Shanghai Becomes a Player in Global Medtech Innovation; North America Needs to Keep Up

The global Medtech innovation ecosystem recently became more intense and competitive with Medtronic’s recent announcement of a Shanghai-based Medtech accelerator. This is not a surprising development given Medtronic’s continued focus on this key emerging market.

"China represents a tremendous opportunity, given its significant market size, abundance of unmet clinical needs and active entrepreneurship landscape," said Medtronic CEO Omar Ishrak in a news release. 

In a previous blog post, I had mentioned that Medtech innovation is on the cusp of explosive growth, particularly with the convergence of healthcare and AI.

With Medtronic, the world’s largest medical devices/Medtech player, joining forces with a new, focused Medtech accelerator in Shanghai, we can expect major impact on innovation deal flow not only in China, but around the world!

This move also means China may soon join the ranks of the leading Medtech innovation countries globally (USA, Israel, Germany, Canada and the UK).

It also puts pressure on the rest of the world - and particularly North America - to raise its “game” to the next level in terms of Medtech innovation and investment.

Follow-up post: Do We Need a Dedicated Medtech Startup Venture Fund in Canada?

My most recent blog post stirred a lot of interest from many followers. Several people provided very good comments and questions, including: ”Given the convincing nature of (my) case, what do we need to do and do we have the necessary ingredients to make a dedicated Medtech venture fund happen?”

In other words – to borrow from my previous “chicken and egg” question – now that the initial egg has been cracked, do we have enough to make a great omelette?

Here’s my answer: Yes, we have five of the six critical ingredients, and maybe we have the sixth.

The five we have for sure are:

1.  Growing interest and innovation skills coming out of our healthcare and biomedical engineering institutions.

2.  Critical Medtech deal flow, given the success of several accelerators across the city of Montreal and the province of Quebec.

3.  Ready access to Accelerators and mentors with successful healthcare entrepreneurial experience to assist our young entrepreneurs.

4.  Healthy and growing ecosystems in Healthcare and AI.

5.  Strong support from both the Provincial and Federal Governments.

The sixth ingredient - hopefully a fixable one that can turn from a maybe into a yes - relates to how a venture fund is created.

A venture fund is made up of one or more investors called limited partners or “LP’s”. To finalize the terms and mandate of the fund requires one of them to lead the negotiation process with the fund’s founding partners (called managing partners or “MP’s”).

A lead typically requires skill and experience in the space (in this case, Medtech), as well as deep pockets. These players/funders are often called “fund of funds (or FoF’s) ”.

In Canada, several prominent FoF’s exist: Teralys Capital, Northleaf, and BDC Strategic Fund are three of them. All three funds have the know-how and resources to lead this needed initiative.

It bears repeating: We need to keep up with the rest of the world when it comes to Medtech innovation and development .

A dedicated Medtech fund is a critical element of the evolving ecosystem here in Quebec and across Canada.

Do We Need a Dedicated Medtech Startup Venture Fund in Canada?

A recent announcement of a dedicated Medtech Venture Fund in Israel - a $50 million Medtech start-up fund - started me thinking about the famous question: ”What came first, the chicken or the egg?

In an earlier blog post, I highlighted a CB Insights analysis on the global shares of Medtech deals by country. The U.S. clearly dominates the global Medtech space, owning 77% share.

It is not surprising then, to see that over 75% of the Top 20 specialized Medtech VC’s also reside in the U.S. (full article here).

It might be a surprise, however, to see that tiny Israel (population 8.7 million vs 328 million in the U.S.) shares 2nd place with Germany at 4% of VCs residing in their country.

Why is this the case? There are many reasons, including an incredibly resourceful, educated and entrepreneurial population; a powerful and technologically advanced military providing engineering and scientific resources; and a very supportive American VC strategic alliance developed over the years after Israel’s formation? These are three critical ingredients for start-up success!

In that same CB Insights analysis, Canada came in third, tied with the UK, at 2%. If one considers Canada’s current population of 37.1 million, on a pro rata basis we should support 17% of the global Medtech deals, based on Israel’s performance - or at least 8-9% based on the U.S. Somewhere between 8% and 17% lies the true potential. In any event, we’ve got a long way to go based on today’s starting point of 2%.

Over the course of the last five years, I have tested the investment waters across Canada regarding a dedicated Medtech venture fund. I received consistent feedback that there was not enough deal flow in Canada to justify one on an ROI basis.

That may have been the case historically, but certainly not the case today with the advent of healthcare IT and AI. At last count, over 50 Medtech startups have surfaced in the last 24 months in Montreal. Many of these startups deserve - and would benefit by - the financial and strategic support of a dedicated early stage venture fund.

