A small manufacturer teamed up with a bigger player in its industry to develop a new group of products.
Scraping together the cash to develop new products can be tough. Tougher still: if the products bomb, you can lose the whole sum. But one small company, Hemagen Diagnostics, recently found a way to halve its out-of-pocket development costs -- and its risk. Instead of bankrolling new products on its own, the Waltham, Mass., developer and manufacturer of medical diagnostic products teamed up with a deep-pocketed partner.
In the fall of 1992 Hemagen (whose annual sales then were around $1.2 million) calculated that the creation of a new group of products for diagnosing infectious diseases would cost around $190,000. "It was a lot more than we were prepared to spend," says Carl Franzblau, president and chief executive. So Hemagen approached a much bigger company in its industry, Sigma Diagnostics, about working together. In the 50-50 deal the two companies struck, Franzblau notes, "we agreed to make our investment in personnel, materials, and time." Sigma, a division of $600-million-plus Sigma-Aldrich, put up some $90,000 in cash.
It's too early to know how the products (which will be sold under separate brands by both companies) will pay off in the market -- they're currently going through clinical trials. But managers at Hemagen, which went public in February 1993, have little doubt that they made the right financial move to reduce their level of risk. Franzblau's son Bill, Hemagen's general counsel, puts it this way: "Half a loaf is a lot better than no loaf at all."