2013 Washington State Biomedical Device Summit

I attended this meeting yesterday, June 17 at the Bothell Campus of the University of Washington. Bothell is a hub of the Biomedical Device Innovation Zone.

There was an interesting keynote talk by Mark Leahey, CEO of the Medical Device Manufacturing Association (MDMA). He reported that lobbying in Washington, D.C. to repeal the 2.3% medical device excise tax is intense. He also told the group that efforts to improve the FDA regulatory clearance process are proceeding and that the 510(k) pre-market notification process does not need to be replaced, merely refreshed.

One welcome development was an announcement by Matt Smith, Chair of the Biomedical Device Innovation Zone that a medical device company incubator is being established at Lake Washington Institute of Technology in Kirkland. The incubator will have rapid prototyping capability  – machine shop, 3D printer, etc. – as well as space for several onsite startups and a number of virtual startups. This is great news – there are a number of startup incubators in Seattle focusing on biotech and software but none until now that specifically welcome medical devices!

The most interesting part of the summit was a panel discussion chaired by Chris Rivera, CEO of the Washington Biomedical and Biotechnology Association (WBBA). The panelists were executives in local healthcare organizations. Three of the panelists are also physicians and a fourth is a pharmacist. The message for industry is that the future of the healthcare industry is going to be focused on cost reduction – “cost, cost, cost” according to one panelist.

I did not know that the medical device industry accounts for only 6% of all healthcare costs in the U.S. As one panelist put it, even if you gave away all devices at cost, it would not bend the healthcare system cost curve. The highest expenses are in labor. Devices that eliminate labor or that connect systems requiring manual intervention will be winners in the future. Entrepreneurs and established device companies launching new products must show immediate cost savings, as the CFOs and actuaries are jaded by past promises and will no longer accept assertions that cost reductions will occur over a long period. One reason is that the typical patient tenure in a health insurance plan is only two years. That makes it difficult for an insurer to realize savings on an investment in new technologies or procedures without up-front savings.

An audience member asked a question about the structural costs of practicing “defensive medicine” where clinicians order extra tests and procedures to guard against malpractice judgments. Interestingly, the three physicians on the panel all asserted that, while significant, defensive medicine is not the biggest problem in healthcare economics in the U. S. and further, that  it will be impossible to ever eliminate defensive medicine, primarily because of the trial attorneys lobby in “the other Washington.”

Another panelist stated that companies with new products and procedures must approach hospitals and offer ways to mitigate the risk the hospital is taking by adopting the new technology. This idea is getting attention around the industry. Not sure exactly how it would work and how that would affect financial statements and projections in startups and even established companies. Does the hospital expect some sort of make-good guarantee if the technology’s promises fail to materialize? On the flip-side, does it expect to participate in the company’s success if the technology is even more successful than anticipated? Another panelist suggested that clinical articles about new technologies always include a discussion of financial projections in addition to the usual clinical and technological discussions. “Cost, cost, cost” indeed…

Interventional radiologists wring hands over the medical device tax | MassDevice

I don’t agree that an across-the-board tax would be a major obstacle for medical device companies to acquire innovative and effective new interventional radiology technologies. Yes, the tax reduces gross margins but as the article implies, the Affordable Care Act (aka Obamacare) is bringing millions of uninsured people/prospective patients into the healthcare system. So gross dollars (aka the bottom line) should increase.

Besides, it’s still a level playing field as the tax applies to all companies participating in the U.S. healthcare market. Yes, a few marginal technologies “on the bubble” may not make it to market but the radiologists are free to start their own companies and prove the bean-counters wrong.

The issue of whether the medical device tax is good or bad policy is a separate matter and is not what I’m addressing here.

The use of the term “hand-wringing” in the headline seems to fit, in my opinion.

“The 2.3% medical device tax may prevent “entrepreneurial interventional radiologists” from bringing new technologies to market, according to a commentary published by the Journal of Vascular & Interventional Radiology.”

Read more: Interventional radiologists wring hands over the medical device tax | MassDevice.

Supreme Court Justices, 9-0, Bar Patenting Human Genes – NYTimes.com

DNA A rare, unanimous decision from our ideologically divided Supreme Court affirms that natural things cannot be patented – a principle that has been part of patent law for more than one hundred years.

The Court upheld the right to patent methods to isolate genes and also complementary DNA (cDNA, an artificial construct).

