Devices & Diagnostics

Beyond buzzword: Platform technology will rule the future of med tech

1. Start with science. 2. Find a partner or adviser who has a grip on […]

1. Start with science.
2. Find a partner or adviser who has a grip on the evolving regulatory environment.
3. Shift your thinking to the context of enabling a comprehensive solution for managing an illness.

That’s an idea of what the business model of a successful medtech company looks like in 2012, according to two healthcare consultants.

Dane Stout is the executive director of the Connected Health Practice at Anson Group, an Indianapolis firm that helps companies navigate the FDA approval process for drugs and biologics, medical devices, and combination products. Brian Williams is the director of global clients and markets for PricewaterhouseCooper LLC and co-author of a report on the new healthcare business model called “Owning the Disease.”

In separate interviews, the two emphasized the role of platform technology in managing disease, and a more friendly environment for M&A and licensing activity for startups.

How has digital technology and healthcare reform changed what entrepreneurs need to think about when they’re starting a company to bring a new device to market?

BW: A shift from volume-based to value-based care means that comparative effectiveness for new technologies becomes more important. It’s driving healthcare toward a more consumer-centric model for consumption of care. Now, value is not predominantly driven by patent estate – that I have a novel therapy or device. It’s around the solution that I’ve developed and brought to market. I make the distinction of how I’m going to attack the market. Do I attack it as a component supplier of a solution, and therefore my device has a different economic profile with it, or do I attack it as the solution provider?

Are we following in the footsteps of the tech industry, then, with this idea of a platform solution with various components?

BW: The tech industry is the most recent example, but you don’t have to go back too far to look at what happened in the automotive industry and aerospace in terms of integrated solutions. If you bought a GM car in the 1950s, everything was made by GM. If you buy one today, a lot of the things in it aren’t made by GM.

DS: But for the startups, I don’t think it’s going to be one of those things like Facebook or Groupon or Zynga where you take the quick path to IPO. It’s going to be more along the lines of, who do I align with?

How does that change a startup’s strategy for monetizing intellectual property?

DS: Monetize earlier. We’re seeing startups really struggle because they’re never geared to think about all of the regulatory requirements, and they view medical devices a little naively. There’s a reason why the margins in medical devices are more than in electronics and IT. I think there’s a dearth of innovation in the big device companies, and they have this third-party ecosystem where they would like to be able to do business with some of these innovators. They need to come together because big device companies have the regulatory expertise and resources that they can afford to use. It’s now about helping people manage a condition, not an individual device, and the way you do that is to bring in data from other places that make things you don’t make yourself.

BW: As the entrepreneur, you’ve been letting the science drive you to the innovation, and that’s still going to occur. But once you find that innovation, you used to be able to take that to market directly. In the future we think you’ll have to take another set of analyses to say, ‘Where does this innovation fit within the ecosystem around these disease states?’ No one’s really brought these ecosystems together, so there’s potential business opportunity to integrate. If there’s a dominant player in the market, can what I have be a component of that?

If connected innovations are crucial for big companies to remain competitive, does that make it easier for a startup today to get acquired?

BW: It does a few things. First, it makes the environment more difficult for them to truly have breakthrough, game-changing elements. In a connected health environment, it’s a little more challenging for that novel idea to migrate to a viable standalone business enterprise. The opportunity for entrepreneurs is that, if they make it to market, the competitive landscape is dominated by very large institutions that aren’t as nimble. From an acquisition standpoint, those competitors will find that their field of target acquisition opportunities is going to expand.

What words of wisdom would you give to an aspiring medtech entrepreneur who thinks she has a product that could be successful?

DS: My message is to look at healthcare very carefully. A lot of people say, “There’s a lot of money in healthcare,” or, “It’s really screwed up and I can see how my technology can help.” Then we see these code-a-thons and one-day challenges to invent a new product, and that’s really a very confusing message. You have to understand the rules and the regulatory problems you could run into. Maybe you’re willing to take smaller margins to get a product out quicker by making it not subject to FDA regulation. Think about how you’re going to get the product commercialized. And once you start the journey, what’s the ongoing compliance? This isn’t like getting a driver’s license where you go in and pass the test as long as you don’t get in trouble. You can expect to have audits and problems.

Editor’s note: These interviews were edited and shortened, and conducted separately.

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