My last point is about the concept of smart money. I believe that there are several bountiful sources of startup money that exist across Canada. Many life science funds invest in both biotech and to a lesser degree in Medtech, but these sectors have disctinctly different needs and business models. I think that there is a real need for Medtech startups to have access to smart money, smart guidance and networking that only a dedicated Medtech fund can provide.

So the answer to my original question - the chicken or the egg - now seems a bit more obvious: a robust Medtech startup sector in Canada needs a smart startup venture fund.

The time for a dedicated Medtech Startup Fund is now!

In a future series of posts, I will solicit input in how a new Startup Fund would work, and what they will be looking for from Medtech startups. I’ll also continue the Startup Success Series in the coming weeks and months. Stay tuned!

Start-up Success Series: The Science of Translating an Unmet Need into a Unique, Disruptive and Transformational Value Proposition

Once an entrepreneur has identified an unmet clinical need through multiple encounters with KOL users, the exciting process of translating it into a unique and compelling value proposition can now begin.

The entrepreneur must first understand why this unmet need has not already been addressed by existing Medtech players in a particular “space”.

Have new scientific learnings only recently surfaced? Was the niche too small to capture the attention of bigger players? Were there technical limitations that your potential solution can now overcome? Whatever the reason, it must be credible to you, your team, and the knowledgeable investment community.

Please allow me to give you a personal example that changed my career and my life.

In 1996, while I was building CryoCath (a cardiac cryoablation technology), the initial unmet need we were addressing was for a safer electrophysiology (EP) catheter ablation system.  (In short, replacing radiofrequency ablation technology - freezing rather than burning arrhythmogenic endocardial tissue, particularly in pediatric cases).

This was the most obvious unmet need that cryoablation technology could uniquely address. Unfortunately, it was a small niche with minimal growth potential; therefore it was difficult to arouse the interest of the bigger American VC’s.

Then in 1998, a French electrophysiologist, Dr Michel Haissaguerre, published a landmark scientific paper in the New England Journal of Medicine, identifying the triggers of atrial fibrillation originating in one or more of the four pulmonary veins, and the likely strategies, like pulmonary vein isolation (PVI), to ablate them and effectively treat AF for the first time.

The AF market opportunity dwarfed anything else in the EP field, and opened the door for CryoCath to quickly become a major player in the EP world. Instead of a market potential of thousands of cases per year, we were now targeting millions of cases per year!

In discussions with my KOL network around the world, I immediately saw the unmet need for a new catheter ablation system that could safely and simply isolate (electrically) the pulmonary vein. There were no technologies from the strategic players (Medtronic, St Jude, J&J, Boston Scientific) capable of performing these tasks.

I quickly rallied my development team - clinicians, engineers, and scientists - around the challenge and came up with a revolutionary cyroballoon ablation system that safely and effectively performed PVI in less than 25% of the time, and required less skill and effort.

This opened the door to all electrophysiologists (EP’s) performing the procedure rather than a select few and highly skilled ones. The video above shows how it works.

Within one year of 20 German EP centers pooling and reporting their clinical results with the Arctic Front cryoballoon system, Medtronic acquired CryoCath.

The moral of this story: as an entrepreneur, listen well to new science surfacing from KOL’s and translate it into new and bold engineering solutions in a timely and effective manner!

Start-up Success Series: Listen to Your KOL’s to Uncover Unmet Needs

I recently blogged about the top reasons that start-ups fail. Today, and for the next several posts, we’ll follow a more positive note, as I highlight some of the top reasons start-ups succeed.

Let me start with a Jeff Bezos quote from 2018:

“…experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight. A customer-obsessed culture best creates the conditions where all of that can happen. 

I’ll paraphrase that quote to make it clear: An unmet need-obsessed culture creates the foundation for Medtech start-up success.

A start-up culture, obsessed with customer-centric thinking and many key opinion leader (KOL) relationships, is much more likely to create product concepts and strategies that will lead to sustainable and adoptable technology solutions that address unmet needs in a given industry.

When Steve Jobs was fired from Apple, and before he started his second great company, NeXT, he spent over a year travelling throughout the USA talking to IT thought leaders (KOL’s) understanding their unmet needs.

He used this deep understanding to create a transformational computer hardware and software company for advanced users. Within three years of starting NeXT (1995-1997), Jobs sold the company for over $1 billion in cash and stock, and resumed control of Apple (which he went on to save)!

In 2010, when I took over a struggling Medtech company called CardioInsight, I travelled the globe talking to my electrophysiology (EP) network of contacts that I had built at my previous EP Company, CryoCath. 

