MedTech Mindset Podcast: Clinical Evidence Insights with Joe Popowicz

Launch Episode

This episode is a great way to tell if this podcast is for you.

Eric Sugalski and Dan Henrich sit down to discuss the big picture of bringing a new piece of medical technology to market. We touch on product development and design, regulatory pathways, clinical evidence, go-to-market strategy, intellectual property, and other important topics.

In coming episodes, we’ll explore these topics in more detail with guests who are experts in these areas and guests who have recently been through the process. 

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Episode Transcript

Dan Henrich: Hello and welcome to the very first episode of Medtech Mindset. I’m Dan Henrich your host, and I’m director of marketing at Smithwise, a medical device product development firm.

I’m gonna use this first session to kick things off, and let you know what to expect from this show. We’re gonna be talking with guests who are experts in different areas of medtech. Including product design, clinical trials, regulatory, market strategy, funding, things like that. We’ll also bring guests onto the show who have had recent experiences commercializing new medical technologies. Some of these might be Smithwise clients. And others are just gonna be friends and colleagues we’ve met working in the industry. We wanna hear about their ups and downs, and try to draw out some lessons from their practical experiences for you our listeners.

For this first installment, I sat down with the president of Smithwise, Eric Sugalski, and we talked about the big picture of bringing a new piece of medical technology to market. Our conversation touched on a lot of themes that we’re gonna develop more fully throughout the show. So I think it’s a great introduction to help you decide whether or not this podcast is for you.

Now, just so you know a little bit more about him, and why I think he’s worth listening to. Eric is an entrepreneur and a mechanical engineer by training. He’s got extensive experience working in the medtech arena. He’s held engineering and leadership roles with IBO and Insight product development. And he’s even lectured in the mechanical engineering program at Massachusets Institute of Technology. He holds a bachelor’s degree in mechanical engineering from University of Colorado Boulder, and an MBA from MIT. Eric founded Smithwise in 2009, and he continues to lead our Boston and Philly teams. So let’s get started on Medtech Mindset by jumping into my conversation with Eric.

Eric Sugalski: Hey, what’s up Dan?

Dan: Hey Eric, how are you today?

Eric: Good, good. So, what are we doing here?

Dan: This is our very first episode of Medtech Mindset. So this is our chance to kick off and grab everybody’s attention. Explain to them why we are launching this podcast.

Eric:    Okay, okay. Sounds interesting.

Dan:    So I thought you’d be a good first guest. Because we are often approached by a prospective client or a new project, and the first words out of their mouths are usually, “I have this idea, but I need a prototype.”

Eric:    Yep, all the time.

Dan:    And so I thought it would be good to begin with that idea, because it’s probably the idea in the mind of some of our listeners. And we wanted to talk about the different phases of things that they need to think through before they get to the stage where they need to build a prototype.

Eric:    Got it, got it. So, you’re right. We hear 95% of the time, when companies come to us, usually at the early stage. They have in idea, the see an opportunity to make a difference with a new medical technology, and right off the bat they jump towards, “How do we build this prototype to really demonstrate the idea.”

Dan:    Right, so I thought it would be good to use this first chat as a chance to take a step back, and talk about the things … Where do prototypes come into play, but more importantly, the process of bringing a new piece of medtech to market. What are the steps that you rally go through? And I think it would be good to take a step back and talk about defining the bigger picture of the need. Where does your idea fit in, and what’s the real value that you see if everything goes right throughout the building process.

Eric:    Yeah, yeah. I think that that’s a part that a lot of times gets glossed over. There’s an awareness to a particular medical need initially, and that leads to a quick idea session. And then people become fairly focused on that idea. And that makes sense because that’s where the commercial opportunity is, that’s where the creative process starts to kick in. But, in our point of view, we think that there’s a lot of benefit in going back to the need, to really make sure that the solutions that we’re building off of are really founded in … They’re grounded in a very strong need.

And we follow a process that is advocated and spelled out pretty well in the BioDesign book that coursework at Stanford. And really coming up with the need, it comes to three components, there’s three parts to it. The first is really looking at who specifically is the patient population that you are targeting, right? So, in many cases a common mistake for startup companies is that they try to address too large of a patient population. They try to say, “This product is going to be for everyone.” But realistically in medical device development, it is much more effective to be laser focused on a very specific patient population first. And then if you’re successful there, then you can expand into other markets. So we think that that is the first part. Who exactly is your user? Who is the patient?

From there, it’s looking at what is the problem? What’s really going on with the patient that deserves an additional solution? And how is this problem being addressed by other solutions? Whether those are products, whether those are services, whether it’s a workaround that a patient is implementing themselves. There are often a variety of ways of solving a problem. And so, developing a landscape or understanding what all of those problems are, or what are those ways of addressing a problem, that’s an important part of the process.

Dan:    Yeah, so it’s not really just, “Has this technology been commercialized before?” Right? It’s, “How is this problem currently being solved? And is it a problem that’s appreciated by the market already?”

