Image source: U.S. Army via Wikimedia Commons.
Healthcare giant Johnson & Johnson (JNJ 1.18%) announced earlier this month that its Medical Devices & Diagnostics Global Services business is collaborating with start-up Carbon 3D to develop custom 3D-printed surgical devices.
This is bad news for the leading diversified 3D printing company, Stratasys (SSYS +0.24%), but even worse news for its main rival, 3D Systems (DDD +1.06%).
Here's what 3D printing investors should know:
Carbon3D in a nutshell
Carbon3D is a start-up that wowed the tech world last March when co-founder and CEO Joseph DeSimone unveiled and demonstrated the company's potentially game-changing Continuous Liquid Interface Production 3D printing technology at the 2015 TED conference. The company plans to release a polymer 3D printer powered by CLIP for the enterprise market this year.
Image source: Carbon3D.
CLIP harnesses UV light and oxygen to "grow" polymer parts continuously. It's reportedly 25 to 100 times faster than the leading 3D printing technologies, and has immense materials possibilities. Its compelling features give CLIP the potential to disrupt the manufacturing sector. CLIP also could allow Carbon3D to take business away from 3D Systems and Stratasys, both of which are heavily involved in the polymer 3D printing space.
After being initially backed by Autodesk, Carbon3D scored a $100 million funding round led by Google Ventures, Alphabet's venture capital arm. Former Ford CEO Alan Mulally -- a.k.a. "The Man Who Saved Ford" -- became the company's first independent board member last spring.
Bad news for Stratasys, but worse for 3D Systems
Both 3D Systems and Stratasys count the medical and dental industries among the customers for their 3D printers and 3D printing services. So, a company of Johnson & Johnson's stature and size -- it has a market cap of $265 billion -- choosing to collaborate with Carbon3D to develop custom 3D-printed surgical devices is a significant loss for the two diversified industry leaders.
The use of 3D printing in the medical industry is still relatively nascent, but fast-growing. The technology, in fact, is largely responsible for fueling the growth in personalized medicine. Collaboration with an industry heavyweight like Johnson & Johnson could provide Carbon3D with an entrée into other similar companies.
The reason this collaboration is a bigger blow to 3D Systems than Stratasys, in my opinion, is that Triple D has been more actively targeting the medical industry, which has included aggressively acquiring companies in this realm. Notably, 3D Systems' 2014 acquisition of Medical Modeling gave the company the largest combined 3D printing personalized surgery and medical device services and production operation.
The company even breaks out its healthcare revenue when it reports its financial results, reflecting the importance it gives this segment. In 2014, 3D Systems' healthcare segment's revenue expanded 80% from 2013 to $129.3 million, accounting for nearly 20% of the company's total revenue.
Moreover, the healthcare space was about the only fairly consistent revenue bright spot for 3D Systems over the last few years, at least before both leading companies experienced the broad-based decline in demand for their enterprise 3D printers starting in the first quarter of 2015. (Stratasys has attributed this drop in purchasing among industrial customers to overcapacity in the field due to the large number of 3D printers purchased during the previous few years.)
On the other hand, Stratasys' enterprise business was performing quite well across the board up until the broad slowdown began in 2015. Its high-margin Objet Connex line was doing particularly well. This line of multicolor, multimaterial printers is quite unique, and highly valued across many industries; it's particularly favored by the entertainment industry for producing props and costumes for movies and other entertainment venues, as well as prototypes.
Takeaway
Carbon3D has been inking some impressive partnerships and collaborations with companies that are leaders in their industries, such as Ford and now Johnson & Johnson. Working with such high-caliber companies that have huge financial resources should help Carbon3D improve its overall CLIP technology and fine-tune it to meet the varying needs of customers within different industries. The more customers and industries Carbon3D wins over with its CLIP technology, the smaller the potential pie becomes for 3D Systems and Stratasys.
