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MedTech channels to market
Technology alone rarely guarantees success for a MedTech company, and building effective channels to market rapidly becomes the number one concern for management teams – and their investors.
3i’s experience of backing and building MedTech companies across Europe and the US gives it a unique insight into the challenges faced by companies undergoing the difficult transition from technical development to commercialisation.
“Getting an effective sales strategy in place, particularly for the US market, is critical to success for most MedTech companies that we [3i] back,” says Nigel Pitchford, a 3i healthcare partner. “This is an area that we are really focused on because poor decisions at the outset can materially impact on a company’s future prospects.” Choosing the most appropriate channel to market can be difficult, with pros and cons for each approach. To sell direct or through distributors/agents, to stay local or go international, to partner or to keep whollyowned, are all legitimate challenges. Overlay complications of market structure, where the company itself is based, and the funds available to launch a product and the complexities soon multiply.
The MedTech salesforce also faces a number of selling issues – reaching multiple decision makers (and tough group purchasing organisations), grooming a complex network of partners and influencers, and working in a rapidly changing regulatory and ethical climate.
The MedTech world is more like information technology than other major healthcare sectors, in that devices often need to be sold as a package that includes ongoing training and support services, rather than a one off, or easily repeatable, deal where the medics take over.
One start-up that hit the ground running with its sales strategy is Zonare Medical Systems, a California-based firm that makes ultrasound systems. Founded in 1999, the firm has already closed $122 million in funding to bring a new type of ultrasound technology to market – its “zone sonography technology” acquires large quantities of data very quickly in a relatively small number of “zones”, unlike conventional line by line methods.
What is apparent – and which no doubt has caught the eye of investors, including 3i which led the last round – is the line-up of heavy hitters on the management team with sales and marketing experience gained at big ultrasound players. This approach, says VP of marketing Lars Shaw, extends also to the field salesforce. “In the US we’ve gone for a direct salesforce who know how to get in front of the luminaries – the thought leaders in the big university hospitals for example.”
Winning over users such as the sonographers in hospitals is only half the battle, he adds – procurement professionals are likely to raise objections about a company they have not heard of. “That’s why we make sure everyone knows about us – one of the lessons we’ve taken on is that you can never have too much press about your company. There may be 50,000 radiologists at their annual show in Chicago, but what about the several hundred thousand who didn’t go?” Radiologists, he adds, are the largest of the groups that Zonare targets and reps must be prepared for longer sales cycles within their department.
Coupling a lot of industry buzz with highly experienced salespeople is paying off for Zonare. Apart from senior sales executives in the US, the firm has recently set up a string of subsidiaries in Europe, under “savvy salespeople who understand the sales processes in their country”, says Shaw. Dealers are used in Asian markets, but there are several Zonare personnel who work in “direct touch” to keep them up to date.
In a short time, Zonare has broken down barriers at key purchasers, including Kaiser Permanente, and doubled its installations in the first half of 2006 – there are now 300 systems worldwide with more than 40 systems installed in the Chicago area alone, site of the first US commercial installation in the spring of 2005.
Also tapping the power of sales experience is Swedish firm Carmel Pharma. The company, which has developed PhaSeal, a totally closed system for handling toxic drugs, is well established in its home market – but has not done as well elsewhere, despite being around since the early 1990s.
“One of the biggest issues facing a European MedTech business is how to tackle the lucrative US market. When we looked at investing in Carmel it was clear that a change in channel to the US market could unlock considerable untapped potential,” says Pitchford. CEO Dan Pitulia was brought in last year, alongside 3i’s investment, to transform the firm’s global performance. He attributes many of the previous problems to the use of distributors.
“I told the owners and the board I wasn’t interested if they felt the only way to continue was to use distributors, and thankfully they said they were thinking of changing.” Pitulia, who came fresh from selling a successful MedTech firm he’d built up globally with a strong presence in the US, had the credentials to repeat a formula that has so far involved setting up subsidiaries in the US, Canada and Japan, with another in Germany being readied for action.
