Setting the Table for Full Commercialization

As we continue along the commercialization path, it’s worthwhile to do a quick summary and to set the stage for what lies ahead.

As a start-up, we’re at the stage where your Pre-seed and Seed phases have been successfully achieved. Your business and financing milestones - synchronized to keep your investors and business partners satisfied – have been executed precisely and convincingly.

The compelling proof-of-concept milestone created the response that we all need to get the financing processes into gear. You, the entrepreneur, then set your sights on building the team necessary to install a Quality Management System that would support the formidable transition from a functioning prototype to a completed a fully verified and validated alpha product ready for human use!

This team also included a carefully selected and constructed Scientific Advisory Board, comprised of Key Opinion Leaders strategically located in key North American (and perhaps EU) markets.

With all this in place, you then closed a Seed Round (in the millions of dollars) to execute your “first-in-human” prospective feasibility. Ideally, this is a minimum 3-site study, amounting to a total of 30-50 patients. This study should be aided by your regulatory and clinical advisors, along with clearly demonstrated safety of the product, as well as its likely efficacy. This takes 6-12 months , and can catapult you and your start-up into the limelight - with expectations, excitement and values soaring!

As you look back, raising the critical amounts of capital was a formidable task. If this was your first MedTech start-up venture, it often seemed impossible.

But you made it this far, and a bigger challenge lies ahead! It involves transitioning your start-up from an R&D culture and mentality to a customer- and business-focused organization.

We’ll explore this challenge in next week’s blog, where we start looking at Series A and Series B financing.

Good to be back in action for 2020 and beyond…

End of Year Post: From Incubation - to Acceleration - to Propulsion - and Ultimately to a Successful Exit!

Let’s say your start-up is now over 2 years old - the battle scars are starting to accumulate! Starting from institutional R&D, to creating a match with an unmet clinical need, to translation into a product concept and then proving the concept in a compelling fashion… countless hours in planning and execution have been both gruelling and exciting.

The stress of having survived to this point is now beginning to segue into the stress of execution and performance. The entrepreneur has now moved on from selling dreams to delivery of concrete business milestones.

The “one person show” has now become a cohesive, high-performing team crossing the key disciplines of science, regulatory, engineering and business. The ultimate proof of success, a “first-in-human”(FIH) clinical study has now been successfully performed. Value growth now starts to become evident and your MedTech Ecosystem is beginning to take notice!

You have managed to get to this point through sheer determination and persistence. The early financings and investors have been difficult to come by - often requesting or demanding short-term sales milestones that are distracting and frustrating for the entrepreneur to deal with. (In a future post, I will delve into this dilemma that is clearly evident in the Quebec MedTech Ecosystem - where this challenge is creating the single largest impediment for growth).

You’ve been through several financings, likely in the form of non-dilutive government support (to get off the ground) and convertible debentures (to convert your product concept into a business). You have also hit the first Seed Round, where the smart VC money has now entered the scene and human clinical validation is around the corner, so to speak. You’ve got to be patient here. 

The successful FIH study has now catapulted you and your start-up into the real world of MedTech, with the emerging challenges of customer acceptance and competitive retaliation.

A Series A financing in the millions of dollars with a pre-money value (the value of the technology before the financing) many times greater than in the earlier Pre-Seed phases now becomes a looming reality.

Your business world now faces the most significant transformation of its very short life: turning your focus from product development to strategic commercialization. It’s a highly targeted and strategic method of generating business validation that potentially positions your start-up to a successful and lucrative strategic exit!

As we head into 2020, we’ll continue to look at the MedTech commercialization process, as well as a variety of topics related to MedTech in general.

I’m always happy to hear from the readers of this blog – if you feel there’s a topic you’d like me to write about relating to MedTech, feel free to leave a comment below and I may well add it to the list for a busy and exciting new year!

