, diagnostic devices or other medical products that rely on third parties like BrainLAB to provide software to enhance and facilitate certain implant or medical procedures. The key to sustain BrainLAB’s competitiveness in the future is our current technology base, our installed base with the necessary support and service infrastructure, innovation, and our strategic position.
Frost & Sullivan: With increasing acceptance of image guided systems, revenues generated from service contracts and disposables are expected to grow in the future. In order to exploit this opportunity, installed base can be a key to the future growth. Can you comment on the installed base BrainLAB enjoys in different applications as compared to its competitors? Is this a genuine revenue generator for the industry?
Stefan Vilsmeier: Certainly, if you look at our early years of penetrating the market; the key focus had been on acquiring additional business and growing BrainLAB’s installed base. Now our installed base is growing exponentially and certainly service business and upgrades, wear parts, spare parts, and disposables are a larger and growing part of our business. Before it was always other revenues, but now it is becoming a more significant part. BrainLAB benefits from the close relationship that we have built with our customers. We typically tend to have a strong and emotional link with our customers. Therefore, our capture rate of service contracts has been quite satisfactory and the business has been doubling from year to year. We expect this development to continue. The capture rate is expected to be quite similar to the diagnostic industry at 25-30 percent. We are not there yet but we are well on our way to focusing our resources to achieve this goal.
BrainLAB roughly has 1,000 customers around the world. The majority of our customers have a number of application packages on their installed system. Altogether, on these 1,000 customers' systems there are roughly 2,000 different software packages installed covering different applications from neurosurgery to spinal surgery, ENT, and orthopedics. The majority of our business has been neurosurgery but we expect a significant portion of it to be orthopedics in the near future.
Frost & Sullivan: BrainLAB has collaborated with a number of companies in the field of orthopedics and ENT. How important do you feel are alliances and partnerships in the image guided surgery markets?
Stefan Vilsmeier: Strategic alliances are critical for various reasons. First of all, there is a natural interest in having BrainLAB provide software to enhance certain procedures and also in implant companies providing customers with improved prosthesis for next generation implants. Essentially, we are focused on working well with strategic partners. Having a good track record with them has encouraged other companies to rely on BrainLAB’s software, turning BrainLAB into the 'Microsoft of image guided surgery.'
Strategic relationships give us access to adjacent technologies; whether it is microscopy or diagnostic imaging or implant development; we can provide our customers with more complete software and services. This also gives us access to an increased network of customers and know-how in other areas. We have benefited from our orthopedic partners by getting educated rapidly on the requirements for image guided surgery in orthopedics and now we benefit from their surgeons network. At the same time our partners also benefit from BrainLAB’s know-how in selling capital equipment. If you look in the industry there are very few companies having expertise in selling capital equipment and selling it to surgeons. Companies are either selling capital equipment, mostly in diagnostic and other areas, or selling disposables in the surgery market. However, the combination of selling to surgeons and selling capital equipment is quite a unique expertise. Our sales people are fully trained on clinical and medical benefits for physicians and patients as well as financial benefits such as reimbursement so that they can also talk to hospital administrators. This is what makes BrainLAB a valuable partner for many of the companies that we work with.
Frost & Sullivan: What does the future hold for image-guided surgery and BrainLAB?
Stefan Vilsmeier: Today, software is still not exploited enough as a means to enhance medical procedures. There are a number of other clinical sub-specialties that could benefit from more precise targeting by using pre-operative imaging information as well as additional details on patient data that may be collected during treatment. The future will bring additional databases with more intelligent software linking the experience of our customers and surgeons with the data that is already available; the ultimate goal being to standardize and streamline certain procedures and ultimately reduce costs. Today less than 10 percent of the world population has access to adequate healthcare and we believe that with software we can find a way to bring such technology to an increasing number of patients in the years to come.