By now, any would-be healthcare entrepreneur has to have seen some of the hundreds of articles detailing the tumultuous state of the healthcare industry. Any quick Google search turns up reading material on a myriad of market changes that could deter even the most determined company leaders including:
New taxes on medical device and pharma companies
Slower and less predictable FDA approval timelines
Fewer CMS reimbursement approvals
Significant downsizing in medical device and pharma companies
Rising insurance premiums
Declining and, for some firms, discontinued VC investment in healthcare products
Before you give up, know there are strategies than can mitigate the adverse impact of industry changes on your business. Focusing on cost reduction, convenience and international markets can be salvation in these stormy waters.
Historically, the main value drivers for novel healthcare products have been improved efficacy and safety. The aggregate result has been a significant improvement in quality of life and longevity. Diseases once considered life threatening (think heart disease, cancer, and AIDS) are now treatable, chronic conditions.
There are, however, two other value propositions that historically have received less focus: cost and convenience. Their importance is likely increase going forward. No matter how the political battles surrounding healthcare play out, there is one certain outcome: intensive pressure on healthcare costs is here to stay. The US spends 18% of GDP on healthcare, up from 5% in 1970. All payers, including government, companies, insurers and individuals are benefited by cost reductions. Positioning your new product as a cost saver can turn payers and regulators from blockers to allies.
This is easier said than done in life sciences, where analyzing and selling cost reduction is not easy. First you have to understand the cost of competitive therapies or diagnostics to provide a baseline of comparison, which might include therapeutic options, the cost of treating complications, and/or cost of lost productivity. This is not easy to do as these costs are often not studied and quantified. Historically, cost data have not been required endpoints in clinical studies. Be prepared to become a "healthcare economist" or engage the services of one to generate outcomes and reimbursement data. Then, if data analysis is not your strong suit, partner with an analytics expert as the volume of data and complex methodology can be daunting.
Once you have a cost analysis of competitive options, you must generate a rational comparative scenario showing how your product saves money. The best time to gather cost and outcomes data is in conjunction with your clinical studies as third-party data has stronger credibility. A bit of forward thinking can insure your clinical trial generates cost and outcomes data in conjunction with the standard safety and efficacy metrics. If you are preclinical, don't be afraid to hypothesize or extrapolate based on other studies.
Having built a cost rationale, make it front and center of your investor pitch. You will have to fine-tune your pitch to various constituencies to help them understand the financial impact on them specifically. For example, healthcare providers will likely be more concerned with the cost of a particular treatment while payers will be more concerned with the impact that treatment could have over time.
Still, don't forget to assess who is financially disadvantaged by the new technology. Competitors with major market share and higher price points likely have a lot of revenue and profit at stake. Never underestimate their motivation to protect their bottom line by becoming a market blocker. If you do not anticipate your competitor's reaction, you will be blindsided. Look for ways to manage around and/or collaborate with the big players.
Convenience is the other overlooked value proposition. Moving to a lower care setting is always cost effective and often more convenient for the patient. New technologies, like minimally invasive therapies and real-time monitoring can allow therapy to be provided in lower care settings (e.g. outpatient versus inpatient; home versus hospital). The payer will drive acceptance because of cost savings and the patients will demand the improved convenience.
Lastly, domestic policy does not affect healthcare markets outside the US. The last 30 years have seen billions of the formerly impoverished attain middle class status. China, Russia, India and other emerging markets now are booming economic centers. Twenty years ago it began with the purchasing of consumer products, ten years ago restaurants, and now cars. Next up for these new consumers will be healthcare. Who doesn't what to live longer and better?
At one time entrepreneurial Americans were advised to "Go west, young man." For today's most forward thinking healthcare visionaries, the motto might be "Head east and south, young entrepreneur."