The Seed Round Financing Phase: Where Human Use Feasibility Studies Become the Next Key Business Milestone

After a MedTech start-up has successfully executed its Pre-Seed phase, largely characterized by a compelling proof-of-concept, the world becomes increasingly complex - requiring discipline and core skills that are new to the entrepreneur and his/her young start-up team

The start-up’s core skills must now be transformed as it prepares for the first human feasibility study. Key additions to the team and advisors are required to install and implement a Quality Management System (QMS), the first and most critical step in preparing the start-up for human use studies. In Quebec’s MedTech ecosystem, LOK and Avisio Qualité are two of the most active players. 

Within a QMS, an independent process of challenging, documenting and controlling the quality and traceability of the design and manufacturing process of the first human use product -  typically referred to as the Alpha product - is put into place. Without a QMS system in place, regulatory approvals for human use testing and validation are impossible to obtain. And the start-up process comes to a complete and screeching halt! All too often, start-ups fail to devote enough early attention to QMS implementation, resulting in months of delay in progressing to human-use studies.

Under a QMS design control process, product development - including extensive documentation and testing - can fully begin. Vendor selection and certification is a time-consuming but critical part of the process leading to the start-up’s first human use product. As well, teamwork between the design and quality teams is important to effective and efficient product development process.

After many months of intense work, the final stage of the product development process remains. Verification and validation (V&V) testing must be successfully completed. In the Quebec MedTech Ecosystem, Novo is a leading service provider throughout all stages of product design, development and verification. Strategic use of a third party expert such as Novo can dramatically improve the entire path commercialization. At one point, design freeze of the Alpha product is achieved, and the regulatory submission processes to Health Canada and the FDA can begin.

A smart start-up CEO and the team will have held several conference calls and meetings with various regulatory bodies to ensure that all of their information needs and concerns have effectively addressed during V&V. These “pre-IDE (Investigational Device Exemption)” meetings typically require the assistance of regulatory consultants (such as LOK North America) that have extensive experience with these type of meetings and are well-known by the regulatory bodies.

At this point in time, when the scientific, engineering and regulatory risks have for the most part been clearly addressed and clarified, the MedTech start-up can start to set its sights on a seasoned and knowledgeable VC investor. This VC can “price” the technology and its business potential through due diligence and experience.

A “pre-money value” is negotiated between the VC and the start-up, and a term sheet for the final tranche seed round financing is created. It is at this point that prior debenture financings are converted from debt into equity based on the formulaic discounted approach.

Many less knowledgeable investors will try to “price” the technology earlier in the process as just described. In my experience, this is very difficult to do, and it typically results in distractions to the start-up management team, creating delays, frustration and wasted efforts. 

In the case of Soundbite Medical, two convertible debentures preceeded the final seed round closing, only months away from the first human clinical trial. This occurred only once engineering quality and regulatory matters had been well addressed, and the path to a “first-in-human” was clear and free of any further substantial risks.

From a VC perspective, this is the ideal time to invest. Many of the start-up risks have been dealt with, and it’s a period just before the value of the company typically jumps two to three times in value after a first successful human case.

Remember: the best financings are the result of optimal timing in the business milestone process. In start-up financings, timing is always key!

The Pre-Seed Phase: Critical Success Factors on the Start-up’s Path to Commercialization

As we move through the Commercialization diagram, many activities and milestones have to fall into place in a timely and focused manner if a MedTech start-up is the get through the actual “start-up” process successfully.

After looking at unmet clinical/user unmet needs in recent weeks, we’ll now get into the second phase of the process, entitled “Pre-Seed”. All the milestones shown in this phase must be successfully completed if the start-up is to successfully move forward to the next phase.

These critical milestones include :

         - a fully-functional prototype (FFP)

         - a compelling proof-of-concept (POC)

         - an IP plan including a provisional patent application

         - an internationally-acclaimed scientific and clinical advisory group

It is important to note that the critical roles and potential gaps of the entrepreneur and his/her start-up team start to percolate to the surface during the Pre-Seed Phase.

