Commercializing Medical Devices in a Challenging Regulatory and Funding Landscape
Commercial success for any medical device starts with a realistic assessment of its viability and requires its developers to have an appetite for navigating a complex approval process. Adding to the challenge, investors are increasingly placing value on product portfolios, rather than on individual products.
These were just a few of the insights from serial entrepreneurs who have taken multiple startup firms to extremely profitable exits, presented in a standing-room-only panel session titled “Commercializing Medical Devices: A View from the Trenches.” They offered an insider’s view of the process, from discovery and clinical trials through fundraising, marketing and exit, as part of the University of Miami Global Business Forum, held Jan. 12–14, 2011.
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Panelists (L-R) Stacy Enxing Seng, Executive Vice
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First, rigorously assess a product’s viability, advised Duke Rohlen, founder and CEO of the medical device company CV Ingenuity. “Fundamentally, you are starting with an idea. You are making sure that idea has merit. It can take years to determine if the idea has merit. Concepts and ideas are great, but they evolve over time,” he said. “The key challenge is making sure at incremental stages along the development process that you are assessing the viability of the product. It’s better to kill something at $10 million than to invest another $30 million.”
The business opportunity is tremendous: Demand for health care services in emerging nations, the need to reduce hospital stays and an aging world population will contribute to a $312 billion global market for medical devices in 2011, according to Kolarama Information.
But there are challenges as well. The economics of health care and the regulatory landscape have changed — or have seen proposals for change — and a great deal of scrutiny has been placed on the industry.
“The medical devices industry is looked on with a great deal of suspicion by policymakers. Rightly so — there are things that have happened in this industry that we should not be proud of,” said Fred Khosravi, managing director of Incept LLC, a health sciences technology company, and founder and chairman of the medical device maker Access Closure. That has led to changes in the way investors look at device makers, he explained. “We are in a transition period. Investors don’t know how to make money. The goalpost is changing. You can’t calculate ROI. So investors are hesitant about putting money into companies. There’s a flight to quality in our innovation ecosystem.”
As part of that flight to quality, investors are placing more value on product portfolios than on individual products, noted Stacy Enxing Seng, executive vice president of the endovascular company ev3 and president of its Worldwide Peripheral Vascular venture. “It’s tough for individuals trying to establish companies based on a single technology unless they are quite disruptive,” she said. “I still think the best mousetraps win and there is a lot of innovation, but it takes much more to bring it forward.”
Rohlen agreed. He said single-product companies that want to go public need to become aggregators that can develop one product and then acquire others. This, he said, creates a “hairy landscape” for the people backing and starting single-product companies. In October, his firm, TauTona Group, created a $50 million inaugural fund that it hopes to use to address this challenge.
“We are trying to create a step in the ecosystem whereby we fund those single products and sell them at a fixed investment. That reduces the risk,” Rohlen explained. “You develop technology under the cloak of secrecy. We are creating transparency. Let’s not be as greedy as we are used to being. Let’s be smart and have those discussions about economics up front.”
With so much change in the U.S. market, some inventors may look overseas to bring their ideas to fruition; indeed, the international marketplace is becoming more attractive for product testing, too, as it becomes more controlled and approvals become more rigorous.
“Historically, the medical device business has largely been a U.S.-based industry. I think it still is, and I would like to see that continue. But there are some impressive technologies coming out of [other] countries,” Seng said. “[The] global reimbursement environment is one of the greatest challenges. The CMS [Centers for Medicare and Medicaid] is the new body that has always been present but is now a determinant of whether your product succeeds or fails.”
Christopher Owens, president and CEO of IDEV Technologies, had perhaps the simplest advice for his fellow medical device innovators. “It takes discipline and infrastructure,” he told attendees. “If you want to be profitable, you have to have the foundation and the discipline.”