Eric:    Right, right. Yeah, absolutely, absolutely. And then the third piece is, what’s happening right now, what is the outcome of this problem? Right? So how are you going to quantify this outcome in such a way that allows you to determine if your solution is really addressing that problem that you spelled out, with the specific patient population?

So it’s those three components. It’s the patient population, the problem that’s facing the patient, and then the outcome that is really worthy of solving, [crosstalk 00:07:28] solving that problem.

Dan:    And ideally, you should be able to tie all of those things into a very succinct needs statement right? That contains each of those three elements.

Eric:    Yeah, absolutely.

Dan:    And if you can’t do that, then it’s probably a sign that you haven’t really dialed into the problem that you’re solving.

Eric:    Right, right, yeah, yeah. And it’s very, very common. All too often, we see pitched [inaudible 00:07:53] from startup companies that spend a ton of time talking about their technology or their solution, and they have not even clearly spelled out the needs statement. So it’s a really foundational part of the process, and in many cases, companies should really be spending more time refining and spelling out that need to make sure that they’re solving a real problem that needs to be solved.

Dan:    Yeah, I think that’s something that struck me a couple of weeks ago. You and I were down at UPenn for that biomedical engineering student pitch meeting. And there were groups of some really talented and bright engineering students who were pitching health related technologies for their project that they’re working on. And in many of the cases it kind of seemed like there was a technology in search of a problem, rather than the other way round. That’s sort of what you might expect to see from an undergraduate student, but it doesn’t end with graduation. That’s something that people are not necessarily appreciating throughout the normal course of study to become and engineer or a business person or whatever. We still often see, even funded medtech companies, who haven’t really dialed into their proper needs statement and the problem that they’re solving there.

Eric:    Yeah, I think that what you mentioned about the engineering students, that happens everywhere, at all universities. The schooling of engineers is very solution oriented, right? You get your problem sets, those are given to you. And the job or the responsibility of the engineers is to really create the solutions that satisfy those problems, right? So, there’s very, very few parts of the engineer’s curriculum that’s focused on identification of the problem, right? So this is something that’s very, very common, it’s not intuitive to engineers or people that have a technical focus, to really be thinking more about that need and the problem and the patients. But it’s a super important part of this process.

Dan:    So, I guess then it becomes really important for, particularly if someone with an engineering background has an idea that they think might have a great application in healthcare, it’s really important to get clinical input early in the process, right? And understand how things are done now, and get some honest reactions to your potential new way of solving this problem.

Eric:    Yeah, so there’s a lot … One of the challenging things about medtech is that, the people that are buying the product are not the people who are using the product. So, the clinicians who are going to be using the product, a surgical device or a diagnostic system, they’re certainly going to have influence into the utility of the product, and how it’s going to compare to the other products or services that are currently being used. But they’re one of many, many stakeholders in this medical device procurement system. There are hospital administrators who need to really crunch the numbers to understand, does this make financial sense? There are regulatory bodies who might get in the way of this product from ever seeing the light of day. There’s the end patients who need to be adherent with certain technologies in order for them to be utilized.

Dan:    And there’s the payers right? Either the public or private payers, Medicare, Medicaid, or a private insurer, and you need to prove to them that the overall cost using your solution is going to be less in the big picture.

Eric:    Yeah.

Dan:    Than whatever the standard of care is.

Eric:    Absolutely. And that could be possibly the most critical aspect to really understand. What is going to drive change from a payer’s perspective? Whether that’s CMS or whether that’s private insurance. So yeah, these are all key things. But to your earlier point, it is definitely important as engineers are coming up with these ideas, to vet these concepts with clinicians. But they’re not the only stakeholders that matter in this really complex industry that we’re in.

Dan:    Right, right. So let’s talk about … Say you have an idea, you have a technology. You think you have an application for it in the healthcare space. And you’ve done all that leg work. You’ve got your needs statement, you’ve got some at least preliminary feedback, at least neutral feedback from clinicians or from people who are going to be working with the products itself to say, “yeah, this is a real potential solution to an existing problem.”

Dan:    You have your idea, and you want to start developing that. Let’s move into this talk about, “Now am I ready for a prototype?” IS that when I start building my first … Ordering parts and soldering things together, or are there more things that need to come into it prior to jumping into that process?

Eric:    Yeah, sure, Great question and a common question that a lot of early stage companies have is, “What should be my next, most logical step that’s gonna help me build value in the company?” And the way that I think about this is, when a company or new idea’s just getting off the ground, the inventors of this new technology, they have this very optimistic mindset. They are imagining what the world could be with this new solution that they are creating. And that leads into new concepts, and eventually this concept for a product that could result on a medical technology or medical device. So, it starts with optimism. And you need to have that optimism and opportunism to get to that point, where you have something on the table that you can evaluate.

