Healthcare Business News spoke with Joe Galatowitsch, managing director and medtech practice leader for Navigant about the array of market challenges facing medtech startups, and converting these into opportunities through a deeper understanding of the dynamics. Galatowitsch also offers a preview of an expansion of global payments to healthcare providers for entire episodes of care with complex or chronic disease patients.

HCB News: What is a notable trend you’re seeing among medtech companies?
Joe Galatowitsch: Venture-backed medtech companies are in a three-way squeeze.

Providers, payers, and other entities across healthcare are increasingly looking to clinical and financial evidence to make care and efficiency decisions. While healthcare continues this evidence-based march, most medtech companies – and startups in particular – aren’t always keeping up.

In addition, the investor community is under huge pressure to improve their returns and not tie up money for too long. Plus, potential acquirers of these venture-backed companies increasingly demand less market and commercial risk, which requires much more capital and time.

Yet, many startups continue to operate under an MVP and MVE (minimum viable product and minimal viable evidence) plan – to build the product and evidence necessary to satisfy regulators, public payers, and hopefully engage early adopters. But we often run into instances where startups don’t have the evidence, data, or market insight needed to demonstrate commercial viability or de-risk market barriers. This leads many companies into a difficult corner – they do not have the financial resources to advance the company commercially, they have not de-risked the company enough to interest potential acquirers, and the cost of additional investment erodes or destroys hard-earned value for existing shareholders.

HCB News: How can medtech startups navigate these market realities?
JG: It’s important for startups to look at this environment as an opportunity. The companies that can effectively put their limited capital to work respecting these market forces and achieving their traditional milestones will prevail. They’ll also have the enviable options of exiting for attractive multiples or accessing additional investment at attractive terms to continue to build the company.

Take endovascular therapy for stroke. A number of investigator-initiated trials showed promise. Then, more definitive trials showed negative results. That’s because startups took a blunt instrument approach to building clinical evidence. With a more informed and nuanced understanding of the patient population and a second-generation device, startups realized they weren’t including the right patients in their trials. However, once they included ideal patient candidates, and second-generation technology, the evidence was compelling and definitive – and the market took off. Happily, the company wound up with the aforementioned ‘enviable’ investment options and the rest is history.

This represents a rare example of a recovery from a major misstep. More often when these avoidable mistakes occur, there are no second chances. In this evidence-based world, it’s important to learn from your mistakes and from what others have done before you.

HCB News: In what other areas are medtech startups facing challenges?
JG: Almost all venture-backed medtech startups have some form of disruptive technology. Yet, the implications of the word “disruptive” are often lost when it comes to engaging with customers.

By definition, when a new, disruptive technology enters the market, a current standard of care/practice already exists for the targeted patients or procedures – even if the current standard of care is ‘do nothing’. In order to gain adoption and use, the old standard of care needed to be disrupted and a new standard of care/practice developed, refined and adopted. The use of the product itself is secondary to this.

Fitting into or developing a new treatment paradigm is often a major struggle. Medtechs need to figure out where and how their therapy option fits into the care pathway, so there’s clarity around who the right patients and referral triggers are, when to use the new technology vs. alternatives, etc. Too often, companies unknowingly delegate this often complex and difficult task to individual clinicians who have neither the interest nor the time to take this on.

Just because you put a new tool in a clinician’s toolbox does not mean it will get used. If anything, introducing a tool without a very clear set of “how, where, and when to use it” instructions almost guarantees that it won’t be used, because the clinician already knows how, where, and when to use the other tools.

HCB News: Are there any other noteworthy trends you’re seeing?
JG: We’re also going to see an expansion of global payments to healthcare providers for entire episodes of care for complex or chronic disease patients. The approach has gained traction – as well as bipartisan support – in end stage renal disease, for example. There’s a real opportunity for the model to be extended to other patient episodes, such as hip fractures or chronic disease like Type II Diabetes. This will be disruptive for all stakeholders: Providers, payers, the medtech industry, patients and intermediaries. And this will put an even higher demand on the system to have the data and evidence to optimize and personalize care in the most effective and efficient ways. Imagine a future in which medtech companies negotiate covered lives contracts with insurers for their advanced medical technologies and per device/procedure unit pricing is a thing of the past.

Joe Galatowitsch is a managing director and leader of the Navigant Life Sciences medtech practice. He has more than 35 years of experience in medtech business management, marketing, market development, and consulting. He co-founded Dymedex Consulting and quickly established it as a leader in medtech market development consulting. Galatowitsch pioneered the Science of Market Development, which has been adopted and used by leading medtech companies around the globe. He has led more than 100 medtech market assessments in numerous technologies, diseases, and geographies. Additionally, he has managed a $120 million global commercial medtech business and also led many successful medtech market development initiatives, including orchestration of the ICD market expansion leading to $2 billion+ in growth in less than 24 months.