The lesser known spin-off strategy is when the original parent company breaks off to form a new company. The primary reason for this, is that companies may want to market a new product under a different name, or divert attention to R&D projects that languish due to not fitting into current strategies of the parent. Packaging the project as a standalone entity creates a focus and may potentially grow the development of the technology. This option may be suitable for technology companies that have a pipeline of IP and products. A biotechnology company for example, may spin out parts of its biotech developmental pipeline into a separate company. At Inner Maven we can assist inventors to consider the pros and cons of spinning out your IP into a separate company.
- Forming a spin-off can highlight the value of a division that has been overlooked within the parent company. Breaking off into a new company will motivate previous managers to have a greater sense of responsibility in terms of performance and provides greater clarity. Alternatively a new, highly focused CEO might be recruited to drive the company and commercialisation of the IP.
- A spin-off allows the inventor (usually a company) to retain direction of the invention and allows them to retain the ability to develop and control know-how and future IP.
- The inventor may be interested in taking on more or a partial role in the commercialisation process rather than licensing out the technology.
- The technology in question may require further development; breaking out can accelerate the speed of commercialisation, compared to retaining it as part of a large development portfolio.
- Outside parties that may not have been interested in the activities of the parent company, but are interested in the technology of the spin-off, can be brought in as equity partners.
- The company could lose the synergistic benefits of having multiple business units working together and face increased risk due to lessened diversification.
- Financial risk: The spin-off may not perform as well as expected. By breaking off, the new company will sacrifice the security of having costs covered by the parent.
- High cost: Being an independent company means the spin-off company will incur additional corporate costs associated with certain service and internal management systems which have been previously provided by the parent company. These additional costs can be quite high.
- Reduction in the economies of scale including borrowing capacity, costs of employment and general operating expenses.
Start-ups are small, newly created and in a phase of development seeking growth and entry into markets. The entire concept is considered quite risky as business outcomes are unknown and high amounts of resources and time are required by the founder. Arguably, more than any industry, medical device and biotechnology companies have the potential to have a measurable impact on healthcare, medicines and other world issues. Entrepreneurs in this field face the additional challenge of melding science with business, with high expenditure on research & development. As an entrepreneur, running your own company requires great persistence, flexibility and hard work, but the end result is the ability to create a product that may benefit the health of countless individuals, and hopefully reap financial benefits as well.
Here are the pros and cons of embarking upon a start-up:
One of the main reasons why inventors decide to ‘go it alone’ in their commercialisation, is the perks of flexibility and control – eg. setting up your own hours, creative control and unlimited earning potential. Entering into partnerships or joint ventures means you also need to consider the needs of the other party, which may be contradictory to your own needs.
Increased productivity in decision-making
As a sole owner, the only party that is involved in decision-making is you. No voting, collaborations or team meetings.
As a sole proprietor, your vision is uncompromised. Having a singular vision can provide direction, in contrast to partners that may have differing views that lead to compatibility issues.
In contrast to partnerships and joint ventures where there is a degree of risk sharing between parties involved, start-ups face a higher risk of business failure. A recent Harvard study noted that 75% of startups fail.
Failures and Setbacks
One of the unique challenges faced by biotech and medical device companies are dealing with setbacks and failures. A technology may fail in the final stages of clinical trials and adverse events and regulatory inaction can delays the commercialisation of a product. Embarking upon a start-up is not for the faint of hearted, but requires extreme persistence and commitment.
Running out of cash
A fundamental reason for start-up failure is running out of capital. The CEO or director must understand the funds available and how much capital needs to be raised to achieve certain milestones. Patenting an invention, then commercialising your idea can be expensive and full costs often aren’t known up front.
Specialist knowledge in capital raising is often crucial to getting a start-up off the ground and through the early stages; this is where Inner Maven as a trusted advisor can assist.
Joint ventures are a form of strategic alliance where a temporary partnership is formed between two or more parties, seeking to leverage shared markets, IP, knowledge and, of course, expenses and revenue. The degree of ownership is dependent on the agreement. Partnerships and joint ventures are quite similar; however the underlying difference is that partnerships may involve continuing a long-term business relationship, whereas a joint venture may be based on a single business or project. Beginning a joint venture with a business that has complementary abilities and resources can make a lot of sense and assist in the commercialisation pathway, but the pros and cons need to be considered before embarking on this strategy:
- Joint ventures agree to share profits and losses in a particular ratio. This also implies that risk and costs are spread amongst the parties
- Diversification of businesses allows companies to enter related businesses by producing new products
- Opportunity to gain access to new markets. This is of particular relevance if it is a foreign collaborator.
- Opportunity to learn new expertise and gain commercialisation and research and development capacity
- Greater access to resources including specialised staff and technology. Partners may complement one another in that one may have access to new and improved technology but lacks capital, whereas the other may have capital but does not have the technology.