But now when you’re looking at what’s the next step in product development, you need to kind of flip a switch. And you need to go from being an optimist and an opportunist, to being a skeptic. And being a skeptic changes your thinking a lot. I makes an individual think not about why the product will work, but more of a why the product is not gonna work. What are the reasons why this product could fail? Premarket, postmarket, whatever may happen, whatever the case may be. What are all of those factors? Then … So there’s a number of these factors, there’s regulatory risks, there’s clinical risks, does the product work in humans or with humans? There’s IQ risk, is there other technology that’s going to block this from ever coming out? There’s the payer risk that we talked about, there’s user compliance or adherence risk. There’s market risk, is the market going to be big enough to drive the investment that’s needed to move this technology along? So there’s all of these different risk factors. And so founders of new companies, inventors of new technologies, they need to get into this skeptics mindset, and they need to think about why might this product fail?

Dan:    Right. So, is that maybe … Something that is occurring to me as you’re talking about this is, is that maybe why we see so many new startups that are two person operation, right? And there’s very different personalities sometimes when you meet with a team. It’s a tow person team, and one of them really seems to be just boundless energy and ideas, and everything is kind of like roses and sunshine. And the other person is kind of a Debbie downer.

Eric:    Yeah.

Dan:    Is one way you could interpret it. You need both sides of those ways of thinking. And it can be difficult to combine that into one personality.

Eric:    Yeah, absolutely. I think the way that you put it is right. You need to have that optimist, the energy to move things over, but then you also needs to have the critical eye that’s questioning things.

Dan:    Yeah. Yeah. You know, my dad’s a mechanical engineer, and it always seemed to me when I was a kid, he was just such a downer on things. And one day he turned to me, and he said, “You know it’s my job to think of everything that could possibly go wrong, right?”

Eric:    Yeah.

Dan:    And when he explained it to me like that, it really put thing into perspective. He’s derisking all day everyday.

Eric:    Yeah.

Dan:    Basically is how he has to think.

Eric:    Yeah, very true.

Dan:    So, I think that concept of risk is interesting. Particularly in the medical device, medtech arena. I guess because people often talk about risk related to medical devices, but they mean it in a very particular area of risk. Which is basically what’s the risk to the patient if this device fails, right? So then, you were talking about other areas of risk. Regulatory risk, market risk, right? So talk to me about how you move through each of those areas, and go about trying to reduce your risk in each of those different sectors.

Eric:    Yeah, yeah, sure. So, as we started out, there’s also technical risk, and that’s probably the easiest one to tackle first. There’s a question about viability. Is this idea going to really work? And so the natural way to approach that is to come up with bread boards or test beds that allow a team to understand what the technical limits are of an idea. And so, one of the ways that as an engineering firm, here at Smithwise, one of the ways that we tackle that is, we try to simplify and isolate the key technical risk areas. So if there’s a core mechanism that really needs to fit within a certain size in order for a product to be viable, then we will just isolate that one mechanism and we will focus on iterating that in a very, very rapid way. If it’s an electrical subsystem that needs to be developed so that it can be managed, it can provide all of the functionality in a very low power environment, then we might isolate that electrical subsystem so that we can iterate that technology.

I think one of the approaches that does not work when you’re at the very early stages of looking at technical risk, is to try and merge all of these different things together, and create a single cohesive prototype. The reason being is that when you put all of these things together into a holistic prototype, the challenge is that, number one, it’s gonna take you a really long time to get there. And then number two is, when something goes wrong, you’re not gonna exactly know why or where it went wrong. It’s going to be a little bit nebulous, right?

Eric:    And then I guess the last reason is that development of technology, product development is a lot about iterations. And you wanna be able to reduce the size, the length of an iteration cycle as much as you can.

Dan:    And the expense, right?

Eric:    Yeah. Money is short for a lot of companies that are developing new medical technologies. So if you isolate that technology into a core area, it allows you to iterate that one specific subsystem much more quickly. And then once you get all of the performance of those subsystems the way that you want them to be, then you pull them together into that cohesive working model that demonstrates the overall system level functionality you’re looking to achieve.

Dan:    Right. So you can have a prototype that maybe is your electrical components prototype, your mechanical components prototype, your human factor prototype, right, that is, does this feel natural for the user? You might never tie these things together during the first prototyping phases right? That might be the next thing down the line after you’ve isolated each of those systems.

Eric:    Yeah, absolutely. And so I’m glad you brought up the human factor and usability type of prototyping. If I have a new medical technology, let’s say it’s a wearable. And it needs to be used by a person at home, and they need to be wearing this product for ten hours a day, hypothetically. If I’m testing out an idea, do I really need to have that mock up or that prototype fully functional in order for a user to give me feedback on it? Probably not. I can come up with a mock up that is very simplistic that just focuses on the key usability attributes that are gonna matter to that individual. So this could be a non-functional mock up that you take out to users, get their feedback on it, and better yet, it’s multiple mock ups. Because you’re simplifying things, it’s really just a dummy shell of a product, you can come up with six or eight different versions of this, and test of these versions with potential users. It’s a great way to get a lot of that longer term user usability and concept preference feedback to help you steer that direction.

