Consumer Medtech: Is the Grass Really Greener?
Medical device development has been burdened lately by a high regulatory burden and an increasing uncertainty around reimbursement [1, 2]. In reaction to this, consumer medical devices with minimal regulatory burden that are mostly self-pay and self-treat, have garnered significant interest from the medical device community.
In a panel discussion moderated by Josh Makower, MD (Co-founder of Stanford Biodesign Innovation Program, Founder of ExploraMed incubator, and General Partner at New Enterprise Associates) and hosted by Wilson Sonsini Goodrich and Rosati (WSGR) and Silicon Valley Bank (SVB), the question of whether the grass is really greener was posed to a panel of four guests with diverse backgrounds that brought multiple perspectives to this question. Comprising the panel were Asha Nayak, MD (Global Medical Director at Intel Corp), Charles Wang, MD (Co-founder and COO of Lumo Bodytech), Karl Ronn (Co-founder and Board of Directors Member at Butterfly Health), and Karen Long (President and CEO at Nuelle).
|Panelists (L to R): Asha Nayak, Intel; Karl Ronn, Butterfly Health; Karen Long, Nuelle; Charles Wang, Lumo Bodytech||Josh Makower (Biodesign, Exploramed, NEA) moderating the panel discussion.|
While these companies and devices are highly different in maturity and size (Intel Corp) and product areas (Lumo Bodytech – posture, personal data feedback; Butterfly Health – accidental bowel leakage management; Nuelle – women’s sexual health), all have one thing in common in that they are targeting general consumers as their primary customers.
Why does the grass look greener?
A growing market segment
First, growth has been high in the personal health space including consumer medical devices and mobile health (mHealth) products. A report from IHS Research suggests that the global consumer medical device market will reach $10.6 billion USD by 2017 . Growth in this sector is attributed to a growing and aging population as well as the high prevalence of lifestyle-related diseases such as hypertension that can benefit from monitoring. For example, blood pressure monitoring itself is anticipated to exceed $963 million USD by 2017. The ability to have pocket-based and wrist-based computing power in the form of smartphones and smartwatches has now further expanded the ability to design in added functionality and record data to obtain insights from users.
New technology development is enabling a large portion of consumer medtech as noted by the growth of wearable sensors and fitness trackers such as those produced and sold by Lumo Bodytech, Fitbit, Jawbone, and Misfit Wearables to name a few. For example, Fitbit which had an IPO earlier this year projects sales between $1.6-$1.7 billion USD for the year and noted sales of 10.4 million devices in 2014 [4,5]. It has become clear that people are willing to pay for these devices and that a growing acceptance of self-monitoring and self-improvement has become part of the consumer mentality.
This recognition that many chronic (and costly) diseases are the result of lifestyle choices has not gone unnoticed by government. The creation of the Healthy People initiative with a focus on helping to “[e]mpower individuals toward making informed health decisions” and “[m]easur[ing] the impact of prevention activities” is indicative of a shift in thinking toward more preventative care thinking and encouraging the individual to take more ownership of their health .
What does the FDA say?
However, not all of the appeal is tied to new technology development and consumer empowerment. The second layer of appeal is the ability to create businesses that meet consumer needs without having to go through the regulatory clearance process overseen by the FDA.
In a new guidance released by the FDA earlier this year, distinctions have been made between what the FDA is categorizing as General Wellness Products characterized as “low risk products that promote a healthy lifestyle” and devices which otherwise would require general controls or regulatory review under the established medical device classifications (Class I, II, III) . Notably, mobile apps have their own guidance as well .
See Appendix for additional details.
A bad need is still a bad need, and a good need is still a good need.
As confirmed by the panelists and perhaps stating the obvious, a good need is still required in order to build a meaningful business and develop the proper products. As Charles Wang described, extensive work went into researching back pain for their initial Lumo Back product, and with user input the product was iterated again and again to hone in on what would be a meaningful viable product. One key difference compared to traditional medical devices is that with the ability to market and sell its device without regulatory clearance, Lumo Bodytech was able to use Kickstarter to validate the market need and see if customers were willing to put their money behind the product. Limitations do exist with this approach since the customer base being tested here is the subset that knows of and is active in the crowdfunding space as Josh pointed out.