Failure to identify roles and gaps in the team could result in failure. Is there marketing leadership to describe what the “minimal viable product” (MVP) needs to be? How close to the MVP does the functioning prototype have to be? Does the team have the technical skills and resources to build a functioning prototype and the modelling expertise to plan and build a compelling “proof-of-concept” (POC) model?

A compelling POC is absolutely critical to a start-up entrepreneur and the team. The closer the functioning prototype is to the initial MVP, and the closer the bench/animal model is to the ultimate human application - the more likely that investor interest will start to materialize.  

In the case of my latest start-up, SoundBite Medical Solutions, the compelling POC was an actual .014 wire, attached to a functional  shockwave generator prototype, that was able to cross an ex-vivo human artery containing calcified and fibrotic plaque - as close as possible to a real-life situation.  

Money Matters
It is also at the Pre-seed stage that dilutive financing from friends, family and angels comes into play - one of the key challenges and first step facing every start-up. It takes money to design, build and properly test a prototype product. It takes money to create a compelling proof-of-concept study. And it takes money to build a compelling IP strategy and plan.

Early-stage, Pre-Seed money from friends, family and angels typically comes in the form of a convertible debenture (often discounted from 25 to 50%) based on the eventual share price negotiated between the start-up company and the seed round lead investor.

Rarely is technology priced at the Pre-Seed phase. This is largely due to the numerous technology, regulatory and product development risk factors that have yet to be addressed by the start-up entrepreneur and his/her team.

The Heart of MedTech Innovation in Quebec: Business Creation Accelerators

At the institutional level, healthcare researchers, inventors and entrepreneurs are working hard to match a clinical unmet need with breakthrough science and technology, and to translate this into a unique and compelling product crammed with innovation, novelty and value potential.

Creating viable product concepts in and of itself is not a simple task. Scientists need to come together with engineers and businesspeople and identify a product that is makeable and sellable.                       

Creating these multi-disciplined teams is not simple or obvious. McGill’s Surgical Innovation Program, since its inauguration in 2014, has been piloting and refining such a model. They’ve succeeded in creating six new sustainable companies as part of Quebec’s MedTech Ecosystem over that timeframe.

Each year, up to eight new teams (comprising MD’s, engineers, scientists and MBA’s/entrepreneurs) are formed and new MedTech initiatives are spawned and incubated within the program.

Says program director, Dr. Jake Barralet: “It’s a huge team effort, from the clinicians and nurses, hospital and university scientists, business experts and entrepreneurs, all working to create the conditions for successful MedTech innovation so that tomorrow’s patients will be better served.  It is very rewarding seeing students becoming needs-centric and developing as a competitive and highly capable team”.

What’s next?

How do we effectively translate these technologies and product concepts into business opportunities?

Only recently has Quebec started to focus on novel ways of accelerating start-ups through their critical early stages. But they’ve become very good at it in this short period of time.

Some of have been “agnostic” as to the origins of the start-ups and their respective technologies (such as Centech and Techstars), and others are dedicated acceleration services such as District 3 and TransMedTech, which are directly affiliated with their institutional sources. Some are highly focused (TransMedTech in medical devices and Techstars in AI), while others have a broader appeal across all technology sectors (Centech and District 3, ACET, Entrepreneuriat Laval).

Each of these accelerators has focused on particular core competencies. As an example, TransMedTech creates a highly interactive environment between the clinical users and the biomedical engineering skills within the Institute. MEDTEQ leads the way for its continuum of support starting at the institutional level and continuing through to equity investment support. Techstars has built one of the most sophisticated and comprehensive mentoring ecosystems. Centech, through its two-stage program of acceleration and propulsion, has nurtured an environment of workshops and networking highly conducive to building entrepreneurial business teams.

All of Quebec’s accelerators have one common purpose and goal: to create a fertile and productive ecosystem within which young entrepreneurs can flourish.

