By Lucy Parkinson, VP of Investor Research, LSN
Just like major pharma firms, large medical device corporations are increasingly looking to early stage startups for innovative technologies to bolster their pipelines. At RESI Boston, four experienced business development executives from the medtech world gathered for a panel to explain how they invest strategically in new technologies.
Moderated by Geoff Dacosta (Director, Business Development and Licensing – Medtronic), the panelists were George Russo (VP, Strategic and Business Development – Hologic), James Kaiser (Director of Venture Capital – HOYA Corporation), and Nick Morwood (Director of Business Development – Philips Healthcare).
While some entrepreneurs might see strategic investors as untethered from the crowd, the panelists noted that they’re affected by the activities of other types of investors such as VCs. George Russo said that while Hologic doesn’t have an investment fund, they can work alongside startup partners at key stages when capital is hard to come by. “The last mile in medtech – from FDA approval to the marketplace – is where it’s hardest to find investment, and some companies fall into this chasm.”
Nick Morwood discussed the importance of having the right investors at an early stage. He noted that early stage companies are finding more creative ways to get funded, such as by healthcare systems (Geoff Dacosta also mentioned family offices as an emerging source of investment dollars for medical device startups). While it can be helpful to have an early investor like a health system that can act as a partner, early adoptor and tester of the technology, it would be a mistake to build too closely to one customer’s specifications rather than addressing a broad market. James Kaiser also mentioned this issue, saying that it’s important to only take on sophisticated investors who can help your company develop and provide experience and connections that will carry you forward.
One problem Geoff highlighted is that an awful lot of medtech entrepreneurs are interested in talking to a big strategic, but don’t know how best to start that conversation. Nick stressed the importance of knowing the corporation that you’re targeting; of the early stage companies that reach out to him every day, for many it’s difficult for Nick to understand how they will fit into Philips’ portfolio. It is helpful if the entrepreneurs do their research and can tell the story of how their product will fit. Nick suggested that entrepreneurs look at a corporation’s annual reports and new product releases in order to build a story of how their product could be strategically relevant.
George agreed, saying that while early stage science is interesting, that’s where it ends unless you can establish a business relationship. “Firstly, IP must be buttoned up. Secondly, you must understand the regulatory path for your product, and preferably have already spoken to the FDA. Third, you must have a business case that includes a strategy for payment and reimbursement.”
Geoff also asked the panel to describe their expectations for what a company needs to have in place before they reach out – not just from a development perspective, but administratively? “Rational market projections,” James replied. “Don’t just say ‘We have a $1 billion market’ – go deeper. I want to see a rational dive into medial economics and reimbursement.” To that point, George wants companies to know how their procedure will be coded, and what the current level of reimbursement is.
Investors also raised their appreciation for concise pitches. “I want a high level deck, not 40 pages of slides that depict the science,” George said. Nick stressed the importance of having a page in your deck that describes your regulatory and quality control strategy, as both the FDA and Philips’ due diligence process will require attention to these issues.
The final question Geoff put to the panelists was a simple one, which might surprise some entrepreneurs: “Sales vs clinical data – which do you invest in?” All four investors said that clinical data was their primary focus for assessing an early stage startup, not sales traction. As Nick pointed out, these corporations already have strong sales teams that they can leverage to sell a new product. VCs, on the other hand, often focus on sales figures when making medtech investments. The investors all agreed that for their firms, it was more important to invest in a clinically meaningful asset.
If you missed the panel at RESI, you can watch it here now! Thank you to all our panelists for participating.
