This probably won’t come as a surprise to most IMDA members, but many entrepreneurs – the engineers, scientists and clinicians who develop innovative medical devices — secretly (or not so secretly) hope they’ll get acquired before they have to figure out the messy details of actually mass-producing and selling their devices. When that doesn’t happen, IMDA members have an opportunity.
“You have to catch companies at the point where they have accepted the fact that they have to sell their own product, that they won’t get bought out before they have to,” says Amy Siegel, co-founder of S2N Health. “But you have to sell your value proposition.”
S2N positions itself as an outsourced business and marketing team for medical device start-ups. “We were founded on the principle that pre-revenue, emerging medical technology companies don’t have or need full-time marketing and strategic resources,” says Siegel. “They need that support periodically or on a part-time basis.” The company was founded by Siegel, Erin Warner and Tim Kofol, who worked together in emerging device companies.
Great idea, but can you sell it?
Many medical device companies are founded by technical people on what they believe is a great idea for a great product that will help a lot of people, explains Siegel. "They raise a little bit of seed money from family, friends, public resources, grants. But at some point, when they need to raise real money, they start getting asked questions they can’t answer, about the commercial opportunities of the product.
“They’re thinking, ‘This is great new technology for patients, why isn’t that the most important thing?’ Instead, they get hit with, ‘How will you price it? ’What’s your competition?’ ‘How will you sell it?’ They’re not in a great position to speak to that.
“For some, it’s a rude awakening. They are asked for market proof of concept, not just clinical proof.”
Nor can these innovators expect much help from investors. “It’s the rare investor who can contribute to the discussion on how to commercialize a product,” says Siegel. "Many investors hope to realize the return on their money before they have to worry about commercialization. Often, they are more concerned about who’s looking to acquire the young company than asking, “How big of a sales force will you need?”
“When it becomes clear that a client needs to prepare to launch their product independently, we often guide them to, ’What’s your foot-in-the-door strategy?’” says Siegel. “‘How will you target a segment that must have your technology, that’s small and manageable?’”
Entrepreneurs who do ultimately confront the realities of commercialization are often unprepared and uninformed of what’s involved, she says. “There’s a whole lack of awareness of the efforts it will take to sell a product, to train people how to sell it, and to train users on how to use it.” As a result, innovators often underestimate the cost it will take to do so. “We always put in a pretty hefty line item for distribution costs, scale-up of a sales force, or marketing efforts, and clients’ instincts are often to cut the number by two-thirds,” says Siegel, only half joking.
The task for distributors
For all these reasons, distributors have several tasks before them if they hope to gain access to innovative technologies, says Siegel. For starters, they must convince the start-up company that even though distributors may carry several other lines, they will dig in, they will get to the right people, and they will tell the story. Second, they should quantify for the entrepreneur the costs that the entrepreneur will face if his or her company has to field its own sales force. “Most of the companies we deal with have no idea of what they’re going to confront trying to see customers,” she says. Distributors should make that clear to them.
Distributors must be sensitive to the entrepreneur’s concerns, says Siegel. This is their baby, and they’re wondering, “Will [distributors] represent my product in such a way that it retains its value?” “Are they willing to knock on all the doors?” “Will it be a priority in their bag?”
Introducing innovative medical devices is tougher today than ever before, says Siegel. “The bar has been raised insofar as the acceptance of new technologies, mostly because we’re hitting budget ceilings.” Regulatory hurdles are high, the path to reimbursement is longer, and investors are more anxious than ever to see a return on their investment.
“Entrepreneurs today have to be a lot smarter about their value proposition — not just the clinical value proposition, but the economic value proposition. If not, they’ll make a great device that no one will pay for.”
Specialty distributors can help them, she says, but only if they successfully present their value proposition, reassure entrepreneurs that distribution is a successful strategy to market, and catch that entrepreneur at just the right moment, that is, when he or she has come to realize it’s time to figure out how to bring their technology to market.