The Key to Successfully Starting a Medical Technology Company
Such could be applied to the success and failure of many medical technology, biotech, and life sciences companies. It’s often not one major breakthrough that usually guarantees the success of a new venture, as some may think. Success often lies in the details that in many cases lay hidden within the lab notes, sketches and e-mails of a healthcare professional thinking through an idea as they try to bring it to life.
For physicians, surgeons, medical researchers and other healthcare professionals who dream of owning a medical device company, the thought of playing the role of CEO can sometimes cloud the reality of understanding exactly what it takes to reach that point. The key is to start at square one identifying some of the most basic factors of launching a medical technology business, and then, to tip success your way by executing to the nth degree on the details.
Here are 10 tips that may help you turn that idea hastily drawn on a cocktail napkin into a fast-growing medical technology business.
1. Understand if you have something to protect. One of the most critical tipping points in forming a successful medical device company rests with capturing and documenting a healthcare professional’s intellectual property. In other words, an inventor’s marketable ideas.
Intellectual property is a phrase broadly used to describe intangible assets that have an inherent value (in other words, they can be bought or sold, just like a piece of real estate). Just as a company’s machinery or office furniture have value and can be bought and sold, so too can ideas, methods, names, phrases and logos. Intellectual property comes in many forms, ranging from a patent on a mechanical device, such as a vascular stent or a business process (Amazon.com’s one-click shopping) to a trade secret, such as Coca-Cola’s famous secret formula, or a trademarked brand name (Pfizer’s Lipitor®-brand cholesterol-reducing drug). The U.S. Patent and Trademark Office is a government body that serves as a public regulatory clearinghouse to which inventors and companies apply for patents and where trademarks are granted.
Intellectual property is the lifeblood of an organization. For example, consider the value of the Coca-Cola® and Coke® brand names or its trade secret for the Original Coca-Cola formula to the Coca-Cola Company. Surely, those two intangible assets are worth more than all of the plants, equipment, office furniture and other tangible assets owned by that company combined. Likewise, the same can be said of patents and trademarks held by many medical technology companies.
David Kline, author of Rembrandts in the Attic: Unlocking the Hidden Value of Patents, says the knowledge economy isn’t rhetoric. Intellectual assets drive competitive advantage and ultimately shareholder value. Intellectual property can make or break a business. If your competitor owns a patent that precludes you from even being in business in the first place, then you’re in big trouble.
Like real estate, there are some technology areas in which there is very little real estate to claim as one’s own. For example, the intellectual property landscape for catheters is very crowded. There are many companies operating in this area, each with its own unique technology. For even these companies, much less a new company, the ability to lay a claim on a new catheter technology is very difficult.
2. Document your idea. Properly documenting an idea(s) is a critical factor to starting a new medical technology company. Even if your idea is a twinkle in your mind’s eye, write it down. Get it on paper. Date it. When you do document your idea, make sure you have a witness, preferably a peer who is knowledgeable in your profession and is willing to sign a confidentiality agreement.
Better yet, instead of writing or sketching an idea on a piece of paper or a napkin and stashing it in a file cabinet, begin the daily practice of jotting down notes to yourself in a lab book. The discipline of writing down your insights on a daily basis will not only help you document your efforts in a continuous, systematic approach, it will more than likely inspire further insights. This practice will allow your ideas to build upon themselves, and may lead to something even more truly unique and patentable than your original idea.
3. Don’t ask, don’t tell. Documenting an idea is one thing, and preserving it is another. Because of the collaborative nature of the health care culture, it’s very difficult for many healthcare professionals and researchers not to share their ideas with another colleague or to obtain an affirmation from a respected peer that they’re truly onto something special. It’s at this point that inventors often create the most problems for themselves sometimes years down the road. It’s absolutely critical that if you want to share your idea with someone, even in passing, that they sign a confidentiality agreement. That means not just with other healthcare professionals, but with assistants, administrators and nurses, and even your closest friends and family members.
Likewise, if you have a hint that a peer or colleague is researching or may be inventing a medical product, don’t ask them about it. This is to protect yourself in case you should develop a product or method that may be similar to what your peer or colleague is developing.
4. Estimate the size of the market. Of course, just because you have a unique idea doesn’t mean that it’s a groundbreaking. One of the most common mistakes that many inventors make in the early stages of starting a medical device company is underestimating the need for their product.
The first place to start is to identify the number of people who are affected by a particular medical problem. Example: the number of men and women in the United States who suffer from genetic-related heart disease. From there, you need to create a profile of your future customer who they are, where they live, how and/or why they suffer from a certain medical condition; current treatment options and the success rates of those options; and, at what cost to the patient and to the health care system do they suffer. This process involves some digging into medical journals, medical device trade magazines, the Internet, etc. To develop a very thorough analysis of the marketplace, it may be necessary to enlist the service of an actuarial consulting firm as well as a market research firm.
Determining market size also involves researching similar types of existing products and determining a potential price for your product and what share of the potential overall market that you can realistically capture.