- Use of existing marketing arrangements, distribution networks or advisors (ie. Patent attorneys, business consultants or grant writing specialists) is possible to save on time and resources. Increased flexibility as joint ventures have a limited life span and only serve a proportion of each partner’s business.
- Slower decision making as the objectives and management style of each partner/ inventor may differ, leading to the need to compromise
- Time and effort to find a new partner that is an organisational and cultural fit. A lot of time is needed to establish a positive relationship.
- Imbalance in the share of capital, resources, investment, etc. may create tension points in the relationship.
- Poor integration and poor co-operation may lead to the collapse of a business. Up to 60% of joint ventures end up failing.
Inner Maven can assist in defining and managing a clear path to market and in establishing the correct structures and relationships along the way.
Licensing agreements are contractual arrangements that allow a licensee to use, manufacture or sell particular assets with permission from the contractual owner. Licensing has been integral for smaller companies to gain access to resources, including specialist regulatory expertise or manufacturing and marketing capabilities. These are usually only resources that larger pharmaceutical partners or medical device companies may possess. The essential component is to be able to adequately evaluate the technology on offer, to ensure all value is captured. Here are the pros and cons of licensing agreements from the licensor’s perspective:
The biggest advantage to a licensing agreement is the potential for the inventor to earn revenue passively, through a continuous stream of income without having to exert effort or lose ownership rights. In other words, the licensee does most of the commercialisation work to make profits and the licensor will receive a percentage of the profits, without outlaying capital to fund the venture. In addition, the licensor will not have to incur expenses related to product distribution, marketing, sales, manufacturing, design work, etc. This revenue stream may continue for many years.
It may be more efficient to license out new products if the firm does not have the funding capacity or commercialisation resources to take up production of the intellectual property themselves.
A licensing agreement may enable a firm to enter foreign markets more quickly. There are fewer risks imposed upon the firm compared to the regulatory and financial ramifications of setting up locally. A license will also allow for products to be supplied locally when there is no opportunity to manufacture in the locality. The licensor may also learn about new customer segments and the possibility of redesigning their products to meet their needs. Overall, licensing may assist the company to commercialise its IP or enter new markets more effectively and with greater ease than on its own.
Risking Loss of the IP
Intellectual property owners assume risk when they choose to license their products. A licensing agreement may open the doors for piracy or owners may have the technology stolen or replicated in the absence of good legal representation and a strong patent strategy. Monitoring a licensee’s use of the licensed product is also costly. A good example is software piracy and its illegal distribution.
When the licensor is licensing the technology in exchange for royalties based on sales, then the proportion of revenue earned is dependent on the performance of the licensee to make sufficient levels of sales. The licensor is also dependent upon the licensee to make quality products with its technology, to ensure that its reputation is maintained. In these instances, it may be worth negotiating a guaranteed annual minimum royalty.
Control of Technology
A negative aspect to licensing is that a company’s control over the technology is weakened. The technology has been transferred to the licensee, who is free to use the technology to their discretion.
At Inner Maven, our consultants can assist you to look at the pros and cons of your considered market strategies, to ensure your technology reaches the market in the most profitable manner. In addition we are well versed in the many factors you must incorporate into a well-developed licensing agreement.
Determining the best market strategy can go a long way for the profitability and commercialisation of your technology. The following are the most common ‘go to market strategies’ for biotechnology and medical device companies.
Licensing agreements are contractual arrangements that allow a licensee to use, manufacture or sell particular assets with permission from the contractual owner. The earliest licensing agreement in biotech was the licensing of Genentech’s first therapeutic, recombinant insulin, to Eli Lilly. Since then, licensing agreements have become commonplace in the industry. Licensing has been integral for smaller companies to gain access to resources, including specialist regulatory expertise or manufacturing and marketing capabilities, that larger pharmaceutical partners or medical device companies may possess. The essential component is to be able to adequately valuate the technology on offer, to ensure all value is captured. Learn more about licensing here.
A partnership is an association of people who carry on a business as partners who receive income jointly (ATO). The partners are all joint owners of a business and equally responsible for decisions made on behalf of the company. In other words, all profits, losses and responsibilities are equally shared, unless specified otherwise in a partnership agreement. Sharing a partnership with a medical institution for example, can foster medical device innovation providing access to patients during early stages of product development. Learn more about partnerships here.
‘If you can’t beat them, join them!’ Joint ventures are a form of strategic alliance where a temporary partnership is formed between two parties, seeking to leverage shared markets, IP, knowledge and, of course, expenses and revenue. The degree of ownership is dependent on the agreement. An example of a joint venture is the partnership formed between Unilever and lluminage. The relationship will leverage Unilever’s global expertise in development and marketing of beauty products, with the technical expertise of Syneron’s aesthetic devices. Learn more about joint ventures here.
