MEDdesign

How Both Low and High-Risk Innovations Play a Role as Change Agents

By Tommy Carls
May 12, 2022


• Categories: 01-Digital Health, 02-MedTech Economics, 04-Product Design & Development, MEDdesign, Medical Devices, Product Design

Developing new medical device technology is inherently ambitious. The reality is that product innovation and the startup companies behind it fail most of the time. The established industry relies largely on the incremental innovation of technology that was created long ago, and we have reached a tipping point: The innovation squeeze. The technology behind most legacy medical devices has been in use for decades, having served their purpose as building blocks but limited by materials available and therapy application. Both legacy players and startups have an important role to play when it comes to medical innovation—they need to work together to meet the increasing demand for minimally invasive treatments, value-based care and innovative, not incremental therapies. This is a mutually beneficial relationship that is key to medical technology development.

Innovation and new technology is a business-building strategy for industry incumbents. A recent McKinsey & Company report on how medtech launches and scales new businesses unintentionally highlights this innovation squeeze. Many companies “develop a new product by digitally enhancing an existing one.” This approach is an example of incremental innovation where the project expenses are well known and can be managed tightly within the corporate financial structure. This risk-averse approach may result in short-term business growth, but it can be argued that incremental progress holds life-changing and business-changing opportunities captive, because it doesn’t leave much money left on the table for true innovation.

This situation allows nimble, less institutionalized startups to take on greater risk of innovating. It’s a fact of the complex ecosystem of legacy and startup players. Further pushing them into their prospective corners of the risk spectrum is the evolving corporate approach to venture-capital portfolios — a delicate dance led by Silicon Valley’s traditional VC strategy and incredibly high industry expectations for growth. Pressures around “meaningful” portfolio growth leave little room for disruption.

That high stakes environment is where startups come to thrive because they are uniquely positioned to identify problems, innovate their product organically to solve the problem, and operate at an accelerated pace without bureaucratic and complex corporate oversight. But startups typically lack the experience, brand recognition, and the deep pockets required to bring a product to market, especially in the nuances of healthcare.

The orthopedic robotic revolution started with the Mako robotics system that Stryker acquired to help with knee replacement surgery about 10 years ago for more than $1 billion. In 2018, Medtronic purchased Mazor’s spinal robot at a cost of nearly $2 billion. Last year, medical device startups staged a record number of 24 IPOs and acquirers purchased 22 venture-backed device startups. Broadly, acquirers are looking for medical devices that will improve medical procedures and enable more patients to be treated. This illustrates a general trend for legacy companies to enhance existing product lines with organic iteration updates while using their balance sheet dollars to purchase new innovative technology, rather than incurring the expense of developing it in house.

The only hitch is that industry giants are looking for startups to reach a certain level of maturity before they’ll consider acquiring them. So how can your high growth startup balance the needs of long-established companies but still push the boundaries of innovation?

1. Bring innovation to an area that is ripe for evolution.

Big companies are beholden to their stock price and have a limited budget for innovation, but they can hardly resist acquiring a startup that is developing complementary or additive technology in their highly profitable product segments. Spine surgery in particular is an area that has remained the same for far too long. Spinal implants and internal fixation go back hundreds of years, but significant growth in our industry happened in the late 90s and early 2000s. High growth startups such as Proprio are blazing new frontiers in this area by identifying gaps in product segments/therapy treatments and creating innovative technology while also simultaneously creating new market segment opportunities.

Legacy organizations are risk-averse and promote new products as innovation but it’s mostly iteration on a current theme. The risk is low, return is not as high, but it is predictable. They are not developing disruptive innovation. The opportunity here for high growth startups is to identify an area of opportunity, innovate there and plant your product innovation as a flag that will require the attention of a large medical device company that may want to acquire your innovation.

2. Spend time with your customers.

You can learn a lot about areas in need of innovation just by listening to your customers. They don’t always know the product they need specifically—but they can often describe the problems they’re experiencing and it’s up to you to develop a product that will provide a solution. It’s important to expand the customer base beyond just surgeons when listening for problems to solve.

Music fans didn’t directly ask Apple to create an iPod in 2001, but after 15 years of CD changers dominating the music storage market, it became clear that people wanted a more convenient way to access their music libraries. Now, more than 20 years later, streaming music has never been more accessible. This is information you can glean just by listening to key opinion leaders and the voice of the consumer and apply that information to develop a product that meets a need.

3. Keep your idea specific.

For an ambitious, high-growth startup, it’s very easy to be distracted by the vast possibilities. But after you identify the key area where you want to focus that will both be appealing to the established medical technology companies and meet the needs of your customer, you want to keep your idea focus very narrow. At Proprio, we are excited about the possibility of expanding our real-time surgical tracking of the spine to other areas. We’ve identified market segments that would benefit from scaling our idea, however, it’s important to focus on the spine because our technology solves some key issues with existing therapies. We’re taking a focused and deliberate approach, rather than trying to expand too quickly.

Both established companies and new, eager startups play important roles in the medical innovation environment. But significant change in the medtech industry is going to come from outside of the big players. We need startups who are willing to make high-risk, high-reward decisions and legacy companies who are willing to invest in and acquire new technology companies. This symbiotic relationship is important to help achieve the ultimate goal: improved patient care via innovative therapies.