Distributors, says Pitulia just do not do well with products, such as PhaSeal, that are both new to the target markets and whose value is tough to sell. “I don’t believe you can work through agents with a product that requires what I call ‘missionary sales’. Conceptual selling means people adopting a new mindset, and with PhaSeal the challenge is to convince people they have an issue at all – people do not want to know they may be doing something wrong.” Wrong, in this case, is potential exposure of healthcare workers to a rapidly growing array of cytotoxic, antiviral and antibiotic drugs.
Another barrier is the nature of the decision makers. “Typically they are managers of pharmacies and heads of oncology nursing – the pharmacists, in particular, are a conservative group.” Risk managers and CFOs are also likely to be on the act, he adds. Since the start of 2006, Pitulia has ramped up the US subsidiary from zero to 30 people, including salespeople from varied backgrounds – not just MedTech but also from target markets such as pharmacists. “We spend a lot on sales training, making sure they know the product inside out, and can handle objections. And we only want people who really believe in PhaSeal – if they don’t they can’t convince others.’’
Getting past “no”, particularly with group purchasers in the US, can involve a good deal of brinkmanship that is all part of the routine, says Pitulia. His approach – and he’s travelled to many major sales meetings with his people – is to stand firm with the value proposition, and to avoid discounting in the face of prospects citing a new wave of “competitive” products that he says are not the fully closed systems their makers claim.
However, competition is moving the discussion from “should we do something” to “which one should we choose”, adds Pitulia. To help the salespeople, Carmel has upped the ante in its collateral, changing the messaging from more cautious claims for effectiveness to clearer and definite statements of value, while using solid reference points such as MD Anderson in Houston (the Mecca of cancer research), and by sponsoring clinical research to help break into new country markets.
Perhaps the most challenging sales story comes from Small Bone Innovations (SBI), a US firm founded in 2004 that has already landed a $42 million funding round, co-led by 3i, which is one of the largest ever orthopaedic device finance deals. As CEO Anthony Viscogliosi explains, the market for products that relieve pain and restore function and motion in the hand and foot has been underserved compared with the “large bones”. Viscogliosi has attacked this market head-on by buying and licensing more than 40 product lines and assembling a formidable line up of sales-oriented managers, including an international distribution team.
“Although we have 42 product lines, we are focusing on what we call the ‘fabulous five’ – top revenue generating products for a particular anatomy such as the wrist and foot,” says Viscogliosi. “So far we have direct sales operations in the US and France, and a network of commissioned sales agents in another 23 countries, and we are training our sales channels to focus on the key products for each joint, developing other product sales around them.”
SBI has its eye on 5% of the orthopaedic device market worth $1.7 billion, which is largely untapped by major vendors – currently 70% of small bone procedures do not use any devices at all. But Viscogliosi comments that SBI’s strategy is not just to sell its own technology but to create a valuable distribution channel in its own right – one that will also appeal to larger orthopaedic vendors that want a slice of the small bone action.
Along with the sales talent, the strategy relies heavily on education and training, and supplying free instrument kits along with the devices at the time of need. It is events such as educational symposia that really hit the surgeons’ sweet spot, says Viscogliosi.
And what all SBI’s salespeople benefit from is the powerful effect of branding this hitherto fragmented sector under the Small Bone name. “We have transformed the language of the industry – we are the Kleenex of orthopaedics – the word ‘extremity’ is no longer in the vocabulary,” says Viscogliosi.
There is no magic prescription for a high tech sales strategy – sales VPs the world over are endlessly tweaking commission structures and direct/indirect routes to market to squeeze out more from the budget. One clear tip, evidenced by the above, is that MedTech salesforces are usually set up as a flat structure, mostly with one management layer between rep and top brass, which means ideas get fed back fast, and vital recognition – not just commission – is dispensed.
Distributors and agents can clearly be effective with the right “direct touch”, and there is also a place for specialist sales outsourcers with local knowledge. Cultural factors also play a part – US customers tend to prefer to see direct representatives, Europeans less so. Direct salesforces are also costly to run – so the recruitment and training strategy is critical to making sales cycle times as short as possible.
But as Dan Pitulia concludes “It is not really rocket science – the sound basis is a team of believers with the personalities and sales skills to talk consultatively with users and influencers,” and that goes for the people at the top more than anyone.