Dan:    And that might really impact your design process very significantly, right? If you’re deciding where to place a sensor, and you think it’s gonna be going on someone’s wrist, but it ends up whatever, going around them in some way, or hanging from their neck or whatever the case may be. That will very much impact the rest of your design process with how all of those components function.

Eric:    Absolutely. It’s gonna drive all kinds of requirements, it’s gonna drive the size and the shape of the housing or the package that all of the electronic are gonna be contained within. It’s going to define whether it’s going over garments or under garments, directly on the skin, or hanging off a pocket or a bra strap, you know. It’s all of these architectural requirements from a usability standpoint are going to drive the design. So it’s really important to be thinking about that stuff up front. If you focus on technology too much at the front end, and you ignore a lot of human factors, it could be a rude awakening when you go out and get feedback from customers, and you realize you’ve developed the wrong product. And now you have to go all the way back to the drawing board, and start exploring these new configurations from scratch.

Dan:    I think that maybe some, or a lot of people have in their minds when they say, “I need a prototype” what they really have in their minds is, “I wanna be able to hold something in my hands when I make that Shark Tank like investor pitch. That is gonna look really slick and impress somebody right upfront.” But really, most of the prototyping process is really about clearing what isn’t right about your current design, right?

Eric:    Yeah.

Dan:    And so you can change it the next time round.

Eric:    Right, right. Prototyping is really in my perspective, it’s a learning methodology. It’s a way of thinking to test out your ideas in a very rapid way. So, yes, everyone’s goal is to have that cohesive prototype that demonstrates the full functionality, and it’s the right form factor, and it’s the right cost structure, and it has all the embedded functionality. That’s where everyone wants to go. But the way to get there is by taking this isolated approach, right? Isolating your risk factors, iterating those risk factors individually, and then merging them afterward. So, it’s a different approach than most start up companies take, but we believe it’s the one that results in the most efficient process.

Dan:    Hey listeners, if you have a great medtech story to tell, or maybe a suggested guest we should have on the show, or a topic in medtech you think we should cover, send me an email at marketing@smithwise.com. Or use the contact us form on our website.

So one other area that I wanna make sure we touch on is the regulatory approach. I think often people think of regulatory approval as kind of like once they get that stamp of approval from FDA, they’re home. They’re free and clear and now they can bring the product to market. But all that means, is that the FDA’s not gonna stop you from marketing your product, right? So, let’s talk about the different approaches to overcoming that regulatory hurdle, and then what comes after it.

Eric:    Yeah, yeah sure, it’s another factor that needs to be considered very early on in the process. For some products, like you mentioned, if it’s a consumer wellness device, a wellness device, maybe you do have the option of it could be marketed as an unregulated consumer product. Or, it could also be marketed as a regulated medical device. And it’s a really important topic for companies to consider at the very early stage, there’s implications to either one of those [inaudible 00:25:34].

Dan:    Sure. And that decision will really totally determine your whole go to market strategy, right?

Eric:    Exactly.

Dan:    Are you marketing it to consumers? Or are you marketing it to payers?

Eric:    Yep, yeah, yeah, yeah. Absolutely. And it will also drive certain design elements. So the design of the product, it may be of a different cost structure if you’re marketing it to consumers, rather than trying to get a product to be purchased by hospitals, right? So, these decisions that companies make at the very early stage, they have longer terms consequences that people need to be aware of.

But back to, there’s a number of other ways that you can get regulatory insights. For the longest time, people were fearful of getting together with FDA. They were fearful [crosstalk 00:26:23].

Dan:    You don’t want to be on the radar.

Eric:    Yeah. That they were gonna give you the black mark, and you were never going to be approved once you got that black mark. So FDA has evolved immensely int he last decade. They have programs now for doing informational sessions where you can collect feedback in an informal manner with FDA officials. There’s pre submission meetings where you can present the endpoints that you’re looking to achieve, an animal model that you’re looking to support. An IDE application, and collect formal feedback from FDA. So there are some really great ways to collect feedback from FDA, and it’s an important part of the process. Companies should not be avoiding FDA no until it’s too late.

Because again, if you wait too long and you get a response that, after you’ve invested an enormous amount in product development and clinical affairs, then you’re going to have to spend a lot of time and a lot of money redoing all of that front end effort. So, again, it’s about thinking about those longer term consequences, those longer term decisions, and trying to figure out how can I get some feedback as early on in the development process as possible.

Dan:    Right, and that maybe ties into another sort of premarket thing you need to worry about, which is intellectual property and patents, right? So, we talked about what are the other solutions to this problem? The fact they might not be just a similar piece of technology, right?

Eric:    Right.

Dan:    But when it comes to exploring existing or prior art, right? How do you go about that process?

