Exploring the commercial opportunity of developing a medical device
You may have an idea for a medical device which is original, technically feasible and serves an unmet medical need. Unfortunately, that does not guarantee that it will be a commercially viable product. In this section, Dr Nessa Carey, Royal Society Entrepreneur in Residence at the University of Oxford, will utilise a real case study to explore the key commercial questions you need to address very early in the translation of your device idea. Here we present a case study-based exploration of key questions, led by Dr Nessa Carey, Royal Society Entrepreneur in Residence at the University of Oxford
Exploring the commercial opportunity of developing a medical device
- We’ve built this around a real case, although we’ve changed the device and the indication in order to protect confidentiality.
- Don’t worry about the technical details (these are imaginary) and assume that the specificity and selectivity have already been demonstrated in a small-medium clinical trial.
- We’ll use this case to show you the thought processes that a commercially-aware expert will bring to an analysis, which complement the scientific skills of the inventor.
- The regulatory and technical aspects of developing medical devices are dealt with in other training materials, we’ll just concentrate on the commercial side here.
We’ll highlight the key learnings at specific stages.
Here's what the researcher told me:
“I’ve created a new medical device. Using a simple trans-cervical test, it can detect the presence of the major congenital defects found in developing foetuses. It will become the method of choice for pregnant women because it’s better than anything else that exists. It will be used in every pregnant woman, so the market is enormous, even in the UK. I can manufacture the device for £2,800 and if we sell it for £3,200 that will generate lots of profit. So we should definitely set up a company to do this, because it’s a really important opportunity. I’ve filed two patents and we have clinical trial data.”
My first question: “Can you tell me more about the market size please?”
- Congenital defects are the commonest form of foetal abnormality in the UK.
- 66% are detected prenatally.
- 42% of detected cases lead to TOPFA.
- In 2018, there were a total of 13,400 babies with one or more congenital anomalies notified to NCARDRS out of 628,171 total births (live births and stillbirths) in England. This gives an overall birth prevalence of 213.3 per 10,000 total births (95% CI: 209.72- 216.96).
- 50.2/10,000 are chromosomal e.g. Down’s, Edwards, Patau.
- 49.9/10,000 are cardiac.
- 29.8/10,000 are limb.
The questions bouncing in my head immediately:
- What is TOPFA?
- If 66% are already detected, where’s the residual opportunity?
- What’s the market size?
What is TOPFA?
Termination of Pregnancy for Foetal Abnormality.
The researcher is so embedded in his field he has assumed everyone knows this and why it matters.
If 66% are already detected, where’s the residual opportunity?
Need to understand the existing offering, and how the new approach can improve it. If there’s only a minor improvement in terms of what it delivers, the fact that it’s a new technological approach is irrelevant. It’s got to be better in some way for the end users.
What’s the market size?
The researcher has told me about the clinical need. This isn’t the same as the market size.
Key Learning 1: Speak Plainly
- Take a step back.
- You’re an expert (unconsciously skilled).
- Things that seem really obvious to you will not be obvious to everyone.
- Learn to articulate exactly why your innovation is better than the existing solution – think about the benefits, not the technical features.
- What problem does it solve and why does this matter?
Key Learning 2: Unmet clinical need doesn't automatically mean there is a commercial opportunity
- If there was a simple linear relationship, 800,000 children each year would not die from diarhea.
- The same principle applies even in well-funded healthcare systems
We took things stepwise:
- I spent a lot of time probing how and why the new approach would be better.
- If it didn’t result in a change in clinical decision making, or in improved patient choices, what would be the point of developing it?
Sensitivity of x
Sensitivity of x+, where + is clinically meaningful improvement
Greater confidence of detection of abnormalities, leading to increased confidence in decision-making
False positive rate of y
False positive rate of y--, where – is clinically meaningful improvement
Decrease in unnecessary confirmatory screens, leading to better clinical safety and decreased parental anxiety
Detection at 19 weeks
Detection at 13 weeks
Could be carried out at same time as initial (dating) scan
Identifies foetal abnormalities earlier, giving longer lead-in for clinical decision making e.g. for in utero treatment of cardiac abnormalities.
