My colleagues in EY’s Government & Public Sector and Strategic Growth Markets groups recently released a comprehensive report based on the 2013 version of the G20 Entrepreneurship Barometer. The Barometer, a collaboration between EY and the G20 Young Entrepreneurs’ Alliance, seeks to measure the health of entrepreneurship across the G20 nations using a combination of objective measures and survey data. The report, titled The Power of Three, finds that entrepreneurship is not just driven by small, innovative firms. Instead, the “power of three” comes from combining the strengths of three actors: entrepreneurs, governments and large corporations.
The Barometer measures entrepreneurship across five dimensions: access to funding, entrepreneurship culture, tax and regulation, education and training, and coordinated support. While these factors would be critical for developing and sustaining entrepreneurial businesses in any sector, the report caused me to reflect on the unique challenges of building biotechnology companies and clusters. Is there another industry where the expectation inherent in the business model is over a decade of highly uncertain, capital-intensive R&D without a single dollar of product revenue along the way? Despite this daunting proposition, entrepreneurs and investors have been attracted by the opportunity to create tremendous value in the form of new therapies that save or extend lives.
Being located in Boston, I am fortunate to work in one of the world’s great clusters for biomedical research — an amazing mix of academic institutions, private research foundations, entrepreneurial companies along with their investors and, more recently, large pharmaceutical concerns anxious to be “close to the action” of cutting-edge research. The “power of three” is thus highly evident here — government funding, principally through the NIH, fuels the research of academic labs, which in turn is translated into product candidates by entrepreneurs and an experienced cohort of venture capitalists. From the very beginning of the modern biotech industry, big pharma has also played a critical role to both finance (through strategic alliances) emerging biotech companies and implicitly validate research for the next group of investors (from the public markets). When private venture capital waned following the 2008 financial crisis, big pharma companies increased their own corporate venture activities to help bridge the gap and sustain a robust innovation ecosystem. Continue reading
During the week of 23 September, the medical device industry descended on Washington, DC, for the annual AdvaMed Conference. Below are some of my observations gleaned from both the sessions and from hallway conversations with industry leaders.
ACA: gravy train or train wreck? The conference, held on the eve of the adoption of the Affordable Care Act (ACA), was dominated by discussions on this historic legislation, with a wide spectrum of opinions on how the ACA would impact stakeholders. Former head of the Centers of Medicaid and Medicare Services, Tom Scully, trumpeted the ACA as a boon for the industry, with $120 billion of new government spending kicking in on 1 January 2014 and quickly ramping up to $200 billion in 2015. Others advised caution, citing fiscal year 2014 budget concerns and brinkmanship around the debt ceiling and ACA funding — something that has certainly been borne out in recent weeks in DC. “Keep a very close on eye on the budget and debt ceiling debate,” a senior policy advisor on the Hill counseled. The industry has a strong interest in repealing the medical device tax, a levy that has hit medtech companies hard. One senior staffer on the Hill indicated repeal would not happen because the cost in lost revenue was too high. However, since the Conference ended, the tax has become a bargaining chip to help end the government shutdown.
Demonstrating value. Medtech products have added tremendous value and saved many lives, but one CEO lamented that as an industry, “we haven’t done a good enough job keeping score.” The industry is just starting to make efforts to accumulate clinical and real world outcomes data that could support reimbursement and improve pricing power. See our Pulse of the industry report, launched at AdvaMed, for a deeper discussion of this topic. Continue reading
While established medtech companies are looking to China for growth, the country’s potential is not just as a market for western firms — China is also well positioned to disrupt established business models with less expensive products at a time when payers are focused on value. To adapt to this challenge, western companies should look for ways to increase customer loyalty and the “stickiness” of their brands through three approaches: segmentation, “servitization” and design.
As payers move to value-based health care, medtech companies will need to adapt their business models to remain relevant — hence the ongoing expansion by many into services. But payers will also seek “good enough” products that meet the needs of most patients and physicians at a reasonable cost — and this is one area where China could be a major force.
The Chinese government is investing in medtech and sees it as a strategic priority — medtech is included in the seven strategic emerging industries prioritized in the country’s 12th Five-Year Plan. The plan calls for an investment of around US$186 million in the sector, and aims to issue 200 patents, create 50-80 new medical device products and nurture 40-50 innovative companies. Continue reading
Two years ago, in Pulse of the industry, we warned that the sector was facing a perfect storm, caused by a general shift toward value-based care, growing regulatory pressure in the US and limited resources due to a global downturn. Those events came to pass, with the added complication of tougher new regulatory issues in Europe. It was time, we felt, in this year’s report to see how the sector is weathering the storm.
The answer, in many respects, is that the going is tough. Revenues are growing, but barely. Innovation capital is at an all-time low. And the sector now has a new set of customers to deal with – the cosy partnership with physicians which helped to make medtech a success is now far less relevant than the more demanding new relationships the sector finds itself having to form with payers, patients and purchasing consortia.
The importance of those new relationships means that medtech has had to dramatically rethink its value proposition. “Value” to a physician meant producing products that were incremental improvements on previous versions, based on ease of use and compatibility. But what does value mean to a payer or a patient? Payers want hard evidence of improved outcomes and cost savings before they will reimburse a technology. Patients want portability and better ways to manage their conditions. Hospital groups want cost efficiency – and help with offering services beyond simply point of care. Continue reading