Five key steps to de-risk and maximise profitability

De-risking and maximising the probability of market success and profitability

Patrick Trotter PhD, MBA (Techmgmt) and Stefanie Lowry BSc, MSc

Developing medical technologies is a high-risk business. It is well documented that 80-90% of new product launches fail.

In the health technology space examples of failed medical innovations include the Pfizer Exubera Oral Insulin Delivery System. This was an inhaled insulin preparation that was launched in 2006 but withdrawn from the market in 2007 due to poor sales. The reasons for the market failure are complex but include a poor understanding of the end users’ requirements: the device was bulky and awkward to use; a market opportunity that was much smaller than originally envisaged; a high cost; and a number of safety concerns. Furthermore there was a failure to appreciate that other solutions such as insulin pens, painless needles and the development of a number of non-insulin-based drugs had disrupted the market. This failure to understand the market ultimately led to Pfizer making a $2.8 billion loss on the project – one of the largest losses in drug development history.

The good news is that these risks can be dramatically reduced by having a process in place that ensures best practice due diligence is performed at the early stages of new product development to provide Go/No-Go decisions, kill bad projects early and ensure that only ‘good’ projects enter the New Product Development (NPD) process.

In this brief guide we highlight five simple steps to ensure commercial risk is reduced and the probability of success maximised. These steps are something that should be embedded into NPD processes to help ensure the success and growth of life science and medical technology companies.

1. Determine the real market size and opportunity

Key tasks include segmenting and understanding the size of the opportunity and ensuring that the product fits a validated unmet need or problem. In simplistic terms does someone need it and are there enough customers who want it? This should not be merely the number of patients with a condition or disease, but should take account of geography, types of end users, competitors, patient guidelines, and current pathways. For different markets (normally those that share a common regulatory system), estimates should be made regarding likely market penetration with additional scenarios representing both optimistic and pessimistic market infiltration.

It is also good practice to put some pricing scenarios into this market opportunity as this can help determine potential revenues and also answer the key question “Can we actually make and sell a product at a price the customer is willing to pay?”. This forces the innovator to consider the manufacturing process and the cost of goods sold (COGS) at a very early stage, which can highlight whether there are technical costs and hurdles that might impact the potential to market the product.

2. Understand the users’ needs

This might sound obvious, but there are many instances in which failed health technologies originate from either no end user input or the common mistake of basing product development on a single user or users from a single institution (n=1), which might not be representative of the entire target market.
Furthermore, understanding the needs and segmenting those needs into elements that are measurable is a key product development activity to identify design inputs and design outputs, which is essential for design control and future verification and validation activities.

This can and should include primary and secondary market research. It should be highlighted that there are many sophisticated market research methodologies, such as ethnography and lead users that can lead to radical innovations, whereas more traditional methods of market research might lead to incremental innovations, which are also important to refine and validate existing concepts.

3. Conduct a thorough competitor analysis and make sure your offering is differentiated

It is critical your solution adds value not found in other solutions. It is important to emphasise that cost and value are two different moieties and that this is related to the organisation’s innovation strategy (first to market, me-too, etc).

Understanding of products currently on the market, near to market (in clinical trials) and far off market (preclinical studies and patent publications) can help in understanding general technical trends, which might also lead to the identification of opportunities, and can also determine whether there is space for your innovation in the market.

During the competitor analysis phase and as part of concept generation, the innovator needs to consider benchmarking of the solution against other alternatives or at the very least provide some indication of the benefit-risk ratio compared to the state-of-the-art. Proof that the benefits of the product outweigh the risks will be needed for inclusion in the future technical documentation (e.g. Clinical Evaluation Report) which will be required for market access. As part of this process, it is prudent to start considering possible product labelling (i.e. the intended purpose, intended population, warnings/contraindications, and articulation of the key claims and benefits).

In addition, the intellectual property position should be clarified with regard to i) do you have the freedom to operate and ii) is it patentable. Protecting the innovation adds value and will help prevent competitors moving into the space.
This step is critical in demonstrating the device is sufficiently differentiated from competitors and is important during due diligence to justify further investment.

4. Develop a business case for adoption and create an evidence generation plan

It is important that the technology is aligned with mechanisms for reimbursement in the target market(s). Developing a strong value proposition aligned to the needs of the patient, the clinician and the payer will maximise the probability of commercial success. For example, the UK has well-defined set of quality indicators which provides a good indication that there is a market and importantly a reimbursement system that is aligned to the technology. Developing the value proposition can also identify additional benefits and claims that may help differentiate the product and support procurement.

The value proposition can be used to develop an Evidence Generation Plan (EGP) that will help the innovation team understand the evidence needed for successful market penetration. This stage is important in determining the resources and time necessary to commercialise the technology and will feed into both the clinical and commercialisation strategy. Formulating such an EGP is also important when trying to secure both public and private funding.

5. Consider the regulatory strategy

Once the proposed concept, intended purpose and potential claims have been adequately defined, the regulatory strategy can be determined (for the key target markets). This will include determination of the device classification and also ensure adequate resource has been allocated to complete the technical documentation, risk management, labelling, clinical investigation, validation and verification of the device and the costs associated with regulatory submissions and auditing.

The five steps above should be incorporated into every research and development plan and also should be considered in any stage-gate management system to determine the resources needed for commercialisation, to reduce risk and to maximise the probability of commercial success.

The article focuses on key steps to manage the front end of innovation, but please do not hesitate to contact us should you need further advice or support.
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