Eric:    Yeah, so there’s a few key pieces there. There’s first looking at what is out there, what does the current patent landscape look like? And oftentimes the way that this is started is individuals, engineers, or people that are founders of the companies will hop on Google patents or the USPTO website, and start to do [inaudible 00:28:34] style searches. Looking at typing in key words and finding the patents that are most relevant. Once they find those initial patents, then following the references and citations that link to the most relevant patents, that’s a great way to get an initial pass of the overall patent landscape.

So, understanding that patent landscape at the front end is pretty critical. A lot of times investors want to know, have you got a formal legal opinion of freedom to operate? That’s different level of patent scrutiny, and it’s usually a pretty costly undertaking. So in most cases, startup companies that are resource constrained do not invest in that until a little bit further along in the process, unless their investors are insisting on it.

Eric:    But you at least need to do preliminary due diligence to understand what IP is out there, right? And what IP is protected. Because just because there’s no product on the market that utilizes this technology, doesn’t mean that somebody doesn’t hold the patent to it, right?

Dan:    Right, I mean, that’s a great point. There’s a lot of patents for technologies that are not on the market. And so you do have to be looking at the patent database to see if you’re stepping on another company’s patent.

Eric:    Another good source of looking at products or products that have become commercial or were commercial at one time, is in looking at FDA’s [510(k) 00:30:15] database. So this is of course limited to products that are 510(k)s, but this allows you to type in a certain classification code, and identify all of the products that have been cleared for 510(k). So that’s another good way to get a basic understanding of what products have historically received FDA clearance, and maybe what products are still on the market in a particular category.

So, all of these things that we’re talking about are strategies that you need to begin defining very early on in the process.

Dan:    What about your go to markets? How do all of those tie in to your go to market strategy? And making that ultimate go, no go decision that your investor is going to have to make of, does this market opportunity justify the amount of investment that you think is needed upfront?

Eric:    Yeah, yeah. So, one thing that we didn’t talk much about yet, but it’s a really key aspect of go to market strategy for medical devices, is the clinical risk. So how do you, how does a new company prove that their technology is superior from a clinical perspective than the standard of care? And this is interwoven with the market strategy, right? There might be some clinical work that is needed for regulatory clearance, but there’s another level of clinical work that is often needed to prove the value of a product related to the competition, right?

Eric:    So that type of clinical study might be looking at reduction in readmissions. Or it might be looking at reduction in a certain cost element. Or hospital stay time. Whatever those end points are, you need to identify how am I going to prove to the medical community that this technology is superior? And so, whether it’s a 510(k), or whether it’s a PMA, you really have to be thinking about that clinical strategy. How am I going to prove that this is better?

And so that often feeds the go to market strategy. If you can conduct that clinical study in a really efficient way, and present the data such that it is a cost savings to a hospital, then maybe the hospital is the payer. If instead, you are looking at providing a product that’s falling under an existing reimbursement code, and you’re looking to do this more cost effectively than competing technology, then that’s another way to get hospitals to consider your product or technology.

In certain cases, there is no code. For a lot of [inaudible 00:33:06] devices that are being developed and new PMAs, there may not be a new code, or code that’s available. And so this can be a much more lengthy process. But it’s one that needs to be considered really early. What does that clinical study need to look like in order to compel CMS to set up a new code, and to provide the coverage that’s going to be needed to justify this new medical technology down the road?

Dan:    Right. So that’s an example I guess of how your regulatory pathway is going to very much spell out or help define your business plan. Because if you’re going to market via a 510(k) pathway, versus a [inaudible 00:33:50] pathway, that makes a huge difference in your time to market, right? Which translates into overall cost of bringing the product to market.

Eric:    Right, right. Yeah, so that’s a good point. If you’re looking at the [inaudible 00:34:05] 510(k) pathway, then you may need to run some additional clinicals. And there may be uncertainty about the coverage, or the coding that’s going to be available to that product longer term. So again, looking at that regulatory pathway very early and using that as a key point to make your architectural decisions about the product development, that’s a really important consideration at the front end.

Dan:    One of the things I wanna make sure our listeners understand in this first episode it that, we’re trying to set the stage here for what it takes to bring a new medical product to market. Whether it’s a medical device that’s regulated, or whether it’s a consumer wellness product. There are all of these different areas that come into play. We’re going to be, in the coming episodes, sitting down with both experts in these particular areas, because you should always have expert opinions as you get further down the track. And we’re also going to be sitting down with folk who have been through this process recently in maybe a new medtech start up. So, I think you and I are both really looking forward to those conversations. So we have a great slate of folks who are signed up to come and have those conversations about clinicals, and what do investors look at when they’re deciding whether or not to fund a new company? And what’s the process for determining what the existing IP is? And how do you approach the FDA and inform your regulatory strategy and all that.

So, I think this is gonna be a really great series, especially for people who are early on thinking about how to begin that process.

