The potential rewards for starting a medical or health care company are phenomenal, in terms of improving patient care as well as reaping financial gains. Unfortunately, though, far fewer startups succeed than fail. There are important lessons to be learned from both the failures and successes, however, and here are three of them.
Meet the interests of physicians and insurers
With $172 million in disclosed funding in hand, a startup named ReVision Optics developed an implantable corneal device to treat presbyopia. Later, though, the company closed down after finding that opthamological surgeons weren’t sufficiently interested in the product.
“Ophthalmic surgeons do not want to keep seeing their patients,” said John Kilcoyne, ReVision’s president and CEO, in an interview with OIS Weekly. At present, corneal implants call for more time and effort than refractive or cataract surgery, which typically require only one follow-up visit after the procedure, explained CB Insights.
Conversely, many successful startups are following an approach dubbed needs-driven innovation, noted Dr. Paul Yock, in a recent article in Fast Company. Rather than first inventing a product and then searching for a problem it might solve, the company begins by gaining a thorough understanding of a major issue in healthcare and then creates a product specifically intended to solve it.
Yock is associated with the Stanford Byers Center for BioDesign, an organization that’s been following the needs-driven approach for almost two decades. So far, more than 48 medical device and digital health companies have originated from projects and classes there. These include iRhythm Technologies, the makers of a wearable adhesive cardiac rhythm monitor called the Zio Patch.
iRhythm’s founder Uday N. Kumar, a cardiology fellow at UCSF and a Biodesign Innovation Fellow at Stanford Hospital, led a product development team in creating the new device after recognizing that physicians wanted a more efficient and accurate alternative to the cumbersome Holter monitor, the previous standard of care for diagnosing arrhythmias.
By performing 18 clinical trials of the Zio Patch and publishing the results in peer-reviewed medical journals, the team convinced insurance companies to provide reimbursement for the Zio Patch. iRhythm raised $110 million in funding from investors prior to an IPO in October, 2016, and then raised another $120 million by 2017. In 2018, the company was projecting annual revenues of about $140 million.
Be realistic about regulatory approval
Many startups fail because they simply can’t get drugs or devices to perform as originally anticipated. For example, Laguna Pharmaceuticals shuttered its doors in December of 2015, just 10 months after obtaining $30 million in VC funding. After its pharmaceutical product, an atrial fibrillation drug called Vanoxerine, passed its Phase 2 clinical trial with flying colors, Laguna ran into a log jam in Phase 3, when the drug was found to cause unexpected side effects.
Actually, each year, billions of dollars go down the drain on testing drugs that simply don’t work as envisioned. To help combat this financial waste, a new startup called Verge Genomics is using an innovative AI-based technology to determine which drugs have a higher probability of success. Recently named by Healthcare Weekly as one of the “best healthcare startups to watch in 2019,” Verge plans to help pharmaceutical firms decide which drugs to advance through the FDA approval process and which ones to drop.
Keep a close eye on your bottom line
Although many startups are founded with initial seed money from investors, the scenario can be more promising if the company is able to get by without it.
For instance, way back during the late 1990s, chemist J. David Rozzell started making enzymes for use in “clean” pharmaceutical manufacturing processes. By 2005, Rozzell was president and CEO of BioCatalytics, a private company with 25 employees that was generating enough revenues to pay for itself.
“From the first year, we were break-even or better. We were funded by our operations — by the revenue we could generate,” Rozzell told The Scientist at the time. Subsequent funds came from sponsored research agreements with major drug companies, together with product sales and federal Small Business Innovation Research (SBIR) grants. In 2007, BioCatalytics was acquired by Codexis for an undisclosed sum.
In addition to generating revenues, startups also need to make their best efforts at spending wisely to avoid depleting their funds. One highly effective way to save money is to rent any needed equipment, rather than buying it.