Both sides, of course, claimed victory. The company, Myriad Genetics, stated it was pleased with the decision and that its business model is unaffected. Consumer advocates and researchers expect the price of breast cancer genetic testing to drop substantially and also hailed the ability of researchers to conduct experiments without fear of patent infringement lawsuits.

Interestingly, patent law in the European Union allows for the patenting of human genes.

As an individual, I am happy to know that my genome remains mine. As a business person, I will watch with great interest – what will happen next in this emerging industry?

“WASHINGTON — Isolated human genes may not be patented, the Supreme Court ruled unanimously on Thursday. The case concerned patents held by Myriad Genetics, a Utah company, on genes that correlate with increased risk of hereditary breast and ovarian cancer.”

Read more: Justices, 9-0, Bar Patenting Human Genes – NYTimes.com.

A Smartphone Spectrometer Diagnoses Disease At A Fraction Of The Price | Co.Exist: World changing ideas and innovation

Another example of the astonishingly rapid convergence of mobile technology and medical applications.

“Here’s another example of the trend: a spectrometer that costs as little as $200. An iPhone cradle, phone and app, it has the same level of diagnostic accuracy as a $50,000 machine, according to Brian Cunningham, a professor at the University of Illinois, who developed it with his students (see video).”

“In the future, it’ll be possible for someone to monitor themselves without having to go to a hospital. For example, that might be monitoring their cardiac disease or cancer treatment. They could do a simple test at home every day, and all that information could be monitored by their physician without them having to go in.”

Those slabs in our pockets are so much more than phones.

Read more: A Smartphone Spectrometer Diagnoses Disease At A Fraction Of The Price | Co.Exist: World changing ideas and innovation.

The Market – Medical Device Commercialization 101

OK, so you know that you need a customer in order to have a business. In fact, you usually need lots of customers to have a successful business. In this post, I’ll discuss that vague abstraction known as the market.

market

A market is a group of entities, sometimes people, sometimes organizations, sometimes both. In its simplest form, some of the entities in the market sell things and other entities buy things. Or you could say that some entities have problems they are trying to solve and they buy solutions from other entities.

There are an infinite – or at least an uncountable – number of markets in our economy.Think of your own personal life. You participate in many different markets, for example, music (and that could include CDs, digital downloads, streaming, concerts, and lessons among other things), food (including fresh, frozen, farmers’ markets, food trucks, fast food, restaurant dining, snacks, beer, wine, soda, and bottled water, etc.), and transportation (cars, bicycles, pedicabs, trains, airlines, hot air balloons, buses, taxis, limos, and so on).

There are probably thousands or even tens of thousands of markets for medical devices. Hospitals and physicians purchase and prescribe many different products, services, and solutions to diagnose, treat, and maintain their patients.

Markets have competition. The entities selling solutions compete for buyers. Sometimes the competition is direct but it need not be. Innovative solutions and products often do not have direct competition, at least not initially. There is almost always, however, indirect competition or at least the status quo – what buyers are doing right now without the innovation. Never make the mistake of thinking or stating that your new widget or app “has no competition.” It diminishes your credibility and usually results in someone proving you wrong.

There are concentrated markets in which a handful of sellers control almost all sales. Think of the cable TV market in your town. If you are fortunate, there are two competitors. On the flip side, there are some highly competitive markets with many sellers. For example, consider the fairly new and still evolving market for “cloud” based archiving of your digital files. This is a highly competitive market with new entrants emerging almost daily with prices falling and offerings improving rapidly. It’s pretty obvious which type of market is better for buyers. Unless you have a significantly disruptive product and lots of financial resources, the competitive market is probably more attractive for you as a seller as well.

One more thing about markets – they are almost never homogeneous. There can be geographic differences among buyers as well as language, culture, economic (price stratification as well as terms of payment), demographics  (for example, gender, age, political leaning/affiliation, income level, socioeconomic status, technology adopter status, etc.), and many, many more. Any of these differences can be used to identify consumer market segments. There are other attributes in medical device markets such as hospital size, number of procedures performed per year, hospital market share, physician experience level, and so on.

Market segments are groups of buyers with at least one attribute in common so that your offering should have value or appeal to all members of the group, for example, “household decision-makers considering purchase or lease of an electric vehicle in the next three month”s or “family practice physicians in small to medium group practices interested in purchasing an electronic medical record system in 2013”. Further, the segment must be economically reachable via the same form of marketing communications or media promotion, e.g., direct mail, webinars, radio or TV advertising, or one of the various forms of Internet advertising.

