Starting up a medical device company can be particularly challenging because the executives are typically scientists and inventors. Therefore, you must learn to think like an investor when it comes to funding. As most medical device start-up companies operate in a highly competitive market, speed is critical in gaining this business acumen. In this article, we are going to discuss four essential factors that contribute greatly to a successful medical device start-up.
1. Define your target market.
No matter how awesome you think your device is, make sure it offers something new, a function that is cheaper or more powerful than existing devices. If your device has this quality, you will have a high chance of having an attractive investment. An optimal “defined market” is one that has a clear unmet need for a device. Principles Investors want to see that the device enhances, improves, or even replaces existing treatment procedures. Start-ups in the medical device industry are not intended for “missionary” sales, where you have to convince customers to believe in a new product concept – especially one that mandates a change in current practices. This is a difficult, time-consuming process that doesn’t work with many investors who are looking for short-time returns. So, when creating a medical device, you should:
- Consider its application in procedures that are currently performed.
- Define clinicians and physicians who will most probably embrace an improved way to perform the procedure.
- Accurately calculate your target market size.
- Learn how to identify the users and how you can reach out to them.
2. Implement a medical device quality management system (MDQMS)
To get the investors’ attention, you need to assure them that your device has met all the requirements. A medical device quality management system focuses on the design and manufacturing of medical devices to confirm that the products and services of a medical device company meet world-level standards specified by ISO 13485. Therefore, by implementing a medical device QMS. You’ll take a giant step in guaranteeing investors and buyers for your device. In doing so, you should find a trustworthy ISO provider to help you with the implementation process and obtain the ISO certificate.
3. Make sure that your target market will welcome your device and pay for it.
Investing in your device means making sure buyers will purchase it and pay for it. Thus, medical device developers must consider both clinical and economic benefits when creating a new device. As soon as your device is ready for the market, you must convince a bidder that it is both necessary and affordable. Even if a physician wants to buy it, the purchasing department has to confirm that the device fulfills the physician’s need at a cost lower than existing ones. You can illustrate this acceptability by showing that your device is covered by current reimbursement structures, such as Diagnosis-Related Groups (DRGs) and Current Procedural Terminology (CPTs).
Patients’ diagnoses are typically associated with fixed dollar amounts of reimbursement, which is called a DRG reimbursement. This fixed amount is expected to be treated by the healthcare provider. In this provider’s system, you could have an advantage if your device makes it easier for them to do the same for a lower cost. A physician’s CPT code reimbursement has to do with their skills and the devices they use to perform a certain procedure. Performing this treatment requires special skills and equipment, which are reimbursed by the CPT code. It is important for entrepreneurs to realize that obtaining a new CPT code is a rather time-consuming process that normally takes two or more years and requires peer-reviewed publications confirming the new device’s benefits. Thus, investors will see a clear economic advantage in your device if it falls within existing CPT codes.
4. Offer a price with a high margin
It is important to tell investors why you expect high margins and how you will sustain them in the long run. Medical devices are valued more based on their contribution to a procedure than on their manufacturing costs. This is where gross margin can help. In simple words, gross margin refers to a company’s profit retained after incurring direct expenses for producing the products and services it sells. Investors usually prefer gross margins above 70%. Experienced investors know that in regulated industries, high gross margins are needed to cover overhead costs and innovate.
Now, these margins should be reflected in pricing. Penny candy was a popular item for kids in the early and mid-1900s. It was fun to buy, but manufacturers couldn’t make much money from that product alone, no matter how high the gross margin was. Device developers can measure how many procedures their devices will be used in each year in the medical device community. It is highly unlikely that a new medical device would be needed for hundreds or tens of thousands of procedures over a short time in a certain area, but there is a possibility that this device will be in high demand each year. If this is the case, there may be a chance to produce a device with high margins and a price that will provide investors with a sufficient return.
Prices are determined by more than just the cost of making them and obtaining the necessary regulatory and quality certifications. When analyzing margins and pricing, medical device developers might underestimate the real costs of marketing and selling. There are additional costs involved in communicating with potential customers and convincing them to make the purchase. In order to obtain a customer, you have to balance your gross margin with the number of devices a customer will buy from you.
In order to make money, investors seek ventures that have a high probability of success and have as few risk factors as possible. Start-up companies in the medical device industry have a hard time establishing steady and growing revenues due to the inherent risk factors involved. Your start-up company will be more attractive and investable if you consider the potential benefits of investing from an investor’s perspective and how you can reduce risks. In this article, we tried to shed light on four crucial factors that help you make your medical device start-up successful. Share your thoughts with us, and let us know if our tips helped you.