MX: The Next Phase

A disciplined business case is the key to expanding market share and establishing strategic competitive advantage. The complexity and significant cost of medical device development requires manufacturers to consider potential innovations from technological, clinical, regulatory, marketing, user, and reimbursement perspectives before initiating product development. A collaborative “Phase Zero” approach can provide the framework for sorting through ideas and prioritizing innovative thinking in order to optimize clinical value and market growth.

Jessica Urban

November 17, 2011

10 Min Read
MX: The Next Phase

A disciplined business case is the key to expanding market share and establishing strategic competitive advantage. The complexity and significant cost of medical device development require manufacturers to consider potential innovations from technological, clinical, regulatory, marketing, user, and reimbursement perspectives before initiating product development. A collaborative “Phase Zero” approach can provide the framework for sorting through ideas and prioritizing innovative thinking in order to optimize clinical value and market growth.

Phase Zero is a structured activity for maximizing recognized value and evaluating innovation opportunities while building a business case to support an investment decision. The goal of Phase Zero is to generate first-order confidence that a real business opportunity exists and that a viable product can be developed to address it. A well-executed Phase Zero plan will enable device company executives to apply the same rigor they use in developing products to the decision about which products to develop. The process can be applied to a variety of projects and situations. Examples are internal innovation projects, technology transfer, in-licensing, acquisition, and venture investment.

Early Risk Evaluation

The Phase Zero framework enables early evaluation of high-risk projects. The process is meant to be relatively fast. When properly executed, Phase Zero can quickly provide significant risk reduction. This can be an invaluable tool for organizations sorting through ideas and prioritizing precious product development budgets, allowing companies to strategically focus resources on programs that will add the greatest value.

The objective of Phase Zero is to build a solid business case for the new opportunity. There are quite a few key categories of information that can be addressed when building a business case. However, it is often not feasible or even valuable to address them all within the constraints of the Phase Zero framework.

The question then becomes: What categories should device company executives focus on? The answer is: It depends. It depends on what is appropriate for the product. It depends on the corporation—its culture, stakeholders, go/no-go process, and strategic fit.

In addition, there is no boilerplate for Phase Zero. Each Phase Zero scenario will—and should—be different. It is important at the beginning of the Phase Zero process to carefully consider the variables and prioritize those that are fundamental to making a go/no-go decision and determine the best strategy for building a business case most appropriate for each opportunity.

Key Categories

Some key categories to consider are detailed below. This is not intended to be an all-inclusive list. Rather, it highlights areas that typically represent the highest value proposition and present the highest risks for medical products. Other areas may be equally or more important for some products and should be included in Phase Zero.

The categories are:

Business Model. Revenue, sales, distribution models, and assumptions drive everything. In order to build a solid business case, device company executives must address some vital financial questions. These include the return on investment, profit-and-loss expectations, estimated revenue, and acceptable profit margin.

It is essential to identify the factors needed to make an adequate ROI calculation. These factors include the cost of goods sold (COGS) target and whether it’s possible to estimate the COGS target. If adequate information does not yet exist to make these estimates, the company needs to determine what information is missing and what assumptions it can make at that point so as to provide adequate rough estimates. It is perfectly acceptable to be rough at this stage; the key is to provide a starting point and illuminate the areas that need further attention.

IP Ownership. One of the first areas to explore is often intellectual property ownership. Too many projects have started down the road of product development only to be later abandoned because of IP ownership issues, legal delays, and an unclear understanding of the current patent landscape. Save precious product development dollars by determining as soon as possible whether the new opportunity has freedom to operate (FTO). A thorough FTO analysis includes patent road maps and worldwide landscape studies and should be completed as early in the program as possible. This can be completed either by internal or external attorneys. There are some situations where both should be utilized. There are also good software applications that can be used to assist further in these activities. Until the IP ownership is determined the risk may be too high to pursue the development program any further.

Technology Assessment. An important part of Phase Zero is assessing the maturity of the technology. Where in the product development process will this technology begin? Has the feasibility of the technology been proven? If not, determine whether feasibility will be best realized with analysis, concepts, or a feasibility breadboard. Consider also how the technology will turn into a product. If the product development strategy is risky, spend time now building a proof-of-concept prototype. Take the technology one step further from the early research phase to applied research. This approach enables performance characterization in a commercial configuration. This will build confidence in more challenging technologies while reducing investment risk along the way, a key to assessing the viability of the product.

Reimbursement And Regulatory Strategy. A common mistake in medical device product development is delaying formulation of the reimbursement and regulatory strategy. Medical device programs have been discontinued deep in the product development process with the late discovery that the product requires lengthy and costly reimbursement and regulatory strategies. Spend the time as soon as possible defining the regulatory strategy, including the required clinical data and evidence burden. Don’t be afraid to begin conversations with FDA early. Perform a health economics analysis to determine the reimbursement strategy for the product in the U.S. and other appropriate worldwide markets. Understanding these strategies upfront will enable better estimation of ROI and help build a stronger business case.

