Saturday, March 27, 2010

New Medical Device Opportunity: You can benefit from empty threats made by companies that don't like healthcare reform

So, healthcare reform was passed. In the tradition of Vice Presidents who use the "F" word, it is a big F*ing deal.

Trashing Healthcare Reform

Some companies obviously did not like that. Take 3M for example. According to Star Tribune, 3M's public spokesperson said this, "it could prompt the company to stop making certain devices or pass the tax on to patients or providers in the form of higher prices" (Not a direct quote, mind you).

What will happen now?

It is simple. Someone else will simply do one of the following:

1. Carefully observe the products on which 3M passes the cost to patients and start a price war.

2. Simply take over whatever 3M has stopped producing.

Yeah, what about patents and such? Sure, imagine a situation where a company stops producing medical devices because it wants to feed to a "tea party" syndrome respite with uncivilized, drivel. Top that off with them going after competition that wants to take over where they left off. PR Disaster, anyone?

Simply because you are a big, glorified sticky-note manufacturing company doesn't mean you can get away with crap. Yeah, of course, if you watch some of the inane comments on the article whose link is supplied at the end of this blog, obviously this feeds to people who have a lot of time to comment on articles.

These people, "with a lot of time to comment on articles" do not usually tend to be "share holders". Let's try to watch 3M and some of these other naysayers whine their way out of a market because they don't like progress.

What can entrepreneurs do?

1. Be on the prowl: Watch for unreasonable price rises by companies that make devices. This is 2010. People have very little tolerance for nonsense based on political whims. Hospitals, clinics and even direct consumers everywhere would only be too happy to take up a better offer from a competitor who offers quality products at better pricing and consistency of delivery.

2. The IP brouhaha: Look for gaps in the intellectual property of such large companies. As such, you should be doing this routinely. While patents are great business weaponry, they are essentially double-edged swords. It is not uncommon knowledge that unreasonable application volume, a lack of leadership and patent examination skills has the USPTO issuing a larger number of patents than they should be. Look for freedom to operate and opportunities to exploit existing patents.

Do not worry yourself about examples such as the nonsensical patent battles on stents. The irony there, I believe, is none of the devices work and the companies fight each other in court over IP, but gang together whenever a new study comes out showing they just aren't effective.

Every patent has an expiry date associated to it, and yes, the period can be extended, but you can brainstorm, examine and if you pick on the details enough you can fight your "market leaders" by diluting their patents alongside blocking them off with derivative work and your own patents.

The basic requirement? Understand IP better and hire a good lawyer.

3. Not just cheaper, better: I know I said cheaper is good, but how about better as well? When was the last time you looked at the tongue depressor and said how can we make this better? There are a lot of "medical devices" out there, that are very basic and with a few changes could definitely inject new energy in their marketing and sales.

Not every device needs a major revolution. High volume, low margin products can represent an opportunity for you to quickly innovate, sell them to a larger company that can extend it's product line and move on to other avenues.

Helmets: For example, helmets are medical devices. Can you make them more convenient to use, and maintain or improve on safety? Every day there are newer materials, newer manufacturing processes and other innovations. Incorporating these innovations can make your product functionally better, more accessible or maybe even simply lighter. When you inculcate such changes into high-volume products, you can easily recover any minor cost increases involved in such devices.

Blood Glucose Monitors: Let us take one of my favorite devices for example. There are so many devices out there in the market. Companies are constantly trying to innovate by making lances less painful, the blood volume required lesser, eliminating coding for strips and so on and so forth.

Yes, the holy grail lies in a possible non-invasive meter, or a move toward Hb1Ac meters. You could still brainstorm small innovations that lead to big change. Of course you need to make sure you don't become the Blockbuster while Netflix forges ahead either.

4. Do not fear regulation, embrace it: Look, regulation is not going to go away. Do not buy into the fear mongers. If they had their way, you could simply make anything you want and poke any patient with anything you cook up, regardless of effectiveness or side effects. How would you feel if your device ended up on a few thousand patients and you woke up one day to find that your device had left them blind, hurt or otherwise impaired because of sloppy oversight? How would you feel if you lobbied for such sloppiness to begin with?

Why is it so hard to do proper testing for the devices that you want to put out there? Because the VCs may not fund this? Let's get a few things straight:

4.1 Innovation is expensive, and is not happening at the rate at which new markets should or can be forged. For the VCs or other investors to simply turn their back on the cost to success is not going to be an option for long. This has happened in the past and the consequences have not been good. I am sure everyone is a little wiser from past experience.

4.2 Regulation reform, as weak as it may be, is here to stay. So, all your angels and VCs have to go with the flow - there is nowhere else to go. Don't buy into this crap that medical device innovation will leave the US shores. Barely anything happens outside the US, and how many guesses do you want to name the world's largest device market?

4.3 The pharmaceutical market and the biotechnology market and the companies involved went through this problem. They did turn their back on innovation. The result? Stagnation.

It is charming to think that someone will toy around with some frozen meat and a hammer in a garage and make the next "big bang" happen, but it is going to be harder, it is going to take more effort and more money. None of the stakeholders can take a chance on "Yeah, this thing is going to take more money than it used to, so let's drop it". And the real VCs are not waiting for this to happen.

So when someone tries to sell you tea, go for a latte instead.

Regulation will change, if it overreaches it will be dialed back. Make it a part of the business planning and execution process. Don't wait there looking for Obama's birth certificate - that does not have your medical device roadmap.

5. Embrace progress: Seriously, what would be the point of being in the medical devices industry if you are not committed to people's health? If you are not committed to Universal Health, you cannot even get into the mindset of finding a "cure". You will be stuck in a rut that involves simply fighting change - regulation, reform and such.

You will simply be replaced. Just like 3M would be if it stopped making devices.

So, what would you rather do?


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