Through these conversations, I developed a clear understanding of their unmet needs. Consequently, I repositioned the company and its technology for AF mapping (as opposed to biventricular pacing and mapping), resulting in the value of the company growing from $2 million to over $100 million. CardioInsight was sold to Medtronic in under five years. How was this possible? I listened to my visionary KOL customers!

But this is not the end of the process involving KOLs. The trick lies in translating that deep insight of an unmet clinical need into a unique and sustainable value proposition. My next blog will discuss the thinking process behind this strategically important translation.

Top 20 Reasons Start-Ups Fail… and How They Apply to Medtech

I recently read an interesting report from CB Insights on why start-ups, in general, fail. Most of them are relevant to the Medtech sector, particularly the # 1 reason (42%): the start-up did not properly address an unmet user need.

As my students have heard me say more than once: Identifying a clinical unmet need (and how to effectively address it) is always the starting point for a successful start-up venture.

Furthermore, while it certainly may apply to more than one industry, if you go to market prematurely in Medtech, it’s a pretty sure bet that success will be hard to come by.

In many start-up situations, investor pressure to get sales ASAP will result in the start-up CEO cutting corners, taking an immature product or service into full commercial sales without proper clinical validation and support strategies.

I have had to save several Medtech start-ups in my career, and I would say this is the most lethal mistake CEO’s make: please do not succumb to investor pressure! It takes a strong backbone to stand up and resist at times, but it’s essential.

Another mistake involves sidestepping the critical phase of securing KOL (key opinion leader) support, especially in countries like the U.S. and Japan, where respecting the very hierarchical structure is so critical for market adoption.

In the Medtech sector, KOL’s play a leadership role when it comes to new technologies and solutions. In my experience, these 10 % of physicians in any specialty set the tone and the vision for the future. Most physicians rely on the KOL thought leaders to pave the way when it comes to innovation.

OK, now that we’ve touched briefly on the “don’ts”, going forward we’ll be focused much more on the positive things a start-up should do on the path to success.

The next series of posts will focus on key examples and lessons from my own experience in Medtech, blended with learnings from highly successful entrepreneurs across the business world (names like Thiel and Jobs might ring a bell). Stay tuned!

The Model and The System of MedTech Start-up Success

Guest blogger this week:
Stuart Kozlick, BCF Chief of Healthcare Technology Strategies and Business Development

Steve asks:

“Given your extensive and broad business experience with MedTech start-ups, as well as with Small-Medium-Large enterprises, what critical advice would you give to entrepreneurs, scientists and engineers interested in creating a successful start-up?”

Stuart’s reply:

Reflecting on my experience over the last 16+ years in medical device development, I’ll turn to my specific experiences with all sizes of companies.

No matter the size or the maturity of the organization at the time, these two key principles come to mind: (i) the ‘model’, and (ii) the ‘system’.

The ‘Model’

Regardless of the size or maturity of your organization, the technology track being pursued, the “disease” state or otherwise, one thing is for sure: your organization’s business cannot remain static in time as your company evolves.

For several decades, the standard operating model for medical device manufacturers of all sizes has been to bring good technology to patients and the market will reward you. This model and mindset is becoming more and more obsolete.  

Device companies need to revamp their traditional mindset to show how their products are not only efficacious to the patient population, but also have a positive impact on the respective health economics in which they will be playing.  

The MedTech sector is presently navigating the shifts in healthcare, including:

·      the transition from volume-based to value-based healthcare models

·      the application of real-world data in researching and commercializing therapeutics

·      the addition of patient services in improving outcomes and the increased presence of technology firms involved in patient care.

At the same time, the sector needs to continually transform their technology offering and core operations, ensure competitiveness in their operations, and leverage new developments in, for example, IoT in manufacturing and supply chains to remain ahead of the curve.

For you engineers and scientists out there, I would look at a business model like this: business modeling is the managerial equivalent of the scientific method – you start with a hypothesis, which you then test in action and revise when necessary. Keep this in the back of your mind as your business evolves and grows, and don’t be afraid to adapt to change.

The ‘System’

I can’t tell you how often I have conversations with entrepreneurs, scientists, engineers – both as leaders and as principle contributors – working on the development of medical products and technology where I learn that they have never set foot in either the operating room, the diagnostic lab, or a cathlab. This is essential to truly experiencing and understanding the ecosystem in which their product will eventually reside and be used.

As a systems engineer, for me, everything appears as a system – a construct or collection of different elements that together produce results unobtainable by the elements alone.

The fun part - and difficult at the same time - is ensuring that as a company you invest accordingly to identify and understand those elements of the system which can affect your product.

