Success in healthcare technology businesses: coordinating the value milestones of new product introduction, financial stakeholders and business growth.

SUMMARY

To get medical products to market, pharmaceutical, biological product and medical device businesses must successfully progress along a multidimensional path that leads from discovery or design concept to the commercial market. A multidimensional framework is applied to describe the product, finance and organisation axes that encapsulate the value creation process and dictate the activities, resources and business strategies critical for building a successful healthcare technology business. The challenge for pharmaceutical, biological product and medical device developers is to achieve value milestones within each dimension and manage the interplay between them. This paper has captured the high-level axes of a route map in order to bring together these essential challenges and assist start-up or spinout companies to navigate critical transitions within the milestone derived value chain that may enhance their chances of building a successful healthcare business.

KEY WORDS

healthcare technology; startup company; value milestones; financial stakeholders; business growth; multidimensional value trajectory

INTRODUCTION

The demands of national and international regulation, the constraints placed on products by the reimbursement process and the complexities of adoption into healthcare delivery systems make the commercialisation of technology in the healthcare sector especially difficult (Gelijns 1990; Whitmore 2004). The closure of public capital markets to new issues and the retrenchment in the private equity markets significantly add to the complexity and business risk of operating in the sector. The challenge for start-up pharmaceutical, biological product and medical device businesses attempting to advance their scientific idea towards successful product launch, achieve sustainable growth and capture value for investors and stakeholders is in finding ways to accelerate this process and minimise risk within the constraints of financial equity markets.

This paper explores the interplay between the different dimensions that shape the growth trajectory and risk profile for small and medium sized enterprises (SMEs) operating in the healthcare industry. The first part of the paper presents a multidimensional framework to describe the product, financial, organisational and value axes. In the second part of the paper, a generalised, high-level 'route-map' is constructed to examine interrelationships between these axes and their impact on the business growth trajectory of start-up pharmaceutical, biological product and medical device SMEs. The third part of the paper discusses the issues when navigating through the multidimensional path and identifies areas for further work.

A MULTIDIMENSIONAL FRAMEWORK FOR THE CREATION OF VALUE

To get medical products to market, pharmaceutical, biological product and medical device technology (MDT) businesses must successfully progress along a multidimensional value trajectory that leads from discovery or design concept to the commercial market. This multidimensional framework incorporates the product, finance and organisation dimensions that encapsulate the value creation process and dictate the activities, resources and business strategies that will be critical for building a successful business. This entails achieving a combination of product development (and commercialisation), financial and organisational value milestones. These dimensions shape the growth trajectory and risk profile of the company and differentiates their position in the 'value space' that defines their external funding requirements and the selection conditions that influence their access to consumer markets (Porter 1985; 1998). This is represented by the expanded framework shown in Figure 1.

[FIGURE 1 OMITTED]

The stages of the development process for medical products are highly interactive, with many feedback loops. The process is influenced by both supply and demand factors, depicted as the organisational, financial and value axes in the framework shown in Figure 1. Healthcare technology development can therefore be defined as a multidimensional process in which a new drug, biological therapeutic product or medical device is modified and evaluated to the point within the regulatory framework where it is ready for production, adoption and use in the healthcare delivery market (Gelijns 1990).

Product development and exploitation axis

The framework shown in Figure 1 encompasses a generic pharmaceutical, biological therapeutic product and medical device development and exploitation cycle (bottom axis). At the far left of the axis, innovations arising from basic scientific research enter an evaluation process (prototype design or discovery). Candidate products selected for development undergo a series of successively more rigorous evaluation steps as they move from left to right along the product development milestone path. A recent report by the FDA has described this as the 'critical path' for new medical product development success (FDA Report 2004). The paths for drug/biological therapeutic product development and medical device development diverge at the beginning of this 'critical path' (Gelijns 1990; FDA report 2004). Three key differences between product development in the medical device technology and the pharma/ biotech industries define their differing approaches to navigating this critical path. These are the processes of concept discovery, device classification and iterative development (Wright 2002). These differences are reflected in the nature and extent of the regulatory requirements and the different approaches to clinical research for medical device and drug/biological therapeutic product development that dictate their timelines and their differing human and financial resource requirements (Gelijns 1990; Whitmore 2004; Robinson 2004).

Typically it takes 10-15 years and costs up to $800M to complete the development, testing and approval of drugs and biological therapeutic products (BIGT 2003). About half the drug development timeline and cost is associated with the 'critical path' development phase between discovery and launch (DiMasi et al. 2003). Medical devices, by comparison, represent a more heterogeneous group of products that comprise a diverse range of technologies from low-cost commodity supplies to high-cost capital equipment for disease screening, diagnosis and therapy. The FDA, for example, recognises about 1700 general categories of medical devices, within which there are thousands of products comprising iterations and combinations of these device types (Whitmore 2004). Hence the average development time (and associated cost) for medical devices (concept to commercialisation) varies dramatically, ranging from 1 to 2 years for incremental devices to 5 to 7 years for radical devices, dependent on the product type, complexity and degree of risk to the patient that dictates their regulatory defined conformance and approval route.

Drug discovery involves large screening programmes to identify candidate compounds for exploration in animal and human models through an extensive pre-clinical and clinical trial development programme (conventionally divided into 3 phases--phase I, II and III). The clinical development and approval process for therapeutic biological products follows a similar pathway. Medical device development on the other hand, is usually a dynamic, incremental process that rarely moves in a linear and predictable pattern (Gelijns 1990). An iterative development process that generally manifests in relatively shorter product development, product approval and market entry times, as well as lower capital requirements, therefore distinguishes many medical device innovations from the development of pharmaceuticals and biological products (Gelijns 1990). Since the number of unknowns in a medical device development process are usually lower than for the development of a new chemical compound or biological product and because of the iterative nature of many of the technologies produced, clinical trials may only be required for certain classes of device that incorporate new modes of action, new materials or that target new indications (Wright 2002). The development cycle for new breakthrough or radical medical devices can therefore be represented by a process that moves from left to right on the bottom axis of Figure 1, through concept, feasibility, pre-pilot, pilot and commercialisation phases that may or may not incorporate a clinical trial development phase. Hence, whilst the regulatory environment for medical devices and drugs are different, medical devices in themselves carry different levels of regulatory burden, classified according to the level of risk posed by the device.