An informative weekly newsletter that shares insights into building a medical device business in women’s health.

This week, I share a checklist of questions if you have an idea for a medical device and discuss why a commercial perspective is important early on.

Two that are critical - the potential market size for your device and do the unit economics make it financially viable?

I share 5 questions below, based on our experience in bringing an obstetric medical device to the market. I’ll then consider each one briefly in turn to provide context.

We found that commercialising a medical device was just as challenging as the development phase.

I would recommend putting thought into these questions early on before investing or raising substantial capital.

Going forward, I’ll be publishing the newsletter biweekly with a deep-dive into a commercial topic.

A Commercial Checklist for your Medical Device Idea

1. What is the Clinical Problem being addressed?

2. What is the potential Market Size?

3. How strong is your Intellectual Property?

4. Do the Unit Economics make sense?

5. What are your Long-Term Objectives?

1. What is the Clinical Problem being addressed?

In our case, Fetal Pillow was invented to address an important clinical problem (see issue one) during a second stage cesarean section. The fetal head would sometimes become impacted in the pelvis and require force and manual elevation techniques to be delivered.

A tragic case in my father’s hospital (baby did not survive the delivery, he was called in to help repair severe complications suffered by the mother) led him on a journey to create a device that could prevent such tragedies from occurring again.

The clinical problem here - difficult delivery of the fetal head at cesarean section. There were no devices available on the market to address this unmet need. The device would ultimately improve outcomes for both mother and baby, while also making the clinician’s life easier (reducing the potential complexity of these deliveries).

If you have an idea for a medical device, I’m sure you’ve already identified an unmet clinical need. You should consider early on the magnitude of the potential benefit it might provide - will it improve patient outcomes and clinical practice? Will you be able to demonstrate efficacy through clinical research? What outcomes will need to be proved by published data?

You should also consider what alternative options are available and how you might manage competing with these alternative options in the market? In our case there was no competing device, but we were competing with the manual techniques already in use for many years.

We would need to prove that by bringing a medical device into the equation, and thereby adding cost to the procedure, that it would be beneficial (from both a clinical and cost standpoint) vs. current techniques.

If an alternative device already exists, then why will your device be different? What features will mean an improvement on existing technology? Will those marginal benefits be enough to convince clinicians to use your device and what pricing strategy will you use? This is important - the commercialisation strategy will vary when bringing a new technology to the market vs. competing with existing technologies.

In our case with Fetal Pillow, we spent many years convincing clinicians to change their practice, before the device would become widely adopted.

Ultimately, you need to address several questions as an inventor - will your idea address an unmet clinical need that is felt widely by other clinicians? Will you be able to prove that your device solves this problem? Will you bring a new innovation to the market or will you be competing with existing technology? These are all important questions to consider early on in your journey to ensure you chose the right commercial path.

2. What is the potential Market Size?

This is a critical question to answer on day one. What is the potential market size for your device? Total Addressable Market (TAM) is the overall revenue opportunity that is available for a device if 100% market share is achieved.

You can perform a simple calculation for your device, based on the following:

• Incidence - What is the number of potential cases per year which might use your device? For an obstetric medical device, this might take the form of a % incidence of total births. Let’s take an example as 3% of total births.

• Estimated cases in a specific market - the US would ultimately become the most important market for us. With an estimated 3.7m births per annum, a 3% incidence implies 111,000 cases per annum that might require the use of your device.

• Adoption rate - It’s unlikely your device will be used in 100% of cases (some clinicians might never change their practice, some hospitals might not adopt, you might not enter all regions within that market, etc). You might make the assumption of an 80% adoption rate, which implies a conservative 88,000 uses of your device per year.

• Pricing - what is your anticipated end user price point? Many variables will factor into this (new vs. improved technology, pricing of current products in the market, incidence of use, cost-saving benefit, intellectual property, disposable/ single-use, etc). Let’s take an arbitrary $500 per unit end user sales price (some obstetric devices will be significantly higher in price). You would need to consider a blended average sales price if there is a tiered pricing structure in place for example.

• Addressable Market - the above assumptions imply a potential addressable market of $44.4m in annual sales.

If you can capture a conservative 5% of that market, that leads to > $2m in sales (profitability likely to be underpinned by substantial margins in medical devices, particularly those offering improved patient outcomes and a cost-benefit for the hospital).

3. How Strong is your Intellectual Property?

In the early stages, consider where you would like to protect your device idea - the regions you believe are most important commercially. For an early stage business, filing patents (an on-going maintenance costs) become a significant financial commitment and you might be unable to file in all territories.

In our case, as a UK based company who initially entered the European market with plans to eventually enter the US, these became the most important territories for us to gain patent protection. You will also need to understand any specific considerations for each market - in the US for example, you will have the option for filing a device or method patent. Consider both to provide robust protection for your idea.

You should also consider the timing of filing patents - can you delay filing your patent until you move further in development phase? You might want to leverage use of NDAs during this process to protect your idea. But delaying formal patent filings means an increase in the length of protection when you bring your device to market (patent life becomes an important point in acquisition discussions, should that be your long-term objective).