While methods and processes differ amongst the accelerators, their overall contribution to entrepreneurship, the innovation process, and the MedTech industry as a whole is highly valuable.

Rapid Evolution and New Models: Tech Transfer from Academic Institutions to the Commercial World

Historically, innovation has been the domain of research institutions. Extensive multi-disciplined teams, million dollar, multi-year budgets, and unclear endpoints were the norm. Often, cost, time and resource requirements were underestimated.

Innovation projects were typically started by research scientists and engineers without clearly understanding and defining the value proposition that needed to be created to render the result sustainable in our society. Too often, the ultimate customer and the unmet need of that customer was not properly considered and described, resulting in innovative solutions for which nobody was interested in paying.

What was woefully inadequate with these historical approaches? The lack of attention to the identification of the ultimate customer and their associated unmet needs, and how innovation could capitalize on the situation. The other critical ingredient missing was an entrepreneur and an entrepreneurial approach to the problem solving and opportunity identification.

Then again, these institutions did not have the benefit of the type of all-encompassing ecosystem that we have today.

Incubators and accelerators are now central to the successful tech transfer and commercialization. As opposed to licensing out medical technology and IP to large multinationals (where control of the innovation is completely removed from the researchers and handed to corporations with their own agendas), researchers are keeping a hand on their work and forming start-up companies - often aided by an experienced entrepreneur. SoundBite, a breakthrough cardiovascular technology originating at the Université de Sherbrooke (UdeS), evolved in this manner. Interestingly, UdeS, who originally licensed the IP to the start-up, eventually exchanged ownership of the IP for equity in the company.

Even the tech transfer offices (Aligo, Univalor and Sovar - the three operating in the Quebec MedTech Ecosystem*) are changing their business models to encourage institutional professors and physicians to participate in MedTech start-ups, facilitated by an accelerator such as Centech.

Pierre des Lierres, Director of Business Development at Aligo Innovation, is currently encouraging several researchers and their technologies to explore the business acceleration route at Centech. Nanogenics and OCT are but two of them. 

More and more, MedTech innovation emanating from Quebec’s universities and healthcare institutions will be commercialized with these novel and more productive business models!

Non-dilutive funding from from the tech transfer offices as well as federal initiatives such as NSERC, IRAP and IHRC continue to flourish. A recent announcement for $50 million from CDPQ for early stage start-up funding creates an even more compelling ecosystem!.

These are very exciting times!

*A quick post-script on the Ecosystem here in Quebec… It is an ongoing, growing system with many moving parts and players. I’m always looking to improve it - so any omissions here are not intentional, and I welcome any suggestions you might have to improve it and make it even more inclusive. You can add comments below, or through LinkedIn.

Unmet Needs: Asking the Right Questions

Answer to last week’s question: Inevitably, a clear and compelling unmet need is more critical to a start-up’s success, no matter how great the technological breakthrough is. If it does not address an unmet need somewhere on the horizon, then there is no likely home for it.

For those that may be digging deeper on identifying or validating an unmet need, a suggestion: Try to understand why this unmet need has not been addressed already. Was it due to:

·      inadequate understanding of the science?

·      inadequate effectiveness of past technologies?

·      lack of market awareness of an evolving niche?

You will require a significant investment of your time and effort in discussions with a variety of relevant KOL’s, plus an extensive review of publications in order to better prepare yourself in order to ask the right questions.

Identifying Unmet Needs in Action

I had the pleasure earlier this week of participating in the relocation of an exciting cardiovascular (CV) technology, ViTAA (Virtual Touch of Aortic Aneurysms) from the University of Calgary (U of C) to Quebec’s MedTech Ecosystem – specifically to be located in the Centech Propulsion system.

Dr Randy Moore, Co-Founder and Chief of Vascular Surgery at the University of Calgary, expressed excitement at finally seeing years of research - with Co-Founder and Researcher Dr Elena Di Martino - finally coming to fruition. “The unmet need for better technologies for aortic aneurysm mapping and rupture prediction are critical to better clinical management of this disease.”

