by Gus Iversen
, Editor in Chief | May 06, 2019
Healthcare Business News spoke with Joe Galatowitsch, managing director and medtech practice leader for Navigant about the array of market challenges facing medtech startups, and converting these into opportunities through a deeper understanding of the dynamics. Galatowitsch also offers a preview of an expansion of global payments to healthcare providers for entire episodes of care with complex or chronic disease patients.
HCB News: What is a notable trend you’re seeing among medtech companies?
Venture-backed medtech companies are in a three-way squeeze.
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Providers, payers, and other entities across healthcare are increasingly looking to clinical and financial evidence to make care and efficiency decisions. While healthcare continues this evidence-based march, most medtech companies – and startups in particular – aren’t always keeping up.
In addition, the investor community is under huge pressure to improve their returns and not tie up money for too long. Plus, potential acquirers of these venture-backed companies increasingly demand less market and commercial risk, which requires much more capital and time.
Yet, many startups continue to operate under an MVP and MVE (minimum viable product and minimal viable evidence) plan – to build the product and evidence necessary to satisfy regulators, public payers, and hopefully engage early adopters. But we often run into instances where startups don’t have the evidence, data, or market insight needed to demonstrate commercial viability or de-risk market barriers. This leads many companies into a difficult corner – they do not have the financial resources to advance the company commercially, they have not de-risked the company enough to interest potential acquirers, and the cost of additional investment erodes or destroys hard-earned value for existing shareholders.
HCB News: How can medtech startups navigate these market realities?
It’s important for startups to look at this environment as an opportunity. The companies that can effectively put their limited capital to work respecting these market forces and achieving their traditional milestones will prevail. They’ll also have the enviable options of exiting for attractive multiples or accessing additional investment at attractive terms to continue to build the company.
Take endovascular therapy for stroke. A number of investigator-initiated trials showed promise. Then, more definitive trials showed negative results. That’s because startups took a blunt instrument approach to building clinical evidence. With a more informed and nuanced understanding of the patient population and a second-generation device, startups realized they weren’t including the right patients in their trials. However, once they included ideal patient candidates, and second-generation technology, the evidence was compelling and definitive – and the market took off. Happily, the company wound up with the aforementioned ‘enviable’ investment options and the rest is history.