Read time  15 minutes

I recently had the pleasure of sharing our story live in New York for a fireside chat held at NYU Tandon Future Labs.

Attendees came from a variety of backgrounds - entrepreneurs, founders, clinicians, engineers, and MBA students.

I started with a short presentation on our journey commercializing an innovative medical device used during childbirth, from an initial concept through to our exit.

I’ve noted these topics below with links to previous newsletters for those that have recently signed up.

• The story behind our device, inspired by a high-risk and complicated birth (detailed in a previous newsletter).

• How to take a device from initial concept to expansion across multiple international markets (I discussed international expansion in more detail in this issue).

• How we navigated the sales cycle for a high-risk medical device, one where we couldn’t support live cases, due to its use in an emergency setting (more info).

• How our successful commercialisation efforts over 10 years (3 years in the US) led to our company being acquired by a leader in the field, CooperSurgical.

• Key value drivers behind our company sale, including clinical data, intellectual property, hospital adoption, and our distribution strategy (“value drivers behind our exit”).

The floor then opened for a Q&A session. I have picked out 5 key questions from the audience and detailed answers based on my personal experience.

1. How did your US commercialisation effort compare with the UK and European markets?

2. How did you navigate hospital group purchasing committees and what was your reimbursement strategy?

3. How did the relationship with CooperSurgical develop?

4. What were the key value drivers behind your exit?

5. Looking back, what would you have done differently?

I hope you take something away that both inspires and educates you. As always, feel free to email me with your thoughts or questions: [email protected]

Q. How did your US commercialization effort compare with the UK and European markets?

Early Experience in the UK & Europe:

In the US, there are around 2,500 maternity units compared with 150 in the UK. The sheer size of the US opportunity meant it was a key objective as a UK start-up to one day enter this market. But there were several milestones we needed to achieve before we could take on this challenge – proving the business model in our home market, clinical research to demonstrate efficacy, and of course FDA clearance.

From a regulatory perspective, our device received European clearance (CE) in 2011, where we initially launched in the UK market. In the proceeding years, we would expand into several other territories, including Europe and the Middle East.

In practical terms, we took a direct sales approach in the UK market. Commercialisation efforts were a challenge in the early years with limited clinical data and trying to convince clinicians to change their practice. The UK is a notoriously tough market with NHS budget constraints, approval required at the individual trust level, and scepticism from UK clinicians (that hasn’t changed!). I believe these challenges prepared us well for the US market a few years later. Once we were able to break down these barriers and create a market, it was proof we could bring our product to larger territories.

Our expansion into Europe came via the use of distribution partners. We had great success in certain regions and mixed success in other territories. I will deep dive into this topic in the future but challenges in Europe were primarily due to its fragmented nature, cultural differences in clinical practice, and of course the difficulties in changing clinical practice across a variety of hospital groups each with their own set of internal approval processes.

Nonetheless, we had good success in these markets and in 2017 – 6 years later with multiple independent clinical studies published, we received FDA Clearance and were ready to take on our biggest challenge to date.

Entry into the US market:

When entering the US market, given the structural differences compared with the UK (for example, private vs. public) we understood the importance of being on the ground and learning intricacies of the market ourselves. Our approach was a mix of direct commercial activities (direct sales) in key geographies and partnering with independent distributors for national coverage.

We would also command a higher price point for our device in the US (underpinned by greater cost savings for the hospital in this market). By achieving success in this market, even on a small scale, we would be able to generate greater revenues (and therefore profit), interest from strategic partners (where these would be concentrated), and demonstrate the potential value behind our business.

We also planned to engage with academic sites early to determine who might be interested in collecting data.

Why did we sell directly in certain cities? We understood the sales cycle when selling into the NHS but would need to have a deep knowledge of how to sell into the US market. We would need to understand who makes decisions within the obstetrics department, which department meetings we would need to attend, what internal processes and approvals would need to be obtained by the hospital, what literature and materials would need to be provided, and how clinicians would need to be trained once the product was approved.

Ultimately, this wouldn’t be the most cost-effective or best approach long term, and we would need to find local partners in the form of distribution partners. We used a mix of the two over the years and this allowed us to maintain a lean cost base whilst ensuring national coverage with representatives on the ground in all the major states.

From a financial perspective, direct sales also meant margins were not being diluted through distribution. But If you’re able to find the right distribution partners, then this is certainly a price worth paying to build rapid adoption and therefore sales of your device. This was particularly important given this was not our home market.