Eric:    Yeah. I think that’s dead on. So we are, at Smithwise, we’re focused on product development, right? We’re focused on a lot of the engineering. The design, the manufacturing of new medical products, but one of the things that I realized throughout my career is that the product development of medical technology is complex. And you really need to be considering all of these different factors that we just discussed. If you try to develop a product in a vacuum, then you’re gonna have some big nightmares to address later on. And so bringing in these experts to talk about all of these areas is going to help us better understand how to integrate those aspects into product development, and it’s hopefully gonna allow our listeners to get the insights that are needed to shape their product development strategies as well.

Dan:    Yeah, I think what we’re really talking about is going in to the product development and the design and engineering phases of your project with your eyes open to the different hurdles that you need to get over in these various areas. It’s a little bit like that Gilligan’s Island special, where the Professor gets back from the island and he’s been inventing in a vacuum for the past 10 years, right? Nd he’s got all these great ideas, but then he brings them back to civilization to find that they already exist.

Eric:    Yeah, right.

Dan:    So, I think a real theme that’s gonna come out here is, the earlier the intervention you can get, the better input you can get from people who have experience in these different areas. Whether it’s clinical, or legal, or regulatory, right? The better off you’re gonna be throughout your product development process. The faster you can iterate and bring your device to market, and the lower you can keep your costs. So I think that’s part of what we’re hoping this podcast series really helps people think through.

Eric:    Absolutely. Well said.

Dan:    Well Eric, thanks for sitting down today, I’m very excited about kicking this off, and I think you are too, and we’ve got a very good slate of people who are ready to talk about these issues with us.

Eric:    Yeah, Dan, should be pretty exciting. Looking forward to it.

Written by Daniel Henrich

Written by Daniel Henrich

Director of Marketing at Archimedic

SMITHWISE HELPS STARTUP FIND ITS FOCUS

DxtER includes a group of non-invasive sensors that can communicate with a smart device as they collect data on vital signs, body chemistry and biological functions.

But DxtER had a problem. The platform had too many potential uses to become a single product.

Originally posted on Medical Design & Outsourcing

By Nancy Crotti

After Basil Leaf Technologies won the Qualcomm Tricorder XPrize in 2017, founder Dr. Basil Harris needed help figuring out how to bring this almost-all-in-one diagnostic tool to market.

Basil Leaf’s mobile platform DxtER includes a group of non-invasive sensors that can wirelessly communicate with a smart device as they collect data on vital signs, body chemistry and biological functions. An artificially intelligent engine at the heart of DxtER learned to diagnose by integrating ER practices with data analysis from actual patients with a variety of medical conditions and outcomes.

A Philadelphia-area emergency room doctor with a PhD in engineering, Harris worked with his brother, network engineer George Harris, and their Final Frontier Medical Device team to invent their version of the tricorder of Star Trek fame. Armed with the $2 million XPrize, Harris started shopping DxtER around to device development companies. He chose Smithwise of Newtown Square, Pa. and Newton, Mass. to help with engineering and regulatory issues.

But DxtER had a problem. The platform had too many potential uses to become a single product.

Read full article on Medical Design & Outsourcing

Solving Early Stage Medtech Ventures’ Funding Shortfall

The funding gap that currently exists for early stage medtech is a real threat to continued innovation within the medical device sector. While there is no simple fix to solving this complex funding challenge, there are specific actions that affiliated parties can take to improve the situation.

Originally posted on Med Device Online

Written by Eric Sugalski, founder and president of Smithwise’

At the 2017 Pediatric Device Innovation Symposium established by the Sheik Zayed Institute for Pediatric Surgical Innovation at Children’s National Health System, a diverse group of investors came together to discuss gap funding for pediatric innovation. It is well-known within the industry that early stage medtech financing has been dwindling in the past decade. The critical phase of translational research, which exists between grant-funded academic research and institutional investment, is particularly lacking.

Fig. 1 highlights the funding gap that exists for the life sciences industry. While the data used to generate this graph included both biotech and medtech, the trends illustrated here seem to hold true for the medtech sector alone.

Fig. 1 — Funding Summary for Life Science Investments

The symposium’s gap funding panel candidly analyzed the current state of early stage medtech investment, but, more importantly, it concocted a plan of action and discussed a series of recommendations for key contributors to the early stage medtech ecosystem. Below is a recap of the panel’s discussion.

The Role of Clinical Innovators

Unmet clinical needs are most often identified by physicians and nurses; early stage concepts and technologies are often pioneered by these same medical professionals. However, these clinical innovators, due to lack of time and resources, are unable or unwilling to invest in new medtech ventures. That said, clinical innovators are crucial to the flow of new medtech opportunities, and their contributions directly affect the quantity and quality of future medtech deals. Clinical innovators also can play a vital role in bridging the early stage funding gap if they:

  • Understand the Long Game — Often, clinical innovators believe that quick wins can be attained through a patent, a prototype, and a license deal with a large medical device manufacturer. Rarely does an established medical device company license and commercialize nascent medical device concepts that are loaded with risk. Most device innovators need to de-risk their concepts in order to gain traction among larger medical device entities. This de-risking process can involve facilitating clinical studies to prove the efficacy and economic viability of devices, developing new technologies to achieve accuracy levels and acceptable cost structures, and navigating complex regulatory and reimbursement pathways.

