Avoiding the Doom Loop: Innovation Realities for Orthopedic Startups

The enforced moratorium on sales during the early days of the pandemic allowed some orthopedic companies to step back and sharpen operational or developmental projects. The largest players even accelerated their R&D spending, as we saw with Zimmer Biomet when company CEO Bryan Hanson said, “We look at ROSA and other robotics-related initiatives as key priorities. Our investment, if anything, will accelerate right now and certainly focus on these projects. We’re going to continue to build out our dedicated specialty sales teams and other high-value commercial programs. These things will not stop during this time.”

But, what about pre-revenue companies that drive much of the innovation in the orthopedic market? With little margin for error, these companies must balance aspirations and realities in a pandemic-stricken market. Industry veterans discussed this balance during AdvaMed’s Virtual Medtech Conference. The panel included:

• Amy Siegel, S2N Health, Co-Founder and Managing Partner
• Martha Shadan, Miach Orthopedics, President & CEO
• Scott Schorer, GI Dynamics, President & CEO
• Laurel Sweeney, Access Strategies, Principal
• Peter Robbins, Medtronic Canada, Pricing Strategy Manager

Here are three takeaways from their discussion that may help executives of small orthopedic companies successfully bring their innovations to the market.

The Doom Loop

Amy Siegel attributes the creation and success of S2N Health to the doom loop. “We’ve all seen it launching medtech innovations. We see it over and over, and that’s helped S2N get starting as we try to intervene in the doom loop,” she said. She describes the cycle like this:

1. You get approval for a technology
2. You raise money for commercialization, but the celebratory feeling quickly fades as adoption flattens much sooner than expected
3. You hire reps and add infrastructure to counter-act flattening
4. You hit the wall after selling to the top 5% of believers
5. Your CEO is fired, more reps are added, and R&D funding is cut
6. You have a fire sale, pivot or restart

Hitting the wall and flattening out far sooner than expected is often because of a lack of focus as innovations fail to solve a big or clear enough problem with a tightly defined target audience. Other causes include lack of adequate reimbursement potential, insufficient evidence of value, entrenched competitors or practice and long selling cycles.

Value is a critical component of a successful medtech innovation, and it begins with a well-defined problem. It must align with the needs of relevant clinical and financial stakeholders and those of the target market. An innovation must create enough value that hospital systems want to spend money on it.

The PICOS Framework

Payors evaluating medtech innovations often use the PICOS framework:

• P. Target Patient Population. Who are the eligible patients?
• I. Intervention. What it is will drive expectations of how it can be used in clinical practice.
• C. Comparator. What is the current standard of care for these patients?
• O. Outcomes. What outcomes do they expect to achieve with this solution?
• S. Setting. Where will the solution be used?

Correctly identifying the target market is crucial. Martha Shadan said, “As small companies, we tend to overestimate the size of our potential market because we don’t understand who our real target audience is for the technology. When we do that, we mislead ourselves, which informs decisions on spending that we shouldn’t be making. It’s always important to identify the biggest value proposition you have.”

Scott Schorer believes meeting with investors without a clear idea of your potential market has negative consequences.  “You have an opportunity when speaking to sophisticated medtech investors to either gain or lose credibility depending on how you present your market potential. You need to have a tight answer to this. It’s usually going after a sub-sector of your target market first. Go for an absolute lay-up indication where you have such clear-cut advantage,” he advised.

Regarding outcomes, Schorer believes companies must have a coherent strategy to build evidence and a reliable timeline for when achieving that evidence. He said investors want to hear that a company is doing a little bit at a time and risking less capital to get to answers, since those answers may be negative. Sometimes “there’s no there there,” Schorer said.

Engage Partners Early

Early in the process, engaging with payors and regulatory bodies can pay dividends to startups bringing innovations to commercialization. The collaboration between FDA and CMS has created an easier path to reimbursement for breakthrough status devices. Companies can expect two to three years of funding while building evidence toward achieving a permanent payment code.

FDA’s Early Payor Feedback program allows companies to meet with payors during their pre-submission meeting. This can provide a valuable pressure test of the company’s evidence plan. Laurel Sweeney said, “The payors listen or add something; they really see it through the eyes of a payor. Where do they see gaps in your evidence? What might they suggest you do differently? I recently did this with a company, and it was very successful. We had four payors attend, and we had one payor that was so interested they were asking about investing.”

Schorer also suggested that companies hone their approach in Europe through NICE. “If you’re going to commercialize in Europe, CE Mark is basically a hunting license but does not solve reimbursement issues in every country. In the U.K., we have a dual strategy of going directly to the clinical commissioning groups while, in parallel, going to speak with NICE. It’s good housekeeping to get NICE’s endorsement. It’s not critical, but you don’t want to have them look at your technology and then not endorse it,” he said. For product developers without contacts at NICE, Sweeney recommends the institute’s Medtech Early Technical Assessment Tool.

Startups attempting to bring innovative products to commercialization already faced an arduous path before COVID. Now, companies must operate with even less room for error. The panel believes companies that focus very tightly on a specific target market and value proposition will have the best chance of avoiding the doom loop of medtech innovation.