How did the US compare with other markets, in our experience?

• Culturally more receptive to innovation - in my experience of meeting with many physicians over the years, it’s been a welcome response to new technologies with potential to improve patient outcomes. Perhaps given the sheer size of the medical device industry in the US, it’s more common for clinicians to be engaging with new innovations. This culture provides a faster path to improving obstetric outcomes.

• Size of the opportunity - it’s great to see the continued focus on improving women’s health in the US, most recently evidenced by the Biden-Harris Administration's ARPA-H commitment of $100m to accelerate women’s health research. The market offers significant opportunities for value creation, improving lives for families, and wider reaching effects across society. The size of the market continues to expand rapidly with new innovations, strategic collaborations & acquisitions, as well as a favourable regulatory landscape.

• Making an impact - it’s well documented that the US has the highest maternal mortality rate among developed nations, driven by a host of factors including too few maternity care providers and lack of access to comprehensive postpartum support.

• Regulatory landscape more favourable - the FDA has turned its attention to the development and regulation of medical devices unique to women’s health. Their recently published strategic plan sets out a portfolio of women-specific device efforts and strategies to close research gaps. In Europe the transition to Medical Devices Regulation (MDR) has created additional complexities, making it more challenging to bring new medical devices to market, notably with expectations that the amount of clinical data required will be significantly increased under the MDR.

• Opportunities for strategic partnerships - in recent years, several large healthcare players have started to enter or expand into women’s health. Given the size of the industry and players that operate in the space, if the ultimate goal was a strategic partnership or to be acquired, this market makes the most commercial sense.

Q. How did you navigate hospital group purchasing committees and did you have a reimbursement strategy?

Reimbursement strategy:

Given that our device was a novel solution to an important but uncommon clinical scenario (full dilation cesarean section, occurring in c4% of all births), no specific CPT (Current Procedural Terminology) codes were available at the time of our US launch, that might be relevant for the use of our device.

We engaged with several hospital groups, clinicians, and administration departments to determine how our device might be reimbursed by a payor or insurance provider.

It became clear that although no specific codes were available for our device, similar to other single use obstetric devices (e.g. Bakri for PPH), many providers might initially include the device’s cost within the the global maternity fee - reimbursement that encompasses maternity-related services performed by all providers, differentiated by a vaginal or cesarean birth.

Our device might therefore be bundled into the overall procedure cost and reimbursed within the aggregate amount received from the insurance provider. This would of course be dependent on the specific insurance contracts in place.

We ultimately knew that advocating for a new CPT or ICD-10 code would be a long and complicated process. We felt our efforts would be best utilized on commercial activities and building a base of users in the US. Once this user base was sufficient, we might then consider a more formal reimbursement strategy.

Interestingly, one of our first customers in the US market, and one who has now mandated use of the device in all relevant clinical cases provide the below comments when asked about reimbursement a couple of years after being in use…”I just found out that there are no CPT or ICD-10 codes that our hospital uses for the fetal pillow. They just include the fetal pillow’s charge in a bundled delivery payment.”

How did you navigate hospital group purchasing committees?

You might interested in a previous newsletter where I talk through the sales cycle for a US hospital group and share in detail the various stages of this process (link here).

Once you’ve obtained clinical buy-in, the next stage is commonly the Value Analysis Committee (VAC) or Group Purchasing Committee.

If you’ve made it to this step, you’re on the right track but there’s still plenty of work to do. The VAC process deserves its own newsletter (one for a future issue).

There will likely be a request for further information at this stage (example below). In addition, I also recommend providing a cost-benefit analysis if available.

The VAC will look closely at the financial impact of implementing your device, from a money spent but also cost-saving perspective.

Once the paperwork has been reviewed and all goes well, the VAC will include your product on the agenda for their next review meeting. Industry and company representatives are usually not invited to these meetings.

The clinical champion will often attend the meeting to present their case. It’s important to prep the clinical champion on the clinical and economic benefits to be articulated.

We were able to build a cost-benefit analysis (resource costs for the hospital could be linked with study outcomes) which demonstrated potential savings, each time a device was used.

