Business Development: Expectations and a Bit of Experience
David Barone, the principal of Boston Medtech Advisors, was in
Israel in early January and presented "Business Development in the U.S.:
Expectations and a Bit of Experience" to a group of incubator company entrepreneurs
at the
Misgav Technology
Center (MTC).
David Barone claims the person in this picture is the entrepreneur of a start-up company!
David Barone
started off with good news: The medical device industry is alive and well.
It is strong and expected to continue to grow as new technologies are introduced.
He pointed out, however, that many smaller medical device and medtech companies
have difficulty securing venture capital financing, but went on to explain
that momentum in the industry will continue as larger medical manufacturers
put products in their pipelines that are based on technologies from early-stage
companies.
In fact, Barone commented that "major corporations have increasingly invested
in early-stage medical device companies ... through venture development funds"
or through a number of pharmaceutical companies. There is a growing trend "towards
outright purchase of private companies as one of the primary exit scenarios."
He noted that "between 2002 and 2004, the 10 largest U.S. medical
device companies have acquired between 20 and 25 companies per year." Boston
Scientific alone made six acquisitions and 19 equity investments during that
time period.
Focus on Financing
Golden Rule of Financing
Each plan will take twice as long to execute and three
times the amount of money, or vice versa.
According
to Barone, entrepreneurs usually ask him two standard questions: 'How much
money should I raise?' and 'How quickly can I get it?'
Their most typical
question, Barone went on to say, is, 'Can you introduce me (us) to investors?'
He remarked that actually the right question entrepreneurs
should be asking is, "What
should I do to attract investors?"
As for the answer, Barone said it lies in three key areas:
Identifying the problem or the need — and only then identifying the solution;
understanding what you really sell, which isn't always so obvious,
and;
defining the business model and establishing a thorough understanding
of the market.
Barone enumerated 10 common pitfalls in medical device
development (see box). How to avoid them? "It's fairly
easy. It all comes back to these three key areas."
Strategic Moves
David Barone's
Top 10 Pitfalls in Medical Device Development
Failure to identify all future competitors
Clinical trials consider only FDA requirements (limited consideration
for long-term marketing and reimbursement efforts)
Inadequate account targeting; not optimizing initial design for primary
market segment
Going after too broad of a market
Failure to identify and secure support of product champions
Failure to consider the entire financial impact on decision makers (usually
a physician)
Failure to gain support of managed care (for procedures, amounts reimbursed,
and utilization guidelines)
Heavy reliance on distributors
Attempt to change practice patterns and protocols
Overestimating disposable utilization per installed system
"Early on," Barone remarked,
"you need to know the direct and indirect competitors, the key opinion
leaders, decision-makers (always more than one who is obvious) and influencers,
the reimbursement environment and coverage guidelines, and the economic
impact on the providers/users." Baron reminded the audience, too,
that on average a medical product or technology takes nearly 17 years to
reach the market from the idea stage to commercially accepted product!
So, be prepared to ... persevere.
As for the reimbursement environment, Barone stated unequivocally, " In
the United States these days, medical technology won't go anywhere unless
it meets the criteria used by health insurers for evaluating new technologies."
Barone
shared the following criteria, which are used by the Technology
Evaluation Center (TEC) of Blue Cross and Blue Shield Association, the largest health
insurer in the United States.
The technology must have final approval from appropriate government regulatory
bodies.
Scientific evidence must permit conclusions concerning the effect of
the technology on health outcomes.
The technology must improve the net health outcome.
The technology must be as beneficial as any established alternatives.
The improvement must be attainable outside the investigational settings.
Perspectives on Partnership
If looking for a U.S. partner to assist
with R&D, product development, access to market, and capital, Barone
chuckled before saying, "there's no free lunch."
"A pre-nuptial agreement is a must. And like any other
relationship, make you sure are going into it for the right reason,
and that you see the strengths and weaknesses of the partners." You
must, he stressed, weigh the "long-term worries vs. short-term benefits" of
a partnership relationship. For example, "exclusivity may mean losing
access to other industry players; loss of interest by the U.S. partner
or change in direction may cause the company to have to restart in a new
direction."
For those companies that have decided to establish a U.S. presence, Barone
advised to move forward during the very early stages of development. While
it is not always "practical," some companies can consider the "U.S.
bridge option," which maintains a part-time presence in the States
through a contractual arrangement with a third party that "is affordable,
trustful, understands the industry, can bridge the business-culture gap,
and is based on the East Coast." He cautioned the entrepreneurs not
to "open an office in El Al business class," which will definitely help
their mileage but not their business.
During a career that spans more than 25 years, David
Barone has founded a number of health care companies, served as
an advisory to start-ups and young companies, and worked with and for a
number of entrepreneurs and VC investors. He has held senior management
positions in a number of medical device companies, overseeing product development,
marketing, pilot manufacturing, clinical evaluations, regulatory affairs,
and intellectual properties. He is a member of the boards of directors
of several companies. He has a bachelor's degree in electrical engineering
from the Technion–Israel
Institute of Technology. He received a master's degree in biomedical
engineering and an MBA from the Rensselaer Polytechnic Institute in New
York.
Boston
MedTech Advisors is a Boston-based consulting
and professional services company focused on medtech and health care. The
company provides market analysis, business development, reimbursement strategies,
and financing support. They work with companies to achieve important milestones,
enhance competitive position, lower operating expenses, raise financing,
and improve market and business strategies.