From Facebook to Apple, these large innovative companies that we know today, all started as start-ups. Start-ups are small, newly created and in a phase of development seeking growth and entry into markets. The entire concept is considered quite risky as business outcomes are unknown and high amounts of resources and time is required of the founder. Medical or biotech entrepreneurs face the additional challenge of melding science with business with high expenditure in research & development. Running your own company requires great persistence, flexibility and hard work, but the end result is the ability to create a product that may benefit the health of countless individuals, and hopefully reap financial benefits as well. Specialist knowledge in capital raising is often crucial to get a start-up off the ground and through the early stages, this is where Inner Maven can assist. Learn more about start-ups here.
The lessor known spin-off or spinout company, is when the original parent company breaks off to form a new company. The primary reason for this is that companies may want to market a new product under a different name or divert attention to R&D projects that languish due to not fitting into current strategies of the parent. Packaging the project as a standalone entity creates a focus and may potentially grow the development of the technology. A biotechnology company for example, may spin out parts of its developmental pipeline into a separate company, snagging interest from venture capitalists and advancing the development of these products. Learn more about spin-offs here.
At Inner Maven, we have experienced all kinds of market strategies. Our consultants can assist you to identify the best market strategy and guide you through the process.
During the commercialisation process, entrepreneurs may consider developing a presence in various international markets. Before embarking on this journey, it’s crucial for the foreign company to understand a specific country’s culture, market need and customs, that will ultimately assist a new medical device to be tailored and distributed within a new jurisdiction. Even if both the countries are in the same continent, the cultures and business etiquette may be vastly different. For example, Hong Kong (being an ex-British colony) has more Westernised customs, compared to countries such as Japan.
Here are several things to consider when engaging with others in the international market:
Familiarise yourself on the customs and business etiquette of your target country.
Many large international companies are familiar with engaging with foreign companies, however; local customs and cultures are still very much present. For example, in Japan, politeness is a key aspect of Japanese culture. The Japanese may shower praise for your product, but may have no intention of doing any business. Often using an interpreter will allow the Japanese to be more forthright, as they are not rejecting you directly.
Gather historical data and understand the country’s currency and pricing mechanisms.
Spend the first month doing business in your chosen target country aggressively networking and information gathering. Know the market value of your target country, do not assume this will be similar to your home country or other countries. Not understanding the value of your product, means foreign distributors may markup your product without passing a fair percentage to you. By comparing your home market statistics, you should also be able to extrapolate some reasonable revenue forecasts, that may be useful during the contract negotiation process for new distributors, etc.
Become an expert on the country’s laws governing business
Understanding a foreign market – particularly non-English speaking countries, can be difficult. Find local representation if possible or even set up a local office to manage and monitor the performance and relationships with local distributors, suppliers, etc.
Conduct Market research
For medical devices this may involve contacting Key Opinion Leaders in a specific medical field and asking them to provide feedback or to trial your device in the field. This may serve as useful development feedback and to identify the needs of your target market.
Compare with your competitors
How have others in the medical device field entered this target market? What obstacles did they face? How did the company approach the new market? What can you learn from their process?
At Inner Maven we have launched countless Australian products into international markets such as the USA, Europe and Japan.
There are important things entrepreneurs need to consider before commercialisation. The fundamental question is whether your medical device is a sustaining technology or is it a disruptive one?
A sustaining technology is one that relies on incremental improvements. For medical technology, this may be a diagnostic test that has improved sensitivity or accuracy to detect bladder cancer, or it may be a medical device that has improved functionality compared to currently available models. For sustaining technologies, it may be worth pursuing a licensing strategy, rather than competing directly with big competitors. This is where the owner of the intellectual property licenses the technology to another company to manufacture, market or distribute. Click for further information on licensing opportunities.
A disruptive technology is a game changer. It shakes up the industry, is groundbreaking and creates a completely new industry. Think of the introduction of the first smartphone, 3D printing, the first automobile, the first minimally invasive surgery, etc. In these instances, it is recommended that a medical device company pursue a start-up or spin-off strategy where raising capital in the early stages of commercialisation is pivotal. Pursuing a licensing strategy may not be suitable for disruptive game changes, particularly when the product may reduce the sales of a competing company’s existing product line. Click for further information on start-ups and spin-offs.
At Inner Maven, we can search the market for competing technologies and evaluate whether your product is sustaining or disruptive. Following this evaluation, we can then assist you to pursue the most appropriate market strategy.
