Assessing Commercial Viability for Medical Devices

Will the Product Sell?

As translational researchers move into the development of novel devices, they must be clear on whether the technology will solve an actual problem, meet a need in an actual market, and do it better and ideally cheaper than what exists now. They must also determine whether the device can be manufactured in a reliable, repeatable, and cost-effective manner, and understand who will use it, how they will use it, who will buy it, and at what price.

Understanding whether an innovative medical device is commercially viable is vital to advancing translational development. Without this knowledge and a strategic approach to ensure viability, startup companies struggle to attract investors and meet their development goals.

For insight into the why and how of commercial viability for medical devices, we spoke with Jeffrey Abraham, Partner, Health Advances.

Importance of Assessing Commercial Viability

Translational researchers and funders need to know whether to invest resources in a concept that may not be commercially viable. Many considerations go into the viability of a biomedical product. You need to confirm that your product offers both clinical and economic benefits over existing solutions, ensure it can be produced cost-effectively, and secure funding by demonstrating its potential.

It’s possible to wait until you have a minimally technically viable product, or even a successful pilot or feasibility study, without having a major commercial presence in your organization. But early on, you should engage with your advisors, consultants, and/or board members to discuss your assumptions. Jeff says, “In particular, you need to understand the answer to the key question: what is your goal? If your goal is to sell your asset to another company, you don’t need to delve as deeply into commercialization concerns and can pursue a different strategic path. But if you want to grow a company yourself, then you need to map out how you will get there. Consider your vision for the future as soon as possible.”

How to Assess a Device’s Commercial Viability

The first thing a translational researcher in medical devices should do is to find someone, whether it be a board member, an executive, or a consultant, who can talk through the questions you need to ask about commercial viability. Will your product be part of a competitive bidding process many years from now? Is it a trade-related device? Are you going to work with a DME (durable medical equipment) or HME (home medical equipment) distributor? Or will you handle distribution? What is your competitive set doing today? You don't have to nail down your marketing and sales strategy in the early days of development, but you do need to start thinking about these commercialization issues.

A great approach is to map out all the stakeholder journeys: patient, physician, possibly caregiver, and maybe non-physician healthcare practitioner. Document the hypothetical flow of how each type of person will experience the product. Questions to ask yourself include:

• Who touches the product?
• Who is expected to use it and how?
• Who is expected to interpret information from the product?
• Will the patient see a doctor in person or virtually?
• Will a nurse/doctor/physical therapist/occupational therapist need to be involved in the delivery of care?
• If necessary, what will be expected of a caregiver?
• What will a surgeon experience if it’s a device used in a surgical procedure?
• How will it affect their workflow?

Jeff says, “When you stand back and look at the different journeys the product will go through, you can see what’s important and set priorities.”

You should also map the payer/physician/hospital journey in terms of price and reimbursement. Who will purchase the product? How will you get paid and how much? Investors appreciate it when developers have researched these issues. Jeff explains, “They may be pleased with your science and clinical data and appreciate how the product works to meet a clear and sizable unmet need. But they’re going to want to know when you will scale, and when they’ll start to see ROI.” He adds, “There are situations where revenue can be immediate if you're in a very well-established market and you’re not reliant on a large salesforce. But in general, spinning up a company takes time.”

Sometimes investors, as well as boards and executives, don’t want to invest in building a commercial organization until the product is FDA cleared. Jeff explains, “That's absolutely fine. But after clearance, you’re not going to make money on day one. You need to measure when you expect revenue, especially scalable revenue. What everyone who has put time and money into this product wants to know is, when are we reaching a decent slope of constant revenue?”

Also, be aware that for both HME and DME medical devices, you need to obtain a code from the Healthcare Common Procedure Coding System (HCPCS), which is managed by the Centers for Medicare & Medicaid Services (CMS). You need to determine whether your product will fit into an existing code (and, if so, whether your manufacturing COGS and SG&A expenses will fall under that current reimbursement scheme) or if you need to get a new one. Jeff says, “It’s crucial to work this out quickly.”

Your plan should include when you will contract with payers. Jeff advises, “Set a goal to get X percent of the market to contract with you. Don’t set a revenue projection but use that contract goal as a leading indicator that you’re going to achieve revenue.” Other leading indicators might include contracts with X HMEs across X geographic regions, X payers responsible for X potential dollars. You may assign your sales team to get X doctors on board per month. These are pre-revenue goals that will lead to revenue.

You need to demonstrate that you've thought all this through and defined a strategy, tactics, and a timeline. Once you have it all laid out, Jeff advises, “You say to your potential funders, here's the plan. It’s going to change over time, but we've thought about it.” Remember that your executives and board members need to be on the same page as your investors regarding the timeline and goals.

