Cash-laden medical device companies continued to make meaningful acquisitions of early-stage companies in 2018, making it a banner year for medtech M&A, and the trend is likely to continue in 2019.
It's often easier for early-stage companies to develop innovative and disruptive technologies that address unmet needs in the market and larger medical device companies are looking for ways to deploy capital efficiently to bring innovation to the market.
Selling to a large company with plenty of resources can be an attractive option, yet medtech startups sometimes achieve poor outcomes in the sales process if they are not well prepared. These three strategies are key to ensuring a successful outcome.
1. Focus on Your Proof Point
Medtech startups with an eye toward selling must focus. A company looking to buy will need to know how, specifically, a new product will enhance their portfolio and their bottom line. But sometimes, early-stage companies get carried away demonstrating every potential use for their innovation.
If you invented your product to, for example, make prosthetic hands work better, but found that it also can help prosthetic arms and prosthetic legs and even orthotic hip braces, it would be natural to get excited by those additional applications. But when a large company looks to buy a product that improves prosthetic hands, they'll need to know how, specifically, your product will enhance their prosthetic hand portfolio. And they'll need solid evidence of it.
For a capital-constrained startup, it's hard to craft a compelling case that the product does what it is intended to do when the supporting data is an inch deep but a mile wide. The startup should focus on one or two markets or therapy areas and dive into gathering the deep data set that will turn into proof points for adoption.
That often means statistically significant clinical data. Or it could mean working with a key opinion leader, such as a surgeon, scientist, or user who has had terrific success with the product. A significant, properly done case study can also highlight the product's value to potential buyers.
It's better to have one solid study that demonstrates the value of the product than to have smaller data sets for implied additional market applications. In M&A, depth of value leads to stronger outcomes.
2. Invest in Data
Even cash-strapped startups must invest in data. Without data, there is no evidence that a product works. And thus, no good way to sell your company at top dollar.
But collecting the right data needn't be a struggle. Startups must have a clear plan to carefully allocate resources for gathering this supportive information. Be clear about your product's competitive differentiation. Is your product faster, easier to work with, or less expensive than its competitors? Prove it.
To articulate your unique value proposition or differentiation relative to the standard of care, invest in statistically significant clinical studies as appropriate to the target market or indication. Depending on the type of device, a startup may begin with animal study data, then move on to human data. Human data is more valuable though, even if only from a few users. Learn from similar companies and regulatory experts to understand the threshold of data needed to sell a device like yours.
Furthermore, in the medtech industry, the device may be a regulated product. So, work with someone who has expertise in the regulatory space to get approval. In the case of a non-regulated product, startups should minimally conduct a study that compares their products to the existing gold standard. For both regulated and non-regulated products, quality standards should always be incorporated at every stage of development.
Startups should understand value inflection points. The more data you have and the more milestones you have achieved, the more value you create.
3. Market to the Right Buyers
Though startups often make business decisions based on opportunity, they must focus and be proactive to determine the right potential buyers. Large medtech companies are more likely to acquire a product if they already have a sales channel that will align with the target market of that product.
To determine a good fit, it's all about research. Anticipate the buyer's questions. How is your product synergistic to the buyer? How is their sales channel set up to sell your product? How does your product fit into a company that sells its products at a higher price point than yours? Would acquiring your company expand the buyer's market or hinder it?
Learn everything you can about the buyer. If it's a public company, read their earnings reports and find out their strategies. Create a competitive matrix to determine where your product would fit into a potential buyer's offerings.
After determining which companies are the best potential buyers, consider your options for marketing to them. Tactics like whitepapers, customer testimonials, and conference attendance help startups put their products in front of potential buyers. Startups benefit by deliberately gathering and sharing the most compelling data in whitepapers and conference presentations.
Building awareness of your product with potential buyers is the best way to build enough interest to leverage on your company's behalf, so exercise discipline. Do your homework and go out to multiple potential buyers in a short period of time. Build awareness and understanding. You'll at least gain a sense of what the market is willing to pay for your company at your stage of development, and you may even earn the offer you wanted.