From tiny seeds: what makes a successful medtech spin-out?

Roger Harcourt, partner and head of healthcare at law firm, Shakespeare Martineau asks: what makes a successful medtech spin-out?

As the healthcare industry becomes increasingly digitised, gaps in the market are leading tech-savvy entrepreneurs to bring new innovations to market. Increased access to health platforms and widespread usage of smartphones, direct patient distribution channels have created an opportunity for innovators but in order to capitalise on this, they must understand how to bring a new product or service to market successfully.

There is a plethora of medical devices, utilising cutting edge technology, creeping into mainstream healthcare services, from virtual and augmented reality tools, to digital health management and training platforms. They impact everything from diagnosis of newly-presented conditions through to the self-management of existing ones.

Innovation in the sector is not only driven by improving patient outcomes and access to health services but also to relieve pressure on the healthcare system as a whole, in particular the increasingly-squeezed NHS. With the renewed focus on wellness, there is also a desire to increase the focus on prevention. Now, having been promised an extra £20bn annually, the focus will be on getting the most bang for the tax payers’ buck and new technology in the sector will be central to achieving efficiencies.

Attracting investment is one of the main barriers for entrepreneurs. By starting with the end goal in mind, healthcare innovators can focus on where they want to go, how they’re going to get there and what the most efficient and profitable routes to market will be. Simply having a great idea often isn’t enough and breaking down each stage into granular detail will ensure investors know that thorough stress testing and planning have taken place.

When bringing a great idea to the market, entrepreneurs must understand their main focus and where appropriate seek support to smooth the route to commercialisation. Innovators may conclude that selling or licensing their idea or technology to a larger business, that already has specialist resources, is the better route market. Clinical trials or even demonstrating the efficacy of a product or service, can be extremely costly and without the necessary funding, good ideas often grind to a halt.

With innovation in the healthcare industry becoming increasingly globalised, UK-based entrepreneurs should also consider exploring other markets, such as the US, where funding might be more freely available.

Medtech entrepreneurs should also be prepared for failure. Understanding why things haven’t worked can be a valuable process and pave the way for future success. Adopting a ‘fail fast’ attitude will ensure adjustments are made quickly and speed the way to market. Being prepared to pivot and iterate products or services and distribution strategies, without fixating on the original idea, is also often crucial to success.

A failure to properly focus on the problem that your product or service is intended to solve, or to understand the distribution channels to market, is surprisingly common – particularly if the entrepreneur is focused on the product. An idea could be pure genius but if it doesn’t solve a problem, which is significant in terms of both health outcome and market size, it is unlikely to attract commercial investment and may have limited viability. A full understanding of the market for a new good, product or service, as well as the customer user experience is crucial.

As noted above, licensing an idea can be a good and flexible way to commercialise it quickly. A well drafted licence agreement will balance risk and reward between the parties; protecting the entrepreneur and helping them to realise value through a royalty stream. Careful scrutiny of agreements is needed to ensure appropriate royalty rates and territorial restrictions are set. Entrepreneurs also need to make sure that the integrity of their intellectual property is secured and that licensees are committed to sufficient levels of sales activity to ensure that the opportunity is properly exploited in a timely fashion.

Protecting the intellectual property (IP) of any innovation is important; particularly if an entrepreneur intends to licence it. However, specialist advice should be sought in this area, as rushing to patent a new technology may not be the best way to protect it. Entrepreneurs also need to understand the importance of confidentiality and use non-disclosure agreements where necessary.

If a pragmatic approach to commercialisation is adopted, there are huge opportunities for medtech entrepreneurs.