Allows earlier decisions about TOPFA, which are less traumatic for parents.
Will likely facilitate more TOPFA, resulting in long-term costs savings for families, NHS, society.
It's looking promising:
- Still lots more to establish on the benefits
- Are they big enough to make a difference?
- Do we understand the parental motivations?
- Can this be implemented into the workflow at dating scan?
- But it’s encouraging, and so we moved on
My second question?
- As I mentioned, it’s huge. Over 700,000 pregnancies in the UK alone every year and all those 700,000 women will use the test.
- I see what you mean. It will be in maternity clinics.
But where will those tests take place?
OK, how many maternity clinics in the UK perform routine screening?
It's really hard to find out!
- Eventually we had to guess!
- 1300 private and NHS hospitals in UK
- Assume ¼ of these offers prenatal screening
- Assume each will need 3 devices
Key Learning 3: Customers and beneficiaries are potentially different:
- If you’re developing a commercial idea, you have to focus on your customers i.e. the people or organisations who will pay you money.
- In a centralized health service or an insurance-led one you also need to understand how your customers are rewarded or reimbursed for using your product.
Maybe there's still an opportunity:
- “I can manufacture the device for £2,800 and if we sell it for £3,200 that will generate lots of profit.”
- Number of devices = 975 Profit/device = £400
- Overall profit = £400 x 975 = £390,000
- It’s a lot of money for an individual
- But is it enough money to sustain a business?
- There’s a lot of uncertainty here that needs to be explored
|My question||His answer||
Areas Of Uncertainty
How do you know the cost of manufacture?
We had prototypes made for the clinical trials. I’ve taken off 10% as a discount for when we have them manufactured in higher numbers.
The prototype may be less complex and therefore cheaper to manufacture than the final commercial product.
Have you factored in all the other costs e.g. staff, marketing, sales, ongoing IP protection, regulatory submissions etc?
What’s the most cost-effective way to get this to the market? Which costs are optional and which are unavoidable? What’s their size?
How often will the device need to be replaced?
|I don't know||
Find out the norms, this could lead to very lumpy cashflows.
You wanted to price this device at £400 above cost. How did you decide on this amount?
|It seemed reasonable||
Find out the norms. Are these enough to cover all costs and generate profit?
Key Learning 4: The commercial world is more complex and expensive thank you might think
- You really have to test the assumptions behind your projections
- You need to do some market research
- You need to talk to people who understand the complexities or the unknown unknowns will trip you up every time.
Key Learning 5: Give yourself time to think
- Trying to develop a new product is difficult and frustrating.
- When you hit a problem, take a break.
- Ideally with a biscuit.
It Was Post-Biscuit and I Was Puzzled:
This is a device that’s used to obtain a measurement via the vagina. How do you sterilise it between examinations?
There’s no need. There’s a disposable tip that covers the probe and it’s single-use.
Let’s Run The Numbers Again
Scan twice/pregnancy (13 and 19 weeks)
Assume £0.5 profit/tip = £750,000 per annum
There’s still lots of assumptions to test but the opportunity is looking a lot bigger and more sustainable as a money-making business.
- Which aspect of the product will generate the most income?
- It may not be the aspect that you first assume.
Freemium and razor+blades models
- Your device sells really well.
- Other companies start to sell compatible tips, at a lower price.
- Your market share is eroded and your profits fall.
- Disposable tips
- Device configuration
- Clinical data
- Detection software
- Instruction manuals
- Wireless interface
- Patents won’t protect some of the most valuable aspects of this device.
- You need a suite of different types of IP protection – patents; copyright; design rights; trademarks; database rights to create a strong and defensible commercial position.
- Start thinking as early as you can about how you’ll keep customers loyal e.g. post-sales support, user groups, upgrade etc and build these into your IP strategy.
Key Learning 7 Align an IP portfolio with the value points and the commercial strategy:
- Identify all the aspects of the device that contribute to the value amongst the consumer base.
- Create a strong IP portfolio to protect these – try to think about how you would attack if you were a competitor.