Reinforcing the importance of understanding the customer base, Karen Long described how at Nuelle, the team used both traditional and newer online survey methods to understand and validate customer needs with respect to women’s sexual wellbeing. Specifically, Nuelle spent significant time shadowing OB/GYNs to understand what women talked (or didn’t talk) about, doing detailed analysis of “conversations” women were having online describing their situation and their search for solutions, and holding one-on-one interviews with women they found through local advertising in newspapers to understand these concerns and to ask “What are your needs and desires and concerns with respect to your overall sexual wellbeing?” Karen expressed how surprised they were at the openness with which women responded and shared. This highlights the importance of asking the right questions to understand the key insight. The level of responsiveness can be an indication of how important the topic is to the consumer.
Importantly, Karl Ronn noted that in dealing with a broader, more varied consumer base it is important to find an urgent need where a customer is motivated to take action. This is well encapsulated in the Butterfly product that helps manage incontinence issues that can present significant inconveniences and embarrassment to consumers who then want to address the issue immediately.
From the big corporation side, Asha Nayak noted that at Intel Corp the situation is different in that funding and technology are not lacking; however, tapping into unmet needs is still critical for their success. By engaging a global team of ethnographers, Intel can truly understand their customers in specific contexts (cultural, geographic etc) to help inform their identified needs. With these insights they are able to focus more on understanding how aging is different and the same regionally and globally and work to develop ways to gather data that provides direction regarding better care for patients. One related example is the ability to use a wearable accelerometer to be able to predict whether someone is taking their Parkinson’s medication.
A solution isn’t a solution unless the end users knows about it and knows how to use it.
Do I have a problem?
As pointed out above, in the consumer space, the decision-maker is the consumer who is not necessarily a doctor or interacting with a doctor or specialist to help them understand and address the issues they are having. Overcoming the technical challenges is just one key step. Before the customer even gets to try your product, they may need to better understand the problem they want to address. In many cases, this requires significant outreach and general education.
For those who are engaged in finding a solution for a well-defined concern or issue, known as active seekers, the internet and an internet presence (such as online communities or connecting through search) works well to engage these customers. These people are more likely to be early adopters, therefore understanding how to find them and defining their motivations is critical.
However, the group that Karl called the “silent sufferers” may not know that they have a problem or may have misdiagnosed themselves. For example in the case of Butterfly, certain consumers identify as having irritable bowel syndrome (IBS) instead of fecal incontinence and do not connect with the appropriate solutions. To create the level of awareness in the larger consumer base, Butterfly engaged larger companies such as CVS for in-aisle selling and product placement as well working with medical experts to gain strong support, essential for strong public relations support.
I have a problem and a solution, what do I do about it?
Even if consumer knows that they have an issue, the product needs to be able to perform in the hands of the consumer. Unlike traditional devices which are put into the hands of a few trained and skilled experts who then perform a procedure or administer a therapy to patients, consumers are a highly variable group in terms of abilities. Therefore, the product needs to be very clear and guide the consumer in a way that (1) the consumer is able to understand and (2) provides direction regarding how to take next steps. For example, consider a heart rate monitor which is only useful if the consumer is able to use it to obtain the reading and knows what to do with the information.
Ultimately, the solutions provided need to have a measureable and meaningful output as assessed by the consumer and need to be designed for “usability and delight” as Karl Ronn noted.
Funding your venture
Similar to having a strong need and solution as a foundation, fundraising in consumer medtech is not significantly different from fundraising for traditional medical devices. Asha noted from reviewing pitches that those whose teams had traditional device backgrounds frequently stood out due to the level of diligence behind their research and business plan evaluations.