Finding a business partner is merely a small step in the commercialisation journey. From here on, the relationship needs to be managed to ensure it is a mutually beneficial one. Wasting time with mismatched partnerships is particularly harmful to those looking to commercialise medical devices or any technology device for that matter. It may significantly delay the development process, which in turn delays the regulatory process and the release date of the device. Consider the following points in managing a business relationship:
Ensure the right agreements are in place before commencing any sort of transaction or discussion. You may want to hire a lawyer to draft one, however make sure you engage the right lawyer as some are more experienced in this than others. This may involve signing non-disclosure agreements to ensure company secrets or commercially sensitive information can be freely discussed between parties. You don’t want to be burned by the other party by not having the right agreement in place.
Clearly communicate your expectations with the relationship. Again, this may be supported further by agreements depending on the type of relationship. For instance, you may require a distribution agreement for each district and distributor you are dealing with. License agreements, shareholder agreements, marketing agreements and various market entry agreements such as: joint ventures, partnerships, etc. are also common for medical devices. In the instance that the other party is not living up to the contractual agreement, it may be necessary to walk away or send warning notices. This is something a legal advisor will manage on your behalf.
This is an obvious one, but both parties need to gain something for the relationship to be worth pursuing. Think of your weaknesses and how the partner can help. Think of their weaknesses and how you can help.
The relationship should be a collaborative one where both parties communicate on a consistent basis, sharing issues and solving problems if necessary. Schedule monthly or weekly meetings as required to catch-up. Meet face to face to strengthen the relationship.
Be willing to give and receive honest feedback. Business networks are increasingly important in the medical device industry. You never know which contacts both parties may have that may be useful to the other.
If you have no clue how to manage relationships such as joint ventures, partnerships, etc. – seek assistance.
Commercialisation consultants from Inner Maven can assist in finding and managing business relationships and can also refer you to the appropriate legal advisors.
Many start-up medical device companies face hurdles in lack of resources, expertise or capital. Many inventors choose to support the initial development phase of their technology with their personal resources, but soon find that they run out of time and money. The project may also be too early in the development phase to attract external investors or venture capital. One solution is to find a commercial partner to support the commercialisation process. The two most common forms are to:
- License the technology: Find a company that may be interested in a co-development opportunity. They may be able evaluate the technology and provide the extra resources to speed up the development process.
- Partner with an OEM manufacturer: Risk share in the development and manufacturing of your medical device. An OEM manufacturer may have the expertise in the development and manufacturing of a particular niche technology. They may also have the ability to sell to other device companies with access to a particular target market.
The following are points to consider in increasing the likelihood of engaging a potential partner.
- Don’t go straight to the big pharmaceutical companies. They are big for a reason and that also means that they are a lot fussier when choosing potential partners. Consider smaller medical device companies that are in a growth phase, that are looking to expand their portfolio.
- Look at the current product offerings of the target partner. Is your product complementary to their current portfolio? Does your product fit in with the company’s vision?
- Attend as many industry networking events as you can. Many medical device and biotechnology companies congregate at specific networking events, designed to bring together people of the same industry. You never know who you will meet that can connect you to the right target company.
- Communicate. Communicate. Communicate. Once you have established a list of relevant target companies it is time to ask for an evaluation or potential partnership. Follow-up constantly, be responsive and continually update them on key milestones. Persistence is the key.
- Engage a consulting firm like Inner Maven. The right consulting firm will already have the networks, relationships and knowledge to improve the quality of the partner you need and the timeframe to find them.
At Inner Maven we have successfully engaged multiple commercial partners for our clients during the early phases of development, which has resulted in the successful commercialisation of medical devices.
If you have ever studied Marketing 101, the concept of the four P’s is one that you will be familiar with. Before successful commercialisation, inventors need to consider how to position their medical device in the market. The 4P’s of marketing is a simple tool for determining how to put the right product in the right place, at the right price, at the right time.
This refers to the medical device itself, which will be on sale to the target market. This includes the quality of the product, design, features, packaging, customer service, branding. Other questions to consider include how is your medical device differentiated from competitors in the market? How and where will the customer use it? Do the features of your device meet their needs?
Place is in regards to distribution, location and methods of getting your medical device to the end consumer. For customers to purchase your device, you need to consider the most appropriate distribution channels. This means finding well-aligned distributors and deciding whether you want to distribute locally and/or internationally.
This is concerning the appropriate price to which your target market must pay in order to purchase your medical device. There are multiple things to consider in choosing your price point. This may include price sensitivity, competitor prices, profit margin and expenses such as delivery, licensing fees, distribution fees, etc.
The final step to successful commercialisation is communicating the benefits and value of your medical technology to the target market. Common methods include attending medical trade shows, product launches, training sale representatives to sell your product to health professionals and marketing material such as brochures and pamphlets.
At Inner Maven, we can assist throughout all stages of the marketing mix. We’ve assisted early stage medical device companies to find distributors, developed financial models to determine price points, managed the product development process and had heavy involvement in promoting medical devices, including visiting health professionals and setting up launch events.