Real World Examples of Commercial Viability

Company A: Pathways to Reimbursement

Company A began to get good clinical data on its medical device. They needed their next round of investment to not only finalize their clinical data but also to start building a commercial team. But they lacked a good market access strategy; there was a way they could get paid, but it was not sufficient to cover costs. They worked with a consultant to develop different payment pathways, each with a different probability of success, that they could then present to investors. If situation A happened, they would seek a new code. If situation B happened, they would modify an existing code, which would generate enough revenue to cover the cost of the product. Company A then had parallel, redundant commercialization strategies to show investors, demonstrating that they had thought through the situation. The plan included target dates to start adding sales and marketing staff and laid out the next three years of market access tactics.

Company B: More Time to Gather Evidence

Company B had to delay launch, but sometimes that works out. If they had applied for a code from CMS when they were originally scheduled to do so, they would have had insufficient data and product utilization, and they would have been rejected. The delay gave them time to gather sufficient data and real-world evidence to present to the HCPCS coding committee, increasing the likelihood of their success.

Company C: High Costs Derail Progress

Company C had a product that, when combined with the standard detection methodology, detected 10-20% more cancers. But the developers hadn’t considered the product's cost or the need to integrate it into the existing diagnostic tool. Together, the COGS exceeded the reimbursement rate. And, understandably, doctors weren't willing to lose money on every single test. Company C had great data and a great product, but because they didn't consider the economics, a valuable product didn’t reach the market.

Company D: Failed Competitive Strategy

Company D was in a space where a single company dominated, with a few other potential competitors at various stages of development. Company D planned to do something completely different and cheaper with their commercialization. An examination of the market leader, which had hundreds of employees, revealed that multiple teams were required to successfully sell the product. Company D’s unit economics were expected to be similar; therefore, investors were skeptical that Company D could either outsell the market leader or beat it on cost.

Company E: Demonstrable Clinical and Economic Value

Company E had a surgical product that competed with an expensive drug treatment, which required patients to stay on it for the rest of their lives. Real-world evidence and health economic data were used to build models that demonstrated the clinical and economic value of the surgical product. Investors came in with realistic expectations for a three- to five-year ramp-up to achieve revenue goals. Eventually, the surgical approach became one of the standards of care and a good alternative to drug therapy.

Commercialization Starts Early

According to Jeff, many researchers and product developers see FDA clearance or PMA as the final goalpost in the development process. He says, “People often believe that if they develop a product that meets an unmet need and they achieve regulatory approval, the product will be utilized and financially viable, and they’re going to start making money. And that's just not the reality of the healthcare system.”

Upma Sharma, President & CEO, Arsenal Medical, says, “When you talk to clinicians to verify the clinical need, you also need to assess the commercialization potential. Some clinicians might be excited about your product, but the market might be too small or the condition too niche. You really need to understand that at the outset.”

Robert Chisena, Co-Founder and CTO at AVS Pulse, observes that early on, the patent process helped him understand the market and identify the gaps his product could fill, thereby confirming its commercial viability. He also adds that the company has been preparing for commercialization while remaining cautious due to the cost of hiring a sales team. Robert says, “You can’t sell anything prior to approval or clearance, so you just have to hang in the pocket for a while before you build out your sales team. But you can structure your plan so that you’re ready when the time comes.”

Jeff urges, “Don't wait! If you don't have a path to market access and commercialization, your lab and clinical work might be a waste of time. Understand all stakeholders' perspectives and develop a strategy to ensure each stakeholder group buys in. Map out the flow of the product and the flow of money. If you do those things, you’ll understand what it’s going to take to be successful.”

About Jeffrey Abraham

Jeff co-leads the Digital Health and Health IT Practice at Health Advances, bringing 15 years of healthcare experience spanning digital health and therapeutics, medtech, biopharma, and healthcare services. Prior to Health Advances, he held executive roles in market access, trade, and commercial functions at Akili Interactive, a leading digital therapeutics company, where he focused on payer strategy, reimbursement, pricing, evidence generation, and launch execution — and served as a Digital Therapeutics task group co-lead for the National Council of Prescription Drug Programs and a Scientific Leadership Board Member for the Digital Medicine Society. Earlier in his career, Jeff served as Senior Director of Value Development at The Medicines Company, supporting the global launch of a novel drug-device combination and perioperative and cardiovascular pipeline products, and as a consultant at GfK focused on global market access across drugs, devices, and diagnostics. He holds an MS in Physical Therapy and an MBA with a specialization in Health Sector Management from Boston University.