This process is a long one, requiring many different skill sets. While clinical innovators rarely drive these processes, it is critical for these individuals to gain insight into the timelines, operations, and budgets required so expectations are aligned at the onset of new ventures.

  • Team Up — Most successful medical device innovations arise from clinicians teaming up with technical and business talent. Deerfield Management’s proprietary analysis suggests that 15-25 percent of novel medical device technologies come from academic institutions, with the remaining coming from commercial incubators or serial entrepreneurs / management teams.

Onboarding the right team members can de-risk a venture from investors’ perspectives. The right team is able to produce a logical and capital-efficient process while providing a credible set of skills that will advance the new venture.

The Role Of Academic Centers

Many research universities and hospitals attempt to fill some of the funding gap through internal innovation efforts. In many ways, academic centers serve as some of the main facilitators and gatekeepers of medical device innovation. Academic centers can take the following steps to overcome the funding gap:

  • Be the Matchmaker — Universities and hospitals have adopted hack-a-thons as ways to connect clinical, technical, and business talent. These connections are essential, but are typically short-lived. Matchmaking between clinicians, entrepreneurs, and technical talent should be a continuous process.
  • Provide Support — While it is ideal to find seasoned serial entrepreneurs to take on and spin out new medical technologies from academic centers, these business leaders usually are in high demand and short supply. Academic centers often need to assist in making device opportunities “investor ready” before seasoned entrepreneurs are willing to take the reins. This assistance typically entails de-risking through building prototypes, thoroughly vetting IP, and mapping out regulatory pathways. Many academic centers have created innovation funds to facilitate such de-risking processes. When internal resources are limited, though, innovation funds can be used to contract industry experts who can efficiently perform these risk reduction processes.
  • Be the Dealmaker – While short-term licensing revenues tend to be the metric by which university tech transfer offices are evaluated, the self-reinforcing entrepreneurial ecosystems — as well as brand and reputation gains through innovative initiatives and future-entrepreneurs-turned-donors — can be far more valuable to academic centers in the long run. Implementing unreasonable terms for licensing new technologies is one of the greatest barriers to growth in the medtech sphere. Recognizing the immense value that entrepreneurs and investors can create post-licensing, and structuring appropriate terms that reflect this future value creation, can directly increase the number of opportunities and the investments that follow.

The Role of Entrepreneurs

Entrepreneurs driving new device ventures have many roles to play in strengthening the U.S. medtech industry.

  • Fundraise to Specific Milestones — Early stage entrepreneurs facing funding challenges will often accept any funding that might help start their development process. Unfortunately, many of these entrepreneurs will face a downstream funding gap if sufficient progress has not been made through the prior financing round. When entrepreneurs are raising funds, they should do so with particular milestones in-mind.

These milestones should be identified to reduce specific risk(s), which in turn might attract future investors to enter a round at pricing levels that will satisfy prior investors and board members. Entrepreneurs also need to be realistic about the milestones they are able to achieve with early funding levels. Andrew Elbaridissi of Deerfield Management confirms, “In the current funding environment, aligning cash uses with the most significant drivers of value is crucial. Failure to do so places future financings and company viability at risk.”

  • “Don’t be Wimps” – As suggested by CDRH Director Dr. Jeff Shuren, many entrepreneurs are excessively gun-shy about approaching regulatory bodies early in the process. The FDA and CMS offices are actively streamlining processes and creating new programs, such as Parallel Review for Regulatory & Reimbursement, which are not being pursued by entrepreneurs.

These programs are intended to help medtech entrepreneurs de-risk regulatory and reimbursement issues early in the process, and it’s in the best interest of entrepreneurs and the medtech ecosystem to participate in these reviews such that they remain in effect and continue to be optimized and expanded.

  • Do your Homework — Epidarex’s Kyp Sirinakis emphasizes the importance of researching your investors. “You want ‘smart money,’ not just money, so make sure that you have knowledgeable investors,” she says. Additionally, the relationship matters. Srinakis compares it to getting married: “You will likely be working with these people for a long time through ups and downs. There needs to be mutual respect and the ability to communicate on both sides.”
  • Plan, Plan, Plan — As John Parker of Springhood Impact Adventures explains, “Getting an innovative solution to the bedside is a long and difficult journey. It needs to be mapped out from start to finish, with the understanding that there will be traffic jams, detours, and roadblocks along the way. Sometimes, even the destination itself will change.”