In other words, with respect to medical device development and utilization, it is extremely important for developers, leaders and all those involved at one point or another, to truly understand and respect the lifecycle of the product itself and obtain a true understanding and appreciation of how, by whom, where, when the product can, will, could be used, abused, disposed, dropped, squeezed, looked at, interpreted, etc. - you get my drift.

The product in which your organization is pursuing will not be handled just by the surgeon or clinician, which you believe to be the only user. I guarantee you that it will, at one point or another, need to be held or taken out of its packaging by someone other than the user; be disposed of by someone other than the user; be purchased by someone other than the user; be interpreted for use by someone other than the user, and so on.

These are just examples of elements that can and will aid in validating your true needs for efficient and robust product development and utilization. Hopefully, all of these examples seem trivial and are already being considered.

If so, you can check some items off of your product development checklist. If not, then take the time to invest strategically in understanding and incorporating as much of the system into your product from the onset. Investigate the many ways in which you and your teams can gain access to the system – whether this is real-world operating exposure or making use of medical simulation tools and centres available to you.

Once you get access: observe, ask questions, and learn. Appropriately and effectively translate the new wisdom back to the bigger team. If you wait too long, you’re bound to have more surprises down the line than you would hope for.

Charting My Blogging Strategy and Kicking Off the First Winter MedTech Start-up Workshop in the Centech Accelerator

Today I will outline my blogging strategy for the course of the next several months, and depending on feedback from subscribers to the blog and followers on Linkedin, I’ll make some “mid-course corrections” as needed.

I plan to introduce you to the MedTech start-up acceleration process at Centech, and share the wisdom of the process from product concept (addressing an unmet need) right through to commercialization (and a successful exit!).

As well, I will share the wisdom of certain guest bloggers, spanning the critical disciplines of regulatory, IP and strategic commercialization strategies so critical for a MedTech start-up. These are subject matters experts who have a tremendous amount of knowledge and experience in their respective fields.

In addition, I will share the “real-life” stories of the current and past start-ups that I have accelerated and mentored, as well as those I continue to work with today. We’ll look at their challenges, hardships and victories.

 MedTech Workshops at Centech - Kick-off 2019

This past week, I gave my first of many MedTech workshops at Centech here in Montreal. A new cohort of six start-up initiatives were welcomed by me and my two guest speakers: fellow entrepreneur Stuart Kozlick, BCF Chief of Healthcare Technology Strategies and Business Development and Louis-Paul Marin, President, LOK NA - a QA & RA services company.

It was a lively and engaging initial session, as Stuart and I covered key learnings from our MedTech start-up experiences, while Louis-Paul discussed critical regulatory challenges and success tips.

Over the course of the next week, both guest speakers will be following up with blog posts on this site, with some of their key messages from the workshop. Future posts will share the main takeaways from all the players at this opening session.

MedTech Summit Key Takeaways

On January 16, 2019, I hosted the first of many Centech MedTech Summit meetings focused on creating a world-class MedTech Innovation Ecosystem here in Montreal.

Almost 100 people participated in the program, which included opening remarks on the emerging MedTech ecosystem from me, followed by a lively and engaging panel discussion comprised of MedTech industry experts ranging from entrepreneurs, regulatory and IP experts through to VC’s. After the panel, 15 MedTech start-ups gave 3-5 minute “elevator pitches”. 

Everyone walked away from the Summit meeting excited about the prospects of a fully integrated MedTech ecosystem, with Centech as the hub.

With a critical (and growing) relationship with Montreal’s very successful AI ecosystem that was established here over 10 years ago, the future of MedTech start-ups looks very promising!

A larger and more inclusive Summit is being planned for this coming Spring!

Input from my fellow industry players and bloggers is welcome – feel free to reach out to me at steve@stevenarless.com.

MedTech investment - where does Canada stand?

The need – and opportunity - to put Canada on the map for MedTech is evident. Fortunately, what’s happening these days at Centech is helping us take a larger share of this pie.

There is a real sense of momentum happening in Quebec’s MedTech sector in particular, and Centech is at the heart of it. I’m seeing the potential on a weekly basis there in my role as entrepreneur-in-residence, working with young entrepreneurs in both the Acceleration and Propulsion programs.

The value they provide, through their innovative ideas and dedication, is at the core of what will drive up deal share in the next few decades. But we need all stakeholders working together to make this happen:

·      mentors who know what it takes to see an idea all the way through to commercialization or exit

·      educational institutions

·      regulatory bodies and provincial and federal government investment

·      acceleration hubs like Centech that bring it all together to create a viable, attractive MedTech ecosystem

This aim of this blog is to continue to shine a spotlight on all of the above players, making sure that investors continue to see the full power and scope of what we’re building here.