This is a prime example of how a clear and compelling unmet need was eventually transformed into a promising and concrete business opportunity, and further leveraged with an Ecosystem already in place to accelerate the transformation process “From R&D to R2D”.

In the case of ViTAA, having a KOL as one of the Founders was a great start, and one that was only strengthened by Dr. Moore leveraging his extensive network of vascular surgeons across North America. Even a leading KOL understands the importance of multiple KOL’s when gathering business intelligence. After the KOL unmet need research, ViTAA ended up with an even more compelling unmet need for “mapping and forecasting” as opposed to “forecasting” alone.

Furthermore, “leveraging Quebec’s Medtech Ecosystem to bring this technology to market was of paramount importance in the decision to relocate here,” said Dr Moore.

Changing the Mindset from R&D to “R2D” (Research to Product Development)

The most recent blog post regarding the graphical representation of the MedTech Innovation and Commercialization process generated a lot of interest.

Over the course of the next several weeks, we will go through each of the key stages of the process and take a deeper look at some of the key success factors surrounding each stage.

Bridging academia, the clinical research community and business accelerators are the focus of today’s blog and the week beyond.

I need to emphasize: the process of matching emerging technologies from university-based research with clinical unmet needs from their surrounding teaching hospitals is critical. This sets the foundation for creating a compelling product/business opportunity.

On Unmet Clinical Needs

My most successful MedTech start-up to-date, SoundBite Medical Solutions, resulted from over six months of research with my cardiovascular key opinion leader (KOL) networks across North America, Europe and Japan.

Only after in-depth discussions with KOL’s, where mutual trust and respect had developed over years, did the unmet needs of the future unfold. But you don’t need decades of experience and academic research like I had before being able to talk to the right users; the world of accelerators like Centech help open doors and networks for the young entrepreneur today.

When identifying clinical unmet needs with a novel technology, it is also important to anticipate unmet needs that will occur in the future. This means understanding healthcare megatrends, and typically involves business visionaries working with clinical visionaries.

It’s not just “what do you need today”? The successful start-up will see unmet needs that will occur 5, 10 years down the road. You can see hints of these unmet needs in the literature and hear it from end users. Always keep your antennae out and spot the repetitive themes in the things you read and hear about.

It’s important for universities and entrepreneurs to understand: The way you make your research more market-driven is by talking and listening to clinicians/users.

And a final side note: I’m currently reading the very interesting book Non-Bullshit Innovation, where the entire first chapter is devoted to dealing with effective ways to identify customer unmet needs. Spending time, working with, and even living among people in KOL networks are very effective ways of mating emerging technologies with clinical unmet needs.

As an example, look at Polytechnique Montréal’s TransMedTech Institute, where clinical research is integrally connected with biomedical engineering research at Ste. Justine Hospital, CHUM, Université de Montréal, and the Jewish General Hospital. The purpose is to match an unmet need with technological breakthroughs as well as to provide comprehensive services at the early stages to accelerate the development of MedTech solutions in cardiovascular, oncology and musculoskeletal disorders.

One final question: So, at the end of the day - what is more critical for a successful MedTech start-up? A clear and compelling clinical unmet need or a great technological breakthrough?

The answer will be given at the beginning of the next blog post. In the meantime, please feel free to share your thoughts on this through the comments section below or on LinkedIn.

My next blog will review the emerging technology transfer models that will rule the future world of MedTech innovation.

Demystifying Medtech Innovation from Start (Clinical Unmet Need) to Finish (Strategic Commercialization & Exit)

Welcome to the Fall 2019 blogging series - welcome to my blog subscribers and LinkedIn network, the 10 Propulsion graduates, two Techstars mentorees, and the Centech Acceleration Fall cohort of 14 new Medtech start-up teams!

Over the summer, I worked diligently with “thought experts” from the world of Medtech innovation, from successful entrepreneurs to regulatory, legal and IP experts and VC’s across both the USA and Canada. To paraphrase Steve Jobs: before you start speaking, blogging and asking, you have to listen thoroughly!