Sirinakis backs up Parker’s claim, stating, “device ventures always cost more and take longer [than expected], so plan accordingly.” Developing the roadmap and trying to understand the timing and cost of all potential steps are keys to risk management. Since entrepreneurs typically need to get to market on a shoestring budget and timeline, it is difficult to bounce back from mistakes. “It’s important to do your homework on investors,” adds Sirinakis.

  • Get Help / Bring Talent to the Process — Getting help from mentors, advisors, board members, and industry experts can add value and challenge your assumptions. Parker asserts, “[knowledgeable] people want to help. Tap the wealth of the free or low-cost resources out there for device developers, such as the National Capital Consortium for Pediatric Device Innovation (NCC-PDI) — it won’t cost you a lot.”

The Role of Investors

Early stage investors take on considerable risk due to clinical, regulatory, payer, and technical challenges. Consequently, these early stage investors are susceptible to “getting squashed,” or substantially diluted, during later-stage financing rounds. When considering these dynamics, it makes sense why few early stage investors for medical devices exist.

Some investors are taking a different approach to filling this gap. Impact investors, particularly foundations and other charitable organizations, primarily measure their investments by the number of lives saved or improvements in quality of life for specific patient populations. Consequently, these types of investors tend to lean towards ventures that are making a significant impact, rather than those that serve as an incremental solution.

“Just as no return-driven venture capitalist hopes to make only a little bit of money, no early-stage impact investor strives to only make a little bit of difference,” Parker states. “Mission-focused investors are still looking for an outsized reward for the risk they are taking – they are just looking for that reward to manifest as massively improved outcomes for patients and healthcare stakeholders.”

In addition to providing this vital gap funding, the early stage investment community can bolster the medtech industry in the following ways:

  • Get your Hands Dirty — Some of the most successful medtech investors are actively involved in contributing to the ongoing operations of portfolio companies. They provide valuable business connections, optimize go-to-market strategies, and ensure that milestones are being cleared in the most efficient means possible. A large part of an early stage investor’s role is to ensure that their portfolio companies do not fall into funding gaps down the road. This means structuring early stage financing to achieve specific milestones that will allow subsequent financing rounds to be achieved.
  • Utilize Investor Networks — Investors bring their valuable networks and industry contacts to the table. “This can not only help you as run into pitfalls,” Sirinakis suggests, “but it can help introduce potential acquires and partners… ultimately helping structure the right deal.”

The Role of Regulators

U.S. regulators play an important role in keeping the population safe and striving for economic efficiency in our healthcare system. Indirectly, they also are pivotal in bridging the medtech funding gap. The constraints, processes, and ambiguity imposed by our regulating bodies constrict investment interest. Below are some actions that regulating bodies can take to improve the funding gap:

  • Provide Reimbursement Clarity & Guidance — The FDA has created extensive guidance documentation to address questions and confusion within the medtech community, often providing requirements and suggestions for particular devices. Although payment for new therapies and diagnostics represents the most significant risk for early stage medtech companies, CMS has yet to provide this same level of clarity and guidance.

If a similar level of guidance documentation published by the FDA were to be published by CMS, it would provide the clarity for venture capital firms to invest more heavily in the medtech sector. Elbardissi explains, “The failure to couple reimbursement and regulatory pathways has long been a headwind in the medtech sector. This is emphasized to an even greater extent in pediatric devices, where small patient populations and an inability to gain orphan-like pricing and reimbursement represent a monumental impediment to investor appetite — which is critical to drive innovation.”

  • Incentivize Investment in Unmet Needs — Many patient populations with unmet needs could be addressed through medtech innovation. Pediatrics, for example, is one of the most underserved patient populations. The lack of research and resources available for pediatric populations often leaves physicians with few options besides using adult devices on this population. The FDA is well aware of these issues, and they have created pathways to streamline the regulatory process.

The Humanitarian Device Exemption (HDE) pathway is one initiative the FDA has implemented to stimulate device innovation for small patient populations. While some medtech companies have benefitted from this pathway, it has not created adequate incentives to stimulate investment in these small patient populations. Conversely, the Orphan Drug Act, a seven-year patent extension and a substantial tax credit for companies developing and commercializing drugs for rare diseases, has done a remarkable job in stimulating investment for ventures focused on underserved populations.

Fig. 2 illustrates the number of orphan drug designations since 1982. If a comparable program was enacted to create tax incentives and patent term extensions for medtech, a significant stream of investment would likely open. Removing the profit caps that currently exist for these small patient populations would also greatly incentivize activity in these sectors.

Fig. 2 — Orphan Drug Designations

The funding gap that currently exists for early stage medtech is a real threat to continued innovation within the medical device sector. While there is no simple fix to solving this complex funding challenge, there are specific actions that affiliated parties can take to improve the situation. Through discussions like those that occurred at the 2017 Pediatric Device Innovation Symposium, clinicians, entrepreneurs, academic institutions, investors, and regulators can connect, learn from one another, and plan for progress that will ultimately improve the U.S. medtech industry.   

The original article can be found here