In summary, we successfully navigated these committees by:

• Gaining clinical buy-in

• Working closely with a clinical champion

• Demonstrating clinical efficacy with published literature

• Proving a robust cost-benefit analysis to demonstrate financial savings

• Building a network of reference sites who’s feedback could be utilized

• Collating hospital protocols and guidelines which could be shared

• Working with key decision makers throughout the process

Q. How did the relationship with CooperSurgical develop?

I shared an anecdote that a few years prior to FDA clearance, we were exhibiting at a national US conference (importantly, with a large sign saying not yet FDA cleared). CooperSurgical’s medical director at the time (an OBGYN) walked past our stand and came over due to curiosity - we talked for a few minutes and my father shared his story.

Their medical director immediately saw the need for our device and stated that this could have huge potential once FDA cleared. He shared our story with his wider team and we kept in touch over the coming years, often meeting for a coffee at the national obstetric conferences.

They would receive informal updates each year during these meetings and were impressed with the progress we continued to make as a small team.

There would be excitement on our news of FDA clearance but ultimately we would need to provide the business model and adoption in the US market before they would show formal interest in an acquisition.

I was also asked - “how do get in front of the right people at the strategics?”. I believe that if you take the right steps to build value in your business (see below), then strategics will always be interested in at least a meeting to learn more about your offering.

It’s relatively easy to find out who the decision makers are and leverage your network for an introduction.

Don’t forget - often the business development teams will be actively looking for new and exciting opportunities, so make sure you have just that.

Q. What were the key value drivers behind your exit?

First commercialized medical device to address an unmet need

Our device was the first solution to a clinical problem that had not previously been addressed. Previously, these difficult deliveries could only be managed with manual techniques, often leading to complications for the mother and sometimes for the baby too.

When our product was brought to market in 2011, this would be the first commercialised medical device of its kind, and that meant no direct competition (often, new medical devices are improvements on existing technology).

10 years later at the time of our acquisition, there were still no competitors on the market - an attractive opportunity for an acquirer looking to add an innovate device to their portfolio.

Clinical Evidence demonstrated efficacy

As with any medical device (notably those new to the market), clinical evidence is a crucial part of the story. What claims can you make on the efficacy of your device, and what published literature is available to support these claims?

Several independent studies were published over the years which demonstrated that our device was clinically proven to reduce maternal and fetal morbidity during difficult second stage cesarean sections.

One of the most important studies published in 2020, a few years after FDA clearance (2017) was a double-blind randomized controlled trial by the Brigham & Women’s Hospital (affiliate of Harvard).

This publication provided strong evidence for use of our device in a clinical setting and would form the basis of many conversations with clinicians in the US market. It would also be an important value driver for a potential acquirer as it would be the first US study on our device.

From an acquiring company’s perspective, compelling clinical data supports a shorter sales cycle and a faster path to hospital adoption, clearly adding to the value proposition.

Regulatory approvals in key markets

Regulatory approval is critical in determining both the immediate market potential and long-term strategic value of an acquisition. It ensures legal compliance, reduces risk, and maximizes the acquisition’s commercial potential.

In our case, our device was initially approved in Europe and then most importantly, FDA cleared in the US. From early discussions with potential strategics, it was clear that prior to FDA clearance, there was little appetite for taking on that risk prior to clearance.

Regulatory approvals are crucial for an acquiring company. In our case, the following were applicable:

• Regulatory approvals were essential to legally market and sell our device in key regions. Without these approvals, our device could not be sold which would directly impact the revenue potential of the acquisition.

• Acquiring our company prior to FDA clearance could delay market entry and also lead to uncertainty around a potential requirement to invest in costly clinical trials and compliance processes to obtain approval.

• Without FDA clearance, there would be both a financial and operational risk to the acquiring company. Non-compliance with standards or failed trials could lead to recalls, fines, or even legal challenges, all of which could reduce the value of the acquisition. Fortunately, we did not face any such issues.

• From our point of view as founders, post FDA clearance would inevitably lead to a higher valuation of our business. This is because the regulatory pathway is one of the most time-consuming and expensive aspects of bringing a medical device to market. It would make sense for us to achieve this milestone first.

Intellectual property provides a commercial advantage

Intellectual property protection underpinned our commercial advantage - with patents filed across major geographies (notably the US), we would have a head start on any major players considering entering this specific segment of the market.

Ultimately, IP protection would become a focal point in any future exit negotiations and due diligence. An acquirer would need to ensure their investment was protected from any competitive threats.

In addition to a lack of direct competition and strong IP protection, our device was a single use, simple to use product, and commanded a premium price in the market.

The value proposition supported our pricing structure and substantial margins (see below), which could certainly attract the attention of a strategic partner when reviewing our business from a financial perspective.