Building a brand instead of a salesforce
While Karen Long noted that costs can be comparable between a consumer health company and a traditional medtech company, several distinctions do exist including the timing of the spend. Because of the breadth of the target market a traditional direct sales force is not required. However, the costs are shifted because of the need to appeal to mass markets, and it is important to account for direct-to-consumer (DTC) marketing and branding costs. It would not be unusual to spend $20MM to bring a new brand to market depending on the category. Where consumer health tech companies have an advantage is that the marketing and advertising is testable and scalable at a much lower cost than hiring more sales reps to increase a territory size.
Compared to traditional medtech where long timelines are anticipated due to technology development and regulatory clearance before sales, in the consumer space, product sales are expected immediately and are often a requirement for fundraising as a validation of the customer base. In this way, a crowdsourcing campaign such as that used by Lumo Bodytech on Kickstarter can be used to validate the customer need as noted by Charles Wang and for PR as noted by Karen Long. This also means manufacturing cost need to be accounted for at an earlier stage in consumer medtech.
While clinical trials may not be required, claims language still needs to be supported with evidence and is regulated by the Federal Trade Commission (FTC) (and sometimes FDA) so it’s important to allocate funds to perform these studies as needed for product differentiation and marketing.
Protecting your assets
Intellectual property (IP) protection is still important. Patents should still be filed, but often given the shortened timelines for consumer products to reach the market, the patent prosecution times exceed market release dates as often seen by the “patent pending” badging on consumer products in the marketplace.
An important consideration is filing not only utility patents but also design patents that cover the form factor of the devices to complement the branding strategy as well as to reduce the chance of knockoffs with the same look and feel. Design patents can also issue more quickly to provide some assurances around the brand being built.
As noted a number of times above, making consumers, and hopefully future customers, aware of the product being sold is a critical step in empowering them to address their needs. When it’s possible to target users very specifically such as identifying that Kickstarter participants are an appropriate customer base, it can be useful to use similar platforms and to target specific tradeshows such as Lumo Bodytech has done with Kickstarter and launching at the Consumer Electronics Show (CES).
For mass markets broader outreach methods are necessary. It’s too expensive to do a direct sales approach, so partnerships with retailers and advertising that provides broad viewership and throughput are key, as noted by Karl Ronn.
Because many marketing and advertising tools can now provide targeted advertising and data that can be analyzed, using these tools to further refine audience targeting can be instrumental to reaching the appropriate markets and being capital efficient with advertising. Similar to product design where the mantra prototype, test, iterate is the norm, Karen Long highlighted that doing this early and often to test customer access and conversion is important to learn how to address the marketplace best and scale. One paradigm for this analysis comes from the digital technology development world and is encapsulated in the Lean Launchpad movement, which is being applied more broadly such as in partnerships with UCSF for life sciences applications [9, 10].
In the case of Intel, Asha Nayak noted that they have taken a slightly different approach of aligning with enterprise payers who are willing to pay for consumer products to improve their bottom lines. Selling in these cases requires a proof-of-concept to demonstrate value to the purchaser in this case even though products are targeted toward consumers. One example provided was large companies paying to have their employees (the consumers) handle their health records.
Planning for an exit
As with any business seeking a return for investors, consumer health products are no different, and it’s important to start with a plan for an exit. Alternatively, one can plan to carry a company, but that carries similar risks and challenges as for a traditional medical device company.
Who are the potential acquirers? On one hand, traditional medical device companies such as Philips Healthcare and Johnson & Johnson looking to expand into the consumer space may find the product attractive. Other acquirers include private equity companies looking to purchase a brand that has been created and grow revenue. Interestingly, the potential acquirers now extend to companies not traditionally active in healthcare such as Intel as seen in recent acquisitions of MyFitnessPal by Under Armour and Google’s purchase of Lift Labs .
How much greener is the grass?
As the panel discussed and explored the consumer health product, it became apparent that certain fundamentals stayed the same as one might expect. There is no substitute for a good need and solid business plan.
In the areas of customer access and acquisition, certain differences emerged. Resources that traditionally would be allocated toward creating a sales force were redirected to brand creation as well as direct-to-consumer marketing. Marketing and sales to a general population with diverse education levels, experiences, and skillsets who may or may not know that they have a problem presents a unique challenge and impacts company value much earlier than in traditional medical device development.
