Building the MedTech middle ground – a call to action
The single biggest thing that MedTech entrepreneurs worry about is money, or more specifically, running out of funding. The refrain we hear all the time is that MedTech development costs a lot more than people expect. At the core of the issue is a lack of understanding about what is involved.
There are many distinct parts to any MedTech development project including – business planning, establishing quality systems, regulatory compliance planning, intellectual property planning, industrial design, embedded electronics development, software systems development, verification and validation, clinical trials, product certification and manufacturing. These activities are all in addition to the normal aspects of establishing and running a business such as marketing, establishing distribution channels, and product support.
Each of these fields is hugely complicated – to do them properly does take a lot of time and requires deep expertise. So, entrepreneurs usually seek out consulting or contract services in these areas, requiring funding from investors.
What any investor needs is confidence that the entrepreneur is an informed buyer – that they know exactly what is involved, what it will take to successfully launch the product, how to spend the funds wisely and essentially minimise the risks to their investment.
Investors need confidence that the entrepreneur is an informed buyer
However, virtually no one has good visibility of the activities or costs involved in all of the above fields. The service provider industry itself is quite siloed, forcing the entrepreneur to aggregate all the information for investors. Often entrepreneurs, and even the investors, are time-poor and inexperienced in product development. As a result, funding is difficult to obtain and many great ideas never get commercialised, or fail mid-development, because the learning curve to acquire investment confidence across all these fields is just too steep
In trying to support and develop the MedTech industry, or any other technically complex field, governments tends to focus on the gap between academia and industry. However, Genesys believes the more important gap is that between entrepreneurs and service providers.
The important gap in MedTech is that between entrepreneurs and service providers
To combat this issue, Genesys is partnering with a range of leading MedTech service providers to organise and deliver an educational campaign aimed at raising awareness of their vital role and the scope of what they do. Targets of the educational campaign include government, medical associations and funding organisations.
The geographic focus of the campaign will be in NSW where the depth of the MedTech service provider industry is generally not well known. Compared to Victoria there has been a more coordinated effort by the government and there is a much greater awareness of the range of service providers and their roles.
One of our partners in this initiative is Brandwood Biomedical CEO Grant Bennet, who said: “For entrepreneurs approaching investors, comprehensive advance knowledge of what is required to develop MedTech provides them a massive foothold. It provides them that ability to say, ‘I know where I’m going and I know what needs to happen during that process’. They can sit at a funding meeting and tell an investor what markets they want to go into, what it will cost to get product certification there, what the cost is of securing the IP for that, how much the quality system will cost, and so forth. Until they have that kind of knowledge, they’re flying blind.”
If an entrepreneur is flying blind it means they don’t have a realistic idea of how much it is going to cost to take their product to market.
Being realistic about the money
Brandwood Biomedical has recently established a presence in Southern California, USA. Grant said: “To be successful in the US, the dollars are big. MedTech start-ups in California generally look to raise in the order of five to ten million dollars in their first round.
“In Australia we see people who are thrilled to raise a few hundred hundred thousand dollars, but they should be multiplying that figure by ten to compete on the world stage. To develop a strong regulatory strategy alone, and then to initiate the implementation, you’re looking in the order of tens of thousands of dollars. So initial funding of a few hundred thousand will not take them very far.”
The issue is that start-ups are often focused on getting a proof-of-concept working on the bench with a hobbyist mentality.
Genesys CEO Geoff Sizer said: “For example with embedded electronics, start-ups will often develop a proof-of-concept using an Arduino board and somehow expect that to scale to a commercial product. This is impossible as it’s not designed to be manufactured in volume and it’s not compliant with most of the mandatory regulations.”
“Realistically, development of a functional prototype that can be commercially scaled is typically in the order of two hundred to three hundred thousand dollars for a fairly simple product, with an additional $50 thousand for medical device compliance testing and documentation.”
What is needed is a focus on the bigger picture of the environment their product will be deployed into. The expression “start with the end in mind” is most appropriate.
“If you intend to commercialise the product, understand from the very beginning everything what is required to deliver that, then break it down into small bites. If you can get to the prototyping stage having done everything you need to be medically compliant and commercially successful, then the next step isn’t as great a leap as you might think,” Grant said.
“It still costs a lot, but you can be confident about what you are spending your money on. You can balance the costs as you go through your business planning and fundraising. You’re not then asking for a massive big investment as a leap of faith in your great idea.”
The most important skill set for entrepreneurs is project management
Another issue with MedTech is that for many of the entrepreneurs, their primary skill set is medical or something related to the utility of the innovation. However, Grant argues that the most important skill set required for entrepreneurs is project management. If they don’t have that, then it needs to be outsourced and this is one of fastest growing segments of Brandwood’s business. Grant said its service was built on its connections to a whole range of providers delivering the services that need to be project managed.
MedTech in NSW
In recent years, the NSW government has been vocal in wanting to support the MedTech industry in NSW and compete with other states as a favoured destination for MedTech investment. In October 2018, Health NSW released a NSW Medical Technology Industry Development Strategy.
While the report noted that NSW has the largest share of the MedTech industry in Australia at 37%, the industry in NSW is dominated by the two larger players – ResMed and Cochlear. By comparison, Victoria – without established larger players has moved earlier and further in its government support for start-ups and has a more vibrant, recognised and supported service provider industry.
Says Bennett: “They’ve had a bigger interest in this for a longer period. They have been able to build the start-up market and obviously people have come along and invested into the ecosystem there.”
However, in both states there is a huge gap between the large number of small start-ups and the very large players like ResMed and Cochlear. A key issue is that the goal of most start-ups is just to sell their idea to the first buyer. That makes sense in pharma, where the development path costs hundreds of millions, but in devices it’s a capitulation. Planned well and adequately funded, entrepreneurs can get to manufacture without the need to out-license.
Selling your idea to the first buyer is a capitulation
Geoff Sizer said: “The NSW government needs to be focusing on cultivating companies that will go all the way – to become the next ResMed or Cochlear. They should be supporting companies who accept that they need, and can afford, high quality service providers that can assure their success and help build the industry.”
The next steps in our initiative is to convene a roundtable of like-minded MedTech service providers – Brandwood Biomedical and Circuitwise Electronics Manufacturing have already agreed to participate. The purpose of the roundtable is to determine ideas of how service providers can educate medical entrepreneurs as to the service they provide, have their voice heard more clearly as a vitally important part of the ecosystem, and assist the NSW government in developing the MedTech industry.
For more information, contact Geoff Sizer at Genesys on 02 9496 8900.