If you’re developing a medical device, consider the timing of filing patents (to maximise the length of protection), review manufacturing options to reduce your cost base, and perform detailed research on the market to develop your pricing structure (which can be a challenge to change once you enter the market).

Strong financial metrics

Clearly there is a strategic element to many acquisitions, but if the numbers don’t stack up, it’s unlikely to progress any further than due diligence.

At the company level, two simple financial metrics were important for us and from the acquirer’s perspective.

Revenue growth - increase in revenue, year over year. Given we had a new innovative technology with recent approval for the US market, sales growth continued to accelerate, driven by implementation into new hospitals, but also increased utilisation at existing accounts. Both were critical from an acquirer’s perspective, to prove they would be investing into a growing business, with plenty of market share still to capture. Sales of our device would immediately be integrated into their business, without a substantial increase in the cost base.

Profit margins - how much of this revenue growth could feed into profit for the acquirer. Within this context, one key metric is gross profit margins. An acquirer would be interested in this metric as they could quickly determine the financial value of each unit sold and understand their return on investment. Operating costs would then be used to arrive at an operating profit margin, which are more relevant to the acquirer’s business - post acquisition/ integration they would be able to apply the relevant operating costs in their business (such as salaries, marketing etc) to derive the bottom line impact.

Medical devices that add significant value in the form of clinical outcomes and financial savings for the hospital system, can often command a premium price, which in turn can lead to substantial margins per unit.

Early commercial success in the US market

What if we could prove our business model in the US market, build adoption in key territories, and retain a lean cost base? This would undoubtedly have a potential acquirer excited at the prospect of simply dropping the new product into their national sales force to continue the momentum we had already started.

And that’s exactly what we did. We used an independent distributor model to gain coverage across the US market and retained a few key territories as direct - notably New York where I sold directly and implemented our device at all major institutions in the city.

In our case, the above factors provided an opportunity for a trade acquirer to accelerate growth through an existing sales force and distribution channels within their network. They would also be able to capture additional margin by selling direct to customers (vs. the independent distributor model we had in place). There would also be a strategic incentive for for a women’s health medical device business to differentiate itself with a unique and innovative product.

Q. Looking back, what would you have done differently?

There were several things we might have done differently with the benefit of hindsight. At the time, we did our best navigating the complexities of expanding internationally as a small family owned UK business, and we had a great result in the end.

Many start-ups see an exit as the ultimate goal - interestingly, we never chased after that end result. We believed if we were able to make an impact with our device, build a market, and do all the right things as a company - maybe a larger player would take an interest, otherwise we would go it alone.

In the end, it made sense for a strategic acquirer to take it off our hands. As a small team, we could not do it justice and get the device out to as many mothers and babies as we wanted to (our mission was to make childbirth safer globally).

How might we have done things differently?

• Direct support in the US market - looking back, I believe if we had made 1-2 direct regional hires and several clinical educators in the US market, we would have seen even faster adoption of our product. A small direct team could have engaged with hospital systems at the local level, provided ongoing training/ education, and supported our distribution partners in the field.

• More thorough vetting of our distribution partners - some partners performed very well, others not as well. We were so eager to drive adoption in the US market and with several introductions over the years to potential distribution partners, I believe we could have vetted some of these more carefully. The difficulty is often you can’t foresee the challenges until you’ve been working together for several months. Perhaps a trial period (set amount of time or a specific geography) before committing to longer-term contracts could have been beneficial. We might have also considered national distribution partnerships (working with one partners might have been easier to manage).

• Outsourced support in marketing - we managed the bulk of marketing activities ourselves. In retrospect, engaging with an expert in this area could have freed up some of our time for other key commercial activities.

Thank you for reading! As always, feel free to email me with your thoughts! [email protected]

How can I help you and your business?

OBG Access is a consulting business that provides strategic support for early stage medical device companies in the women’s health space, including commercialisation and international expansion.

We offer access to a large network of key opinion leaders, clinicians, OB decision makers, hospital systems, and distribution partners throughout the US market.

We can develop strategic plans for US market entry and help build a corporate infrastructure for non-US companies entering the market.

We can also provide an objective view on company valuation, prepare your business for an exit, and provide access to potential buyers or strategic partners.

I appreciate you taking the time to read this month’s newsletter. Any questions, comments or feedback, feel free to email me.

Have a great weekend!

Nish Varma

[email protected]