Identifying your market is fairly easy. It’s almost always dictated by the indications for use of your product. Segmentation is tougher. There may be multiple segments for your offering. The challenge is selecting the segment(s) that are most competitive (and therefore open to new offerings) and reachable (so you don’t have to break the bank with marketing programs to reach the segment members).

The objective is to create awareness and interest in your solution/product, thereby generating sales leads. A portion of the leads will convert to actual sales, creating revenue to expand marketing and sales efforts and leading to profitability.

As part of your launch plan, you should talk to market participants in person, at conferences, and in surveys. Identify as many segmentation attributes as you can.

Takeaways:

  1. Try to select a competitive market unless you are launching something truly disruptive.
  2. Identify as many segments as possible.
  3. Pick segments based on their attractiveness for your business and your ability to reach segment members economically with marketing programs.

Next time, I’ll talk about identifying the different types of buyers in your segments. It’s much more complicated in B2B (business-to-business) markets like medical devices than in B2C (business-to-consumer) markets.

 

Colonoscopies Explain Why U.S. Leads the World in Health Expenditures | NYTimes.com

From The New York Times, June 1, 2013, The $2.7 Trillion Medical Bill – Colonoscopies Explain Why U.S. Leads the World in Health Expenditures

Average price of an angiogram in the U.S. $914, in Canada $35.
Average price of hip replacement surgery in the U.S. $40,634, in Spain $7,731.
Average price of a Lipitor prescription in the U.S. $124, in New Zealand $6.

There is probably no single reason for the mess that the U.S. healthcare system has evolved into. Colonoscopies illustrate a number of the things that have gone wrong. Colonoscopy has become the gold standard for colon cancer screening even though there are less costly and equally effective alternatives. Liability may play a part here although higher profitability is the more likely reason. Many physicians and hospitals routinely conduct the procedures using general anesthesia even though they can be safely performed with patient sedation. Prices vary widely across the country and seem to be tied more to maximizing reimbursement from insurers than to cost recovery.

This madness will stop eventually, but when and how?

“While the United States medical system is famous for drugs costing hundreds of thousands of dollars and heroic care at the end of life, it turns out that a more significant factor in the nation’s $2.7 trillion annual health care bill may not be the use of extraordinary services, but the high price tag of ordinary ones. “The U.S. just pays providers of health care much more for everything,” said Tom Sackville, chief executive of the health plans federation and a former British health minister.”

“The United States spends about 18 percent of its gross domestic product on health care, nearly twice as much as most other developed countries. The Congressional Budget Office has said that if medical costs continue to grow unabated, “total spending on health care would eventually account for all of the country’s economic output.”” [emphasis added]

Read more: Colonoscopies Explain Why U.S. Leads the World in Health Expenditures – NYTimes.com.

The one thing that makes a company last forever | qz.com

According to Stanford Graduate School of Business professor Charles O’Reilly, long-lasting companies have a quality he calls “organizational ambidexterity” – the balancing of exploration and exploitation.

Escher hands drawing

“All companies hit rough patches from time to time. But only a few manage to survive decade after decade—some of them in a form that bears no resemblance to the original organization. Nokia began in 1865 as a riverside paper mill along the Tammerkoski Rapids in southwestern Finland. In the late 1880s, Johnson & Johnson got its start by manufacturing the first commercial sterile surgical dressings and first-aid kits. And in 1924, the founder of Toyota came out with his company’s first invention—an automatic loom.”

“You can’t just choose between exploiting your current opportunities and exploring new ones; you have to do both. And the companies that last for decades are able to do so time and time again.”

“The researchers looked specifically at what type of corporate culture was associated with growth in revenue and net income, and found that more adaptive cultures, or ones that emphasized speed and experimentation, did much better. “A culture that says, ‘We don’t have all the answers; we’ve got to try these experiments’—that’s the type of culture that promotes ambidexterity.””

This seems to be a remedy to The Innovator’s Dilemma which asserts that big companies fail because of their own inertia, giving way to aggressive if imperfect new entrants.

Being ambidextrous also calls for strong management that can articulate a vision and lead everyone to support the vision as well as aligning the company’s various businesses with the vision. Interestingly, Prof. O’Reilly maintains that large corporations have an advantage over startups because the large entities have resources to spare. Essentially, they can cover several bets while a startup is typically dedicated to a single direction in what is usually a “bet the company” move.

A couple of excellent examples in American business: GE and IBM. It remains to be seen if the likes of Microsoft and Apple are also ambidextrous.

Read more: http://qz.com/90969/companies-that-succeed-have-this-in-common/