I learned that Medtech innovation ecosystems around North America have significant variations and interpretations of the necessary stages, steps and business and financing milestones required to successfully execute innovation and start-ups. This was especially true from some of the newer Medtech ecosystems, including here in Quebec. Duplicating efforts, conflicting goals and and an unclear path can create confusion for the young entrepreneurs that our system is designed to serve.

The Fall 2019 blog series will begin with a “Big Picture” look – a schematic of the steps, flow and thinking processes that all blend into the formulaic roadmap leading to disruptive successes in a rapidly changing healthcare arena. The graphic pictured above sequentially describes the critical steps from start to end, including the critical synchronization of the technical, regulatory and business milestones with the financial milestones needed to empower the entrepreneurial and innovative process.

The financial and business phases of the process need to be clearly defined and easily understood by the investment community. From Phase 1’s government financing through Phase 6’s Series B considerations, this is a step-by-by overview of what I consider to be the path to Medtech startup success.

If you play the game precisely and intelligently, a start to finish experience can be achieved in 6 years or less, and with minimal risk! Paid in capital can range from $25-100 million, depending on the clinical validation processes required.

The key themes overriding the whole process can be boiled down to:

1.   Initial focus on the customer and the unmet need

2.   Follow the systematic process that the quality and regulatory guidelines help define (no cutting corners, no assumptions!)

3.   Synchronizing business and financing milestones (most critical)

4.   Always raise more money than you think you need during each of the phases (at least 50-100% more for unimaginable surprises)

5.   Always pursue a simple and clear path to commercialization

In the coming weeks, I will do a “deep dive” into Phase 1 of the graphic – the goals, hazards, misunderstandings, and key success factors. I’ll also continue to blog on other areas of interest to all the stakeholders within the ecosystem. 

Centech’s Medtech Accelerator: Another Leap Forward

On August 14th, a jury of Medtech experts and Entrepreneurs-in-Residence were privileged to have almost 20 hopeful Medtech start-ups pitch their business dreams and visions in order to qualify for the upcoming Medtech Accelerator cohort taking place this Fall at Centech.

Centech Summer Cohort 2019

Centech’s Accelerator program is an intense 12-week program of workshops, mentoring and guest speakers, with prospective candidates aiming to proceed to the Propulsion phase, which I mentioned in the previous blog post. Propulsion is a two-year process of mentoring, coaching, team-building and financing in assigned office and lab space within Centech.

I’m very pleased to say that a record 14 start-up hopefuls were successful in their Accelerator pitches. They came from a variety of sources, including McGill’s Faculty of Medicine and the school’s X-1 business accelerator, the Université de Montreal, Concordia’s District 3, and other sources outside of Quebec – including Stanford University in the U.S.

It is a truly diverse and international group of young entrepreneurs. In addition to several traditional medical device technologies, there were a number of Healthcare AI initiatives as well as those in digital health.

Eventually, the new Propulsion entrants will work alongside the 10 existing Propulsion teams in the program. Five of these were mentioned in the previous blog, and the others include NeuroServo, AIFred, PuzzleMed, Shaddari, and Invicare.

As Centech’s Medtech Entrepreneur-in-Residence since 2017, I have found it extremely encouraging and exciting to see our Ecosystem flourish in such a brief timeframe - a clear signal of the passion, commitment and potential that the world of Medtech innovation has in store here in Montreal, in Quebec and across Canada.

Supporting this growing number of sustainable Medtech start-ups is a growing world-class Medtech advisory board of accomplished business, regulatory, legal and financing experts. This group will be the subject of a blog to follow shortly.

Embracing world-class teamwork that involves passionate entrepreneurs, seasoned mentors and legal experts, Centech is thriving in its vision and creating a formula for world class success in the exciting world of innovation. I feel fortunate to be able to take part.