Asha may have put it best in characterizing the tradeoffs and differences between traditional devices and consumer health products noting that:
“You are trading the unpredictability of the FDA for unpredictability of consumers.”
Appendix: What does the FDA say? (cont’d)
As quoted from the guidance, a general wellness product has
- An intended use that relates to a maintaining or encouraging a general state of health or a healthy activity, or
- An intended use claim that associates the role of healthy lifestyle with helping to reduce the risk or impact of certain chronic diseases or conditions and where it is well understood and accepted that healthy lifestyle choices may play an important role in health outcomes for the disease or condition).
And must “present a very low risk to users’ safety”.
Examples noted include:
Exercise equipment, audio recordings, video games, software programs4 and other products that are commonly, though not exclusively, available from retail establishments
With carve outs for mobile software application, which are covered under other guidances (Footnote 7, 8).
It’s all about the claims
Consistent with the way the FDA classifies medical devices (Class I, II, III) and now general wellness products, the critical distinction can be tied to what is being claimed.
The guidance further elaborates that the intended use is further classified into :
Category 1: [A product with] claims about sustaining or offering general improvement to conditions and functions associated with a general state of health that do not make any reference to diseases or conditions.
Category 2, Subcategory A: [A product with] intended uses to promote, track, and/or encourage choice(s), which, as part of a healthy lifestyle, may help to reduce the risk of certain chronic diseases or conditions;
Category 2, Subcategory B: [A product with] intended uses to promote, track, and/or encourage choice(s) which, as part of a healthy lifestyle, may help living well with certain chronic diseases or conditions
Examples of products that could fall into these categories include products that assist with sleep management, sexual function, weight management, and physical fitness.
 Dr. Makower and Mr. Bright Go to Washington. October 17, 2012. Accessed 10/19/2015. https://biodesignalumni.com/2012/10/17/dr-makower-and-mr-bright-go-to-washington/#more-1236
 The Impact of Medical Device Reimbursement on Cost, Innovation and Health Outcomes. GE Healthcare. Accessed 10/19/2015. http://files.publicaffairs.geblogs.com/files/2014/08/The-Impact-of-Medical-Device-Reimbursement-on-Cost-Innovation-and-Health-Outcomes.pdf
 Consumer Medical Devices Set for Stable Market Growth. October 11, 2013. Accessed 10/19/2015. https://technology.ihs.com/456246/consumer-medical-devices-set-for-stable-market-growth
 Fitbit’s Profit Rises as Sales Surge. August, 5 2015. Accessed 10/19/2015. http://www.wsj.com/articles/fitbits-profit-rises-as-sales-surge-1438808283
 Fitbit files for $100 million IPO, on pace to earn over $1 billion in 2015. May 7, 2015. Accessed 10/19/2015. http://www.theverge.com/2015/5/7/8569017/fitbit-ipo-fit-profit
 About HealthyPeople.gov. Accessed 10/30/2015. http://www.healthypeople.gov/2020/About-Healthy-People.
 General Wellness: Policy for Low Risk Devices. Draft Guidance for Industry and Food and Drug Administration Staff. January 20, 2015. Accessed 10/19/2015. http://www.fda.gov/downloads/medicaldevices/deviceregulationandguidance/guidancedocuments/ucm429674.pdf
 Mobile Medical Applications. Guidance for Industry and Food and Drug Administration Staff. February 9, 2015. Accessed 10/30/2015. http://www.fda.gov/downloads/MedicalDevices/…/UCM263366.pdf
 Lean Launchpad. Accessed 10/30/2015. http://venturewell.org/lean-launchpad/
 Lean Launchpad class for Life Sciences. Accessed 10/30/2015. http://www.huffingtonpost.com/steve-blank/lean-launchpad-for-life-s_b_4296375.html
 Non-healthcare acquirers heating up digital health M&A activity. 14 May 2015. Accessed 10/30/2015. https://rockhealth.com/non-healthcare-acquirers-heating-digital-ma-activity/