“Good science does not necessarily make a good business”
— Frank Jaskulke
In this session, Frank Jaskulke the VP, Intelligence at Medical Alley Association provides key insights into successfully entering the US Market. With this quote as a preamble, let’s look at what startups should focus on when expanding to the USA.
Validate the Market
If you don’t validate before launch, you will fail in the launch.
Just because a startup can make a better product or device, does not mean that there is automatically an interest or market for the same. It is important to validate that there is a customer need and that it is a problem that people care about and are willing to pay for. To ensure that there is a market, conduct ample validation studies to test your assumptions with the target customer and test these in many settings.
It is important to recognize that there are many kind of hospitals in the US. For example — A Mayo Clinic is not the same as other community hospitals and health centers. Startups can get professional help from consultants or advisors such as market research agencies in the chosen market to properly validate their assumptions. It can also happen that while their technology or solution shows promise, it may better suited for a different application in the USA than the one originally intended.
Estimate the Cost of Change
Change is hard
Consider if your product or solution is causing a clinical workflow change or any other drastic change to the existing process, if so, there must be a compelling reason that should be effectively communicated to enable the change. Remember, that providers such as hospitals and healthcare systems are sticky to change especially since they may have been practising certain processes for decades.
A compelling way to motivate change is to be working on big problems with big impact that provides ample reason to instigate a behavior change. It has to be a problem that the various stakeholders care about and be in their best interest to adapt to your solution. Another approach would be to dominate a niche market where innovation has been lacking and you can make a significant change to drive a behavioral adoption of your solution.
Saving Health Systems Money is Not Enough
Another assumption that startups expanding to the USA often make is that since their solution offers cost savings to the healthcare system, there should automatically be an interest and pay customers for their solution. It is important to understand that saving money often means a decrease in another stakeholder’s revenue, which often makes them a disadvocate of your product. The context of the money being ‘saved’ and having enough evidence to elucidate potential savings is highly important to have meaningful conversations about bring your product to market in the USA. Startups should take the time to understand their value, what problem they are solving and communicate factors such a new revenue opportunities.
It is also critical to create stakeholder analysis to elucidate the potential benefits and savings if any of your solution. Startups need to engage effectively with various stakeholder such as doctors, payors and patients so that these stakeholders can become advocates that drive an easier adoption of your solution in the market.
US Healthcare System is Unlike Any Other
Every healthcare system is different from everywhere else.
US healthcare system is fundamentally different from everywhere else. The most significant differences in the US healthcare system is that the public healthcare is only catered to the elderly and the poor and most private insurance is provided by the employers. 50% of the healthcare dollars are public and 50% is private, but 30-40% of people do not have sufficient insurance. This means that startups need to evaluate how much their solution is going to cost the patient.
Startups should evaluate whether additional costs can potentially be a barrier to adoption or perhaps in some cases drive adoption of their solution. Critically evaluate the market and customer that your product or solution will be provided to as usually that will also determine the payment models for your market entry.
Having a Market Focus
No one wants a platform technology in the US.
The US healthcare system does not approve platform technologies; so even if you’re technology can do multiple things, the FDA can only approve your solution for a specific indication of use. This means you would have to get individual approvals for the various indications of use. The US system is organised for specific conditions and specific actions. Also the reimbursement is tied to specific diseases and conditions, which means that bringing in a platform technology does not provide a solution. The doctors, patients and providers are looking for a solution to a specific problem and not a platform.
The best approach is to pick a market and start generating revenues on expanding in that market, after which the start-up can revisit their technology in another market. Not knowing which market or not having a target market will lead to drain of funds rather quickly. Picking a market is also highly important to be able to partner with large strategic corporations such as Medtronic etc. Such corporations invest in strategic markets where they can find technologies to compete in those markets.
Have Enough Capital
The US market is large and expensive; consider launching in a part of the USA.
The US is large in population, physically large and is a complex environment with multiple stakeholders, private and public hospitals and over 11000 private health insurers alone. Addressing this market requires enough capital; large medtech companies such as Medtronic spend almost 91% of their budget on sales and marketing. To address the whole US market can be an expensive affair but by narrowing your target companies can gain proof points and data in select geographies of the US which makes gradual expansion easier. Consider launching in a part of the US by identifying hospitals that conduct the highest volumes of procedures your solution addresses or houses the key physicians you would like to work with. Launch in individual sites where you can get traction, data and revenue whereby you can launch in other similar sites.
A path to reimbursement is crucial, VC’s are looking for this before investing.
Historically, the FDA was more challenging and reimbursement process was rather simple, either mediated by Medtronic after the bought your company. This however has completely change, with FDA becoming much more rational and simple while a path to reimbursement has become more challenging. However, a path to reimbursement has also become a milestone that VC want to see. Startups need to plan for a path to reimbursement much earlier these days, as this is often viewed as a deal breaker for the business in the USA.
It is recommended that companies research the reimbursement process and find the path to reimbursement before even going embarking into the research and development process. If there is no existing path to reimbursement, you would need to think very seriously about the work it would take to create that. Often, people say that they would get a new reimbursement code, without realising that a new code take almost five years. If you can’t afford those five years, then you would have to think on alternative paths to market or create a new product that does have a suitable reimbursement code.
Sales is expensive
The distribution partner or sales representatives are needed to help you sell your product, but sales representatives are an expensive resource and good sales representatives often make a lot of money. Unfortunately, medical sales is highly regulated endeavour often having to deal with multiple hospital administrations. You may have a scheduled meeting with a physician to talk about your product, but if your sales representative is not accredited and allowed on the hospital property, you may even risk being charged for trespassing. Doctors and payors get pitched with new products all the time and it is possible that they might have heard of a similar idea before which also makes sales expensive. The only way to get their attention would be if you solved a problem they cared about.
Conducting market assessments to assess if your market is sufficiently profitable to justify the time and money that goes into process of FDA, reimbursement and getting to sales. Taking a narrow market is highly valuable as you can become resource efficient and expand strategically. Also be capital efficient while considering your initial market, for e.g.: San Francisco might cost you twice as much as Minneapolis, and be cognizant of where your customers, which need not be the same place as where your head office might be located in the USA.
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