Know Your Customer. Another critical angle to assess during Phase Zero is the customer. Find out what it will take to drive adoption by the medical community and payors. FDA is focused on considering the customer early in the product development process with usability studies. Knowledge gained about the customer in Phase Zero can help facilitate these studies and focus development of the product.

Now is the time to formulate customer needs and problem statements and validate them. A common mistake is to spend too much time early on performing in-depth voice of customer studies. Save this for later in the process once the project gets the green light. Focus instead on talking to key thought leaders, such as a handful of trusted doctors. Perform cursory literature reviews and examine input from customers on similar products, all with the goal of creating an image of the customer and a market- driven product definition. Remember that the feature list and customer requirements document are necessary inputs for the early phases of product development and not typically Phase Zero activities.

For products that are truly revolutionary, there may be resistance to change by key customers and thought leaders, making market acceptance a significant risk. It is critical to identify this risk early by talking to thought leaders and customers in Phase Zero, then determining a strategy for gaining acceptance in the marketplace.

Know Your Company. In order to present the most compelling business case possible, it is important to consider how this product will fit into the existing product landscape. Spend time considering the strategic fit. Does this product compete with another already in the portfolio? If so, take into account the fear of cannibalization and strategies for overcoming it. Is the product in a completely new category? Be sure to consider the resources necessary for understanding this new product and how to deploy it successfully. Is this an acquired technology? A unique risk of acquired technologies is “not invented here” syndrome. Overcome this risk by determining how to get support from key personnel and getting them involved as early in the process as possible.

Product Development Plan. The product development plan is essential for identifying key milestones and necessary resources. Once the basics of the product and key strategies are understood, it is possible to start pulling together the plan. A common mistake in planning is to delay until all the puzzle pieces are in place, missing a valuable opportunity to let the plan act as a guide through the chaotic beginning of product development. Don’t get bogged down trying to define too many details. Drafting a plan early can help focus efforts by identifying the critical missing pieces. These are worth spending time on.

Start roughing out the product development plan based on the known information. Determine what phases and activities are needed. Identify the missing pieces. Are there assumptions that can be made based on prior experience or by talking to experts? Often one key assumption can clear the fog and then the plan falls into place. Just remember to spend a little time validating that assumption.

Milestones. Key milestones are vital to building a good business case. It is essential to know approximate dates for prototype availability, regulatory submittal, product launch, and other critical milestones. First, identify the critical milestones that will need estimated dates for the business case. Then begin putting together a schedule based on the gathered information and prior experience. Use big chunks of time at this point, as these steps can be refined along the way. Remember that the key for Phase Zero is to estimate the appropriate range for the key milestones. Let this goal guide your effort. Use critical path analysis to identify areas to focus on gathering more detail.

Once a rough schedule is created, validate the results by looking at the schedule from two angles—top down and bottom up. Do these assessments provide similar results? If not, identify the areas that appear to be the issue. This can help home in on the areas that need to be broken down further. Remember, the goal of the schedule during Phase Zero is to determine approximate key milestones that can be used for analysis of the business case. The primary question is: When will the product make it to market?

Resources. Once the milestones are estimated, analysis of resources can be resolved. What personnel will be needed for success? Assess the capabilities and skills of the internal personnel. Is this an opportunity that fits within the current skill set? Will the right people be available to work on this project? If not, should key resources be hired or outsourced?

Another area worth exploring is the operations strategy. What equipment and capital will be needed? For products that fit within the current product line, determine the fit within the existing supply chain, or identify whether a new supply chain will need to be established. Analyze the current capacity and create a capacity strategy. How will the product be distributed? What is the manufacturing plan? Will this be handled internally or outsourced? Begin estimating the manufacturing costs. This is all valuable information for the plan and resulting business case.

Go/No-Go Decision. Another key to a successful Phase Zero process is to carefully consider the decision-making process. How is the decision made to move into product development? What factors are considered? Learn this at the beginning of Phase Zero to ensure the entire effort addresses these key points. Who will ultimately determine which opportunities to pursue and the criteria used to make that decision? Identify them early and try to involve them in building the business case. Don’t forget to allow time to get early feedback and reviews of the business case and plan.

An Iterative Process

The Phase Zero process is intended to be an iterative approach to help businesses determine which innovations have real potential and which do not. While vetting innovations for opportunities is never an easy task, there are systematic actions that can be taken to map the value proposition of the market opportunity, reduce risk, and streamline the process. Even with the best intentions, it is common for organizations, including device companies, to haphazardly evaluate innovation opportunities. This can cause companies to lose time and resources on many fronts. If a process for opportunity evaluation is followed, it is possible for real innovations to be brought to market quickly and strategically, increasing the likelihood of viability and success in the marketplace.

Jessica Urban is director, program management, at Stratos Product Development (Seattle). She may be reached at [email protected].

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