Do you share the right to this invention with a business, hospital, or academic institution? Often, developing an idea while in full-time employment means sharing your intellectual property with the employing institution. Do the ownership arrangements align with your longer-term objectives (see below)?

Research and meet with several patent attorneys before engaging one. Do they already have experience in medical devices? Do they understand the intricacies of what you’re trying to achieve with your product idea? Will they be able to handle any potential objections raised by the patent office? Do they have cross-border relationships that can be utilised to file international patents?

4. Do the Unit Economics make sense?

You have determined the potential market size for your product and that looks exciting in terms of the potential revenues you might generate, but have you considered the unit economics for your device? Once you near the prototype stage, you need to consider the following items, to determine financial viability:

• End User Pricing - the price point will be critical for commercialisation. Can you find reference points for other devices in this industry? The price point will be determined by several factors (as mentioned above). Will your device offer a value proposition that commands a premium price or will it be a high volume use device at a lower price point? Perhaps it’s somewhere in between.

• Manufacturing Costs Per Unit - What is the production cost per unit for your device? Consider several manufacturing options to determine the best partner (price alone should not be the deciding factor) and how these prices can be driven down as volumes increase.

• Operating Costs - You will need to detail all expected operating costs in your business (e.g. marketing, salaries, regulatory, intellectual property, finance, legal, etc) and ensure that these are covered by gross profit so that your business generates a healthy level of operating profit (this might need to be reinvested in the business to fund growth).

• Break-Even - when will you reach your breakeven point when total revenues in the business cover total costs? From this point forward, you would expect to start generating profit, but how costly is it to get to this point - how much money will you need to invest or raise? If breakeven if expected several years into the future, then it’s possible the economics for this business do not make sense.

One way to account for the above is to build a detailed financial model. This will be unique to your business and allow for on-going adjustments of key assumptions, operating costs and sales growth forecasts (these could be built from market size estimates discussed above or from the ground up at the hospital/ micro level).

You might build a detailed model for the next 5 years out to determine expected operating profit levels as you continue to increase market share. You would also leverage this model to build out cash flow forecasts, another critical factor in the success of your business.

5. What are your Long-Term Objectives?

Considering the numbers behind your medical device idea is an important quantitative exercise. You should also consider qualitative elements around your longer-term goals.

Is your ultimate goal to bring the product to market but eventually exit to a larger player? I discuss the value drivers behind our company exit (see newsletter here). Or do you intend to build a company with multiple products and employees?

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.

What are your valuation expectations? Have you considered multiples paid for similar businesses in your industry? You should consider what level of sales and profitability will be required to generate interest from a potential buyer, and have a plan in place for how to get there.

How much time do you personally have to dedicate to your idea? To achieve success, you will likely need to devote a substantial amount of your time to the development and even more so to commercialisation.

Are you doing this alone or do you have partners in place? Bringing a cofounder onboard with skills that complement yours is a huge advantage and an often demanding workload can be shared. What skills does your business require and can you start to engage with potential employees (or freelance consultants)?

Will you bootstrap the business or raise outside investment? These paths differ considerably and raising investment can become a fulltime job on its own, as you need capital to continue to move forward with your business objectives.

Do you have a marketing plan in place? An idea is great but the ability to execute is what matters. You should start thinking about longer-term marketing and distribution channels.

In the end, you need to decide the best path for you. In our case, Fetal Pillow launched into the UK market in 2011 and our company was acquired 10 years later in 2021. This took a huge amount of time, dedication, belief, resilience, and hard-work to achieve. You need to decide if this is a path you’re willing to take.

How can I help you and your business?

If there’s anything you would like to discuss further on this topic or others shared in a previous newsletter, drop me an email and let’s set up a call. Maybe there’s an opportunity to collaborate or share learnings!

OBG Access is my consulting business that provides strategic support for early stage medical device companies in the women’s health space.

I provide support for commercialisation and international expansion. This includes access to a large network of key clinicians, decision makers, opinion leaders, hospital systems, and distribution partners throughout the US market.

Engagements include developing strategic plans for US market entry and building a corporate infrastructure for non-US companies entering the market.

I can also help with an objective view on company valuation, preparing your business for a future exit, and access to potential buyers or strategic partners.

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

Have a great Sunday!

Nish Varma

[email protected]

Consulting Services - OBG Access

Co-Founder - OBSolve

A brief note on the author - Nish Varma

After several years working in finance, I partnered with my father, an obstetrician who invented a medical device (Fetal Pillow) to solve an important clinical problem in his field (detailed in issue one).

After initially launching into the UK market in 2011, several years later, Fetal Pillow was cleared by the FDA in 2017. We then focused our efforts on bringing Fetal Pillow to the US market.

I spent the next few years building our US business and in early 2021, our company (Safe Obstetric Systems) was acquired by CooperSurgical, a leading global player in Women’s Health. I spent one year post completion working for the company during an earnout period to support the national launch strategy.

It was a 10 year journey to commercialise and bring the product to market - we were able to prove our business model in the US and that garnered interest from some of the key industry players.

Since the company sale, my father and I have started developing a new obstetric product and hope to bring this to market in the near future. I also consult for early stage medical device companies looking to expand their operations internationally.

This newsletter is a passion project to share some of our journey with others who might be on a similar path.