The cost of a medical device recall is higher than you thought

March 07, 2019

Product recallThere have been a total of 10 medical device recalls reported by FDA this year, seven of which came in February. That’s a high number, but it’s not unprecedented, writes Amanda Pedersen, News Editor at sister brand MD+DI. For example, 32 medical device recalls were reported in 2017, nine of them in May, she writes in “Medical Device Recalls Spike in February.” The article includes a monthly chart of recalls in the medical device sector from 2016 through 2018 that puts those numbers in context.

It’s fairly obvious that product recalls can do tremendous damage to a brand’s reputation and siphon resources that could be put to much better use. There is also a “less-studied wave of damage, as competitors ramp up product development efforts to snap up displaced customers and solidify market share gains,” writes Danielle Kost in an article published in Forbes, “Why Companies Should Try Harder to Prevent Product Recalls.” Less studied, that is, until now. Kost writes about research conducted by academics at Harvard Business School, Indiana University and Georgetown University, which has led to a working paper titled, “Recalls, Innovations and Competitor Firms: Evidence from Medical Device Firms.” Not only does a product recall slow innovation at the affected firm, they note, but it can also give a competitive advantage to rival companies.

Ariel D. Stern, an assistant professor of business administration at Harvard Business School, Indiana University Assistant Professor George P. Ball and Georgetown University Professor Jeffrey T. Macher used 13 years of FDA data and a set of competitor classification algorithms to produce a history of product submissions and recalls in the medical device industry, writes Kost. That data provided them with a window into how a recall may stall or speed innovation within a product category.

The findings, highlighted by Kost, noted the effect that a recall has on a company’s product development team, which must focus on fixing a flaw rather than developing innovative technology. A recall can delay incremental innovations by six months, according to the researchers. Meanwhile, competitors can take advantage of the recall and ramp up their own product development activities to accelerate time to market. If a medical technology company “can bring a new product to the market even one month earlier following a rival’s recall, it could bring in an additional $10 million in revenue,” writes Kost, referencing the research. And the more severe the recall, the greater the opportunity “for a competitor to grab market share.”

It won’t come as a shock to medical device OEMs that product recalls are bad for business, but it may be bracing for some to learn that they are also good for their competitors’ business.

The working paper can be accessed on the Harvard Business School website.

Image courtesy iQoncept/Adobe Stock.

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