Another aspect of this process is determining how distinct your product is when compared to existing treatment options. To understand the value proposition of your new product idea, think of other great products, not necessarily other medical products. In the fast-food arena, McDonald’s built its value not just by delivering a hamburger quickly, but by doing so with a high level of consistency. Domino’s Pizza was founded on the value proposition of delivering a good-tasting pizza in 30 minutes or less. When you look at your product, what do you see? Is it a revolutionary or evolutionary advance? Is it therapeutic or diagnostic? Will it cost less and be more effective than the current therapy most often prescribed or recommended? Will it be faster to implant, thereby cutting surgical time? Will it substantially increase a patient’s recovery time? Will it substantially improve or enhance how the body performs a function or improve a person’s quality of life? The more you can quantify these benefits, the greater the odds that your product will succeed in the marketplace.
5. File for a patent. Building a patent portfolio is lot like building a fence around a piece of land that you own. It creates a fence that publicly tells others that you own a piece of intellectual property. The concept behind a patent is to build the highest and largest perimeter fence that will prevent others from taking a portion or laying a claim against your piece of property.
For example, because the marketplace for catheters is so crowded, a new development in this area likely will be considered evolutionary and may not generate much interest. As such, a patent fence for such a development may not be all that high or all that large, in terms of real estate. On the other hand, a treatment for restenosis may be revolutionary. There is a lot of real estate available for such an effective device or treatment.
It’s crucial to file a patent properly. A poorly submitted patent application can wreak havoc on your intellectual property rights in the future, so hire a reputable, experienced intellectual property attorney (registered to practice before the U.S. Patent and Trademark Office) who can examine your ideas, help you obtain a thorough search of existing patents that may be similar to your idea, and help you devise a patent strategy. They will not only understand how high to build the fence around your idea, but how to help you keep that fence up for as long as possible.
To file a patent, in particular for a device, you will need to have a blueprint (mechanical drawing) developed. Consult with a patent attorney, who can connect you with mechanical and electrical engineering firms that specialize in medical device products. It’s at this stage that you will begin to better understand how much it will cost to produce your product, how it will be manufactured, and how it can be sold. Don’t be surprised if the design and prototype firm offers suggestions to improve your device (and in which case, may make your original idea obsolete).
6. Find a mentor. If you’ve never been through the process of patenting an idea and possibly forming a company, it can be overwhelming. That’s why it may be a good idea for you to find a mentor, perhaps another professional who has been through the process, to provide thoughtful advice and counsel. If you don’t have any possible mentors among colleagues or acquaintances, contact your state’s department of economic development to obtain the names of local medical device companies or the names of nearby medical device or medical technology industry associations. Regardless of how well you know a mentor, make sure that they sign a confidentiality agreement that prevents him or her from making a claim on your intellectual property.
7. Determine if it’s a product or a company. An idea by itself is not a company. In the initial burst of excitement that comes with developing a new medical device it’s easy to let your imagination do the leading. But the fact is, determining whether your product has the potential to grow into a company really is dependent on whether that product may lead to other products. In other words, a single product is not a company unless it has a very large market potential in and of itself. Companies usually have a family of products and focus on a particular area. A company that is targeting a smaller market opportunity, for example, less than $200 million, may be a great candidate to be purchased by a much larger company. A company that is targeting a much larger market, for example, more than $1 billion, will find greater support among the investing community. Furthermore, there are different types of corporations, each of which have their advantages and disadvantages. An experienced business attorney can help you understand the best path to take.
Another aspect of this decision-making process is for the inventor to give some thought to whether they even want to run a company in the first place, which as many entrepreneurs will tell you, can be an all-consuming effort and will drastically alter a person’s lifestyle. Alternatives to consider are licensing the rights or outright selling patent(s) to an established company that may be able to bring the idea to market much more quickly. Typically, an inventor receives a percentage of the sales of a licensed product as a royalty and possibly an upfront payment. However, the inventor will be dependent upon another company’s ability to finish developing and selling the product. Fantasizing about owning and running a company is easy. But ask any entrepreneur who has ever gone through the process of launching a medical technology company and you’ll understand that the process is not for those with weak hearts.
8. Write a business plan. If you’re determined to launch a company, then you’ll need to write a business plan that creates a blueprint for your new organization. A business plan is essential for attracting capital and the talent to bring your ideas to life. It generally addresses core issues such as the unique product idea(s), the market size and potential, company management and company operations. It also outlines equity structure (who owns what), and identifies the opportunities as well as risks associated with marketing a product. It’s at this point that an inventor should consult with an attorney who specializes in business formation.
9. Attract the right talent. Running a company that manufactures a product is a lot different than running a lab or simply maintaining your own busy medical practice. Many healthcare professionals desire to maintain control of their business and avoid bringing in experienced executives and managers who clearly understand what it takes to launch a medical technology company. While success certainly isn’t a guarantee with professional managers, taking the time to study other successful medical device companies and the models they use to grow their business can be useful in determining the type and experience level of the talent you need to lift your company off the ground.
10. Raise money. Many inventors make the mistake of thinking that attracting venture capitalists and angel investors is the first step of launching a new company. But usually most funding sources, whether a bank or a corporate partner, won’t even pick up the phone until you’ve undertaken the brunt of the start-up process. And with good reason. They don’t want to risk their capital (or someone else’s) without fully seeing that the inventor has thoroughly thought out the basic elements of launching a new medical technology product, and put in their fair share of sweat and equity.
So, if you want to tip your new medical technology venture in the right direction, be sure to focus on the little things that can have a huge impact, both in the short term and further down the road.
Thomas Letscher can be contacted at:
Barbara A. Wrigley can be contacted at: