Preserving The Promise Author Interviewed On Biotech Buzz

Biotech Buzz interviewed Scott Fishman, co-author of Preserving the Promise: Improving the Culture of Biotech Investment, on May 26, 2017.  Fishman discusses the investment ecosystem, and what can be done to improve both clinical and financial outcomes from early stage healthcare investment.  The interview is available on podcast at:


Local biotech industry veterans discuss the marketplace for healthcare investment

Interview Published in Philadelphia Business Journal, February 1, 2017

Dr. Scott Dessain, as founder and chief technology officer of Philadelphia-based Immunome Inc., and Scott E. Fishman, as president and CEO of Envisage in Doylestown, have experienced the joys and heartaches of launching, running and investing in biopharmaceutical startups in this region. They recently decided to team and share their career experiences and thoughts on building a better life sciences ecosystem in a new book called Preserving the Promise: Improving the Culture of Biotech Investment.

Dessain and Fishman talked to me about how they met, why they decided to write a book, and what they hope people get out of it.

How do you two know each other?

Fishman: About ten years ago, we were introduced to each other by business development guy who knew one of us [Fishman] was a potential investor and the other [Dessain] had a biotech startup that needed money. While there was mutual interest in the venture, that transaction never happened, for a variety of reasons: the ask was too high [$100,000], one of us wanted to be involved in managing the company and the other just wanted a check, the technology didn’t have a therapeutic target yet – and not incidentally the stock market had experienced the worst crash since 1929 just the day before.

Why did you two decide to write Preserving the Promise?

Dessain: About three or four years after that first meeting we were in a panel discussion at the University City Science Center, about early stage biotech and biotech investing. The common thread among the panelists was the struggle of early-stage biopharma and medtech companies to make it through the “valley of death,” why it’s so hard for companies to survive long enough to make the science work, and how early- stage companies can encourage a more productive funding response from investors and Big Pharma. Over lunch, we started to discuss the problems I had as an entrepreneur and he had as an investor.

Fishman: The question of how to get important technologies to the clinic was on the mind of every one in the room. But of course the perspectives were pretty variable: What’s worthwhile to scientists doesn’t necessarily align with what’s important to clinicians; the technologies universities would like to see commercialized aren’t necessarily the investment proposition that most interests Angel investors; and the IP that has the greatest prospective social impact may have little to do with a pharmaceutical company’s search or a particular solution to an unsolved development puzzle. These parties are all looking for a successful outcome, but there are substantive differences in their short- and long-term objectives, in the financial and other rewards that drive them, and even in the language they use to describe what they’re doing. The result is practices that from a distance look like they should be aligned, yet in reality are often at odds with each other – even though ostensibly everyone’s idea was to build a successful company and make a drug. We realized that the problem wasn’t companies failing in the marketplace, it was a dysfunctional marketplace for ideas, codified as IP and investment theses, failing the companies.

Dessain: There was frustration in the room, too, especially among those trying to start a company with inventions they had discovered. I’d had the same experience myself. As a scientist and entrepreneur, it was bad enough to realize that universities owned everything I invented, but to experience how technology transfer offices have the power to maim or kill promising technologies was, to say the least, disheartening, and it happens much more often than you would think.

Fishman: From the other side of the table, the frustration is the sheer number of pitches investors see where the business plan is fuzzy, the outcomes nebulous, and the entrepreneurs seem not to have given enough thought to what they’re going to do with my money – or even how and when I’d ever get it back. The net of all this... we came up on the spot with a plan to write all this down – and that turned into a book. Preserving the Promise isn’t intended to filter through one lens or another, but to provide a fresh look and perhaps some useful guidance to everyone in the early stage ecosystem: about how to make better investments, about surviving the valley of death, and about how to improve the chances that important clinical advances actually make it to the clinic.

Dessain: It ultimately became a mission, for both of us, because we weren’t just writing about how to make a successful company. We were explaining why there is an almost absolute breakdown between what biotech and pharma is designing and what we, as a society, actually need it to make. If we read a news report about a great scientific breakthrough for an important medical problem, we assume that a cure is on the way, but it’s simply not the case, because innovation does not equal invest-ability. There’s a reason the Ebola vaccine sat on a shelf for 10 years when it was ready for clinical testing – nobody could figure out how they would make money by investing in it. And, when companies cannot connect their innovation to commercial investment, we all lose out.

Fishman: Take Superbugs, multi-drug resistant bacteria. Last week there was a report of a woman in the United States who died of an infection that was completely resistant to all known antibiotics. We’ve got a system that generates a solution to the terrible problem of a double chin (you can see it advertised on any give night), but that hasn’t introduced an entirely new class of antibiotics for decades. We talk about this in the book: as a fundable proposition and from the perspective of Big Pharma's return on investment, antibiotics are not as good as a “lifestyle” drug. They’re also less commercially valuable, often dramatically so, than an orphan drug designed for a small population with an urgent need that can be introduced with “value-based” pricing. There’s the additional problem that some diseases – we cite pediatric brain tumors in the book – are virtually un-investable and therefore unlikely to garner significant early stage development attention. Look, we have to make this all work better if for no other reason than that those we love don’t die of solvable medical problems.

How would you describe the process of writing the book?

Dessain: The book actually started as a conversation, a series of back-and-forth essays. I was writing from my perspective as a scientist and entrepreneur, and Fishman was writing as an angel investor, entrepreneur, and professor. Sitting for hours at various Panera restaurants (free refills on coffee, free WiFi). And the topics were inspired by what we encountered in our day-to-day lives: tech transfer, due diligence, term sheets, conflicts of interest, entrepreneurial missteps, and so forth. We didn’t catalog our experiences directly, however, but used them as a jump-off point to look at biotech commercialization from different perspectives.

Fishman: I happened to be teaching an MBA global management course at the time, and one of the key insights that emerged from a Panera discussion was that Michael Porter’s Five Forces of Competitive Analysis was a productive template for looking the early stage funding. We had realized that early stage biotech companies weren’t differentiated so much on the basis of their technology, as on the quality of the investment thesis: in simple terms, this means how well they would appeal to an Angel or other early stage investor. Early on, biotech, small molecule and medical device commercialization is really just buying and selling investment products, regardless of whether the drug will cure Ebola or make your chin look better. So if the business is buying and selling and investment, then we could use classic models, like Porter’s, for understanding why most biotech companies fail.

Dessain: It has a lot to do with the excessive power of investors and universities, which from the lens of Porter is “buyer power” and “supplier power." These led to our definition of the Translation Gap, the three main obstacles to commercialization of academic technologies. At that point, the structure and scope of the book became clear – though starting out it’s fair to say we weren’t clear on how much there was to examine, or how much work it would be. We had a first draft in about a year and a half, but we pretty much did a complete rewrite starting in spring 2014. Writing the final version wasn’t much different from completing a graduate thesis, except that it lasted for two years.

Fishman: I’m pretty sure we passed, since the book made it to print with a major academic publisher. What are the two or three things you hope people take from the book?

Fishman: There are really no villains here. It’s about good people operating in silos that prevent them from seeing how their actions actually hurt the biotech commercialization. We need better awareness and better transparency to work more effectively in concert. There are things to improve throughout the biotech investment ecosystem. For example, there needs to be greater clarity about clinical, social and financial objectives, and greater understanding among all parties of what the investment community will and won’t support. It’s not just a question of the mechanics of non-dilutive vs. dilutive funding, but whether something clinically valuable that’s not fundable with private money needs a different plan. Because what we have right now, in Philadelphia, is an enormously productive research community generating lots of innovative companies that end up cannibalizing each other in a hyper-competitive funding environment.

Dessain: Exactly, and the problem is that the vast majority of biotech startups depend on Angel funding. If Angels don’t think they can make money in therapeutics, or that it takes too long and is too risky, they stop investing and the route to commercialization closes down. We really need to think about starting fewer, better companies and making sure they have the wherewithal to make it to an exit. A lot of this starts with the universities that own the technologies, so a good part of the book talks about common but unproductive technology transfer practices, and provides examples on how people are starting to fix them.

Fishman: Another problem is a lack of objective information and a mischaracterization of what everybody is calling “due diligence.” There are some really good recent efforts, but historically no one has comprehensively assessed the inputs and outcomes of this early stage investment process and it’s probability of return. It’s a bit odd: would you invest $100K in a mutual fund without reading a historical prospectus? These are just a few of the questions we address in Preserving the Promise. We don’t think we have all the answers. But as we note in the preface, we hope we’ve taken a useful step in stimulating an important and overdue discussion.

John George

Senior Reporter
Philadelphia Business Journal 

What Gets Funded, What Dies Before It Gets To Pharma R&D, and Why

Published in Life Science Leader, February 1, 2017

By Scott Fishman, CEO Envisage

Lots of people in our industry are wondering how to simultaneously bring value to patients and the organization. It’s a reasonable aspiration, but one that faces an environment emphasizing lucrative opportunities among small but desperate populations and stratospheric prices.


Informing company decisions with patient input sounds great but doesn’t shift internal priorities when it is being treated as a tool to enhance revenue instead of a fundamental driver of financial performance. We need to redirect attention from the tactical marketing tactic of patient-centricity to the foundational proposition of customer-centricity. If a business develops things that create great value, and it does so for lots of people, then it doesn’t have to fight for customers, credibility, or profits.

It’s worth taking a close look at just how the industry is going about sourcing these things of great value, and more specifically, how the products of early-stage discovery find their way into clinical and market development within pharma.

My co-author and I noted in our book, Preserving the Promise: Improving the Culture of Biotech Investing, that the primary reason something gets funded or dies in the early stages of development is the ability of the innovation to support an investment thesis that stakeholders will buy into. Whether that’s an internal or external assessment, the opportunity is going to be subjected, at some level, to a process of due diligence.

That process has everything to do with establishing and self-reinforcing the perception of a good bet and little to do with the reasons stuff usually gets invented (e.g., scientific curiosity, passion to solve a personal or societal problem, search for a clinical solution). Investment motives are complex — neither solely rational, emotional, nor financial. But because they are always underpinned by a calculation about ROI, the potential is real for important discoveries to go unrealized while shaky clinical propositions get funded.

Most people understand due diligence conceptually as a process of pressure testing an opportunity. That opportunity has to pass muster scientifically and in market potential. It also has to offer an attractive payout, such as an internal rate of return for an internal development opportunity or an ROI for investors.

But this apparently rational analysis masks the foibles of human decision making. I’m looking at something right now in which I have limited domain interest and am fairly equivocal about the technological prospects, but it’s got an absolute surge of interest from colleague investors because the CEO just made a lot of money for a lot of people with a high-multiple exit in a completely unrelated therapeutic domain. The impetus for investment here has relatively little to do with the intrinsic clinical value of the technology, its prospect of scientific validity, or an admittedly enormous potential market. Instead, it’s all about the ability of a particular CEO to attract money.

Despite the presumed formality of the due diligence, the diversity of opportunities and practical constraints of timing can favor intuitive attraction over hard analytics and inductive over deductive decision making. It’s not crazy that investors “bet on the jockey” and rely heavily on a leader’s prior accomplishments; experienced people are more likely to be able to adapt, know how to solve problems, and have a network of connections. But it’s still crucial to know if the horse the jockey is riding is a champion or lame.

Due diligence consistently overweights variables other than the clinical implications of new healthcare technologies, and that’s where the patient-centricity argument breaks down. Value from a human-health perspective may be entirely disconnected from value as an investment proposition. Value pricing may be a hell of an argument for funding a development program, but no amount of feinting to patients’ “interests” is going to convince them you’re on their side when you’re planning to charge the cost of their house for the therapy.

In the world of early-stage technologies, seed-funding decisions may happen very quickly. It’s painful to inventors but unsurprising that a “no” can be sudden and final, because there is a huge disparity in risk for founders and investors. Everything is at stake for the inventor, but considerably less is on the line for pharmaceutical business developers or angel investors whose financial stake in an early-stage company is hardly going to break the bank. As any primer on negotiation will tell you, leverage is always a function of who has more to lose, and here’s the prospect facing an early-stage company: Inventions at this point are not significantly differentiated by the nature of the technology but by the strength of their promise of financial return. They’re collateral.

Yet they need to be nurtured and sustained long enough to even appear on the pharma industry’s radar. Here’s how it goes: Tech transfer offices filter what comes out of the university based on scientific reputation and serendipitous interest from prospective investors. Business advisers or transitional CEOs get attached to the venture with a promise of equity and deferred compensation. The same companies make the same rounds to prospective investors in a region. The gatekeeping mechanism is a 15- or 20-minute presentation followed by a Q&A session and maybe due diligence by a committee impressed enough with the pitch to volunteer time. The decision to commit is often dependent on the presence of a lead or co-investor. A good impression, a relatively large target population, and apparent technical and operational skill go into the plus column. An uninspiring pitch, a lack of obvious customer need, a small target population, or a lack of backing by capable people may doom the investment.

And this is just to get to due diligence — a subjective process that examines not just the science but also the founders’ motives, competence, and ability to succeed. Ultimately, what is available for pharma to invest in, what has even a possibility of getting onto a genuine commercial development track, is the result of scientific credibility, financial cogency, whim, and serendipity. You could argue that this applies to much in life, but is that really the way we want to address human health?

I believe a redefinition of the parameters of due diligence could be helpful. Consider three traditional areas of due diligence: unmet need, size and growth of addressable market, and sustainable competitive advantage. These are crucial to an assessment of opportunity, yet the component most often missing from pitches and even fully developed business cases is solid understanding/ characterization of market opportunity.

First, what if we think about unmet need as what is good for the most number of people? Is that a poor basis for a business model just because it echoes the concept of distributive justice (fair distribution of scarce resources)? Or is it a disruptive and potentially game-changing definition? What happens if we concentrate scarce development resources on whatever rises to the top as a crucial human and societal problem, instead of what sorts to the top of a net present value (NPV) spreadsheet? Wouldn’t we potentially make even more money by doing the most good for the most people? And wouldn’t that intrinsically make a stronger and more sustainable value proposition than a multibillion dollar windfall on an overpriced drug sold to a few thousand people that is ultimately going to experience formulary refusal?

Or what about size and growth of addressable market? I’ve spent decades advising people on optimal development based on the largest and most receptive targets. But what if we recast that slightly and make our target the biggest human need in a particular category? Maybe it would make more money, maybe less in the NPV calculation. But what would be the intangible value of resurrecting the stature of pharma as the singular industry focused on making us healthier? What’s the relative value of next quarter’s dividend against being the company that provides a massive public good and mitigates instead of increases the cost of good health?

And how about sustainable competitive advantage? What’s the sustainable advantage of a nearly six-figure drug to cure hepatitis C, raced after by other similarly priced drugs that do the same thing because everyone’s chasing that gigantic margin? I’m not taking anyone to task here, just wondering what would be the worldwide financial, societal, and yes, industry public relations impact of solving a huge problem with an affordable solution.

A recasting of assessment priorities is a realistic proposition and could form the basis of a better business model. I’m talking about a fundamental rethink that would begin at the earliest stages of a development decision, not as some post-launch marketing strategy. It follows that assessing an opportunity by due diligence would mean accounting for a broader range of criteria, not all of which are subject to green-eye-shade analysis.

The case I’m making here includes three primary recommendations:

  • Stop trying to convince people that you’re reorganizing business priorities around something like “patient-centricity,” when you aren’t. Everyone knows business is about business, and if a number of constituencies are well served, that’s both a good thing and a driver of financial return. But it’s not a rethinking of the essential business model unless we’ve gone so completely off the rails that marketing 101 has suddenly emerged as the industry’s future.
  • If you’re going to model on what’s good for customers, then carry through with development programs that take care of lots of people instead of rationalizing astronomical pricing with discredited arguments about the cost of development. Build a model on doing well by doing good. It’s not a new concept, but it seems to be increasingly rare, despite its being just a return to pharma’s historic foundations.
  • Don’t just search for useful things coming out of the funnel of seed investment. Due diligence needs a broader perspective, one that both scans the environment for really good but really early technology — just like the historic model of internal discovery — and one that vets technologies with a more balanced template than NPV alone. The earlystage funding community doesn’t have pharma’s resources and can’t be expected to do it alone or operate with a broader perspective than ROI. If we’re going to really talk about customer-centricity, doesn’t that come down to prioritizing innovation based on merit rather than margin?

4 Shortcomings Of Intellectual Property-Focused Investing

Guest Column | March 18, 2016

By Scott Fishman, CEO of Envisage and Program Executive at The Wharton School

I’ve been noodling a list of subjects I’m interested in for this installment, and ultimately decided to tackle two that are quite closely related: why intellectual property (IP) isn’t the whole story, and getting real about competition. 

Intellectual property is pretty foundational to qualifying many health care ventures as “investable.”  The premise is that, in absence of an officially protected technology, an investment in the long-term prospect that characterizes most health care opportunities would be at too great a risk. In other words, the value proposition needs to include not just great technology and a capable management team, but a U.S. Patent and Trademark Office (USPTO) warranty of unique differentiation and merchantability. 

In theory, this sounds like a good idea. But look at the case of Apple wanting a guarantee that no one would be able to make a smart phone competitor, at least for the duration of its patent. Despite long and expensive legal wrangling between Apple and Samsung — Apple’s primary screen supplier — over protection of the form factor, we have a pretty clear idea of how that one worked out.  

At the end of the day, you may be able to protect against someone creating the same thing, or a thing that does something in the same way, but you can’t protect from someone solving the same problem. It doesn’t really matter whether that involves a minor tweak to software or device design, or creation of a new isomer. Given sufficient resources and time, I can stop you from replicating my software, device construction, or molecule, but I can’t stop you from creating a better way to diagnose, monitor, or treat a medical condition.  Nor should I be able to, since your solution may end up being better than mine for health care systems, clinicians, or patients. And that’s a good thing. 

4 Reasons Why IP Isn’t The Whole Story

1. The first defect in relying on IP to reduce investment risk is that it won’t stop a better solution from being developed or marketed — a caveat that is especially salient in the context of a multi-year development program for a device, or much longer for a therapeutic. I might get to the finish line only to find that someone else got there the day before me.

2. The second limitation of IP-focused investing is that the strength of IP depends on the foresight, expertise, and billable hours with which it’s been prosecuted. Most startups devote way too much money to legal support, mostly in the area of IP, in order to create a supposedly airtight envelope of invincibility around their inventions. But they usually don't have much money, and the quality of their legal representation depends on their network, access to a top firm, access to specific expertise within that firm (i.e., understanding of the technical intricacies, competitive landscape, and clinical implications of the technology), time pressure (often a function of fundraising imperatives) and, of course, the peccadillos of a particular patent reviewer — among a host of other factors. 

The bottom line is that a startup company can spend a heck of a lot of time and money to achieve what they thought was an unassailable patent position, that isn’t.  And that doesn’t even touch the bigger question of whether the point of differentiation has any value to the market. I’m pretty sure I can get a solid patent on a toaster oven with wings, and equally sure that almost no one would buy it.

3. The third problem with IP is that, even if I have a well-executed and bulletproof patent, that doesn’t mean my prospective competition is going to sit back and let me siphon off their market share. I saw a pitch recently for a nicely researched, designed, and executed prototype for a home diagnostic; it will compete in a market worth hundreds of millions of dollars, and currently dominated by a few major players. The company’s founder was smart, passionate, driven, and pretty firmly convinced that her positioning and IP would provide a reasonable path to market. She was right on the first count and, to my mind, dead wrong on the second. 

This is because — even setting aside the formidable challenges of market exposure, advertising cost, and distribution — it’s virtually certain that if the company founder doesn’t make a distribution deal or arrange her product’s acquisition by one of the major players before launch, she will be completely buried by blunt force marketing and legal challenges to her IP as soon as she captures any meaningful market share.

This isn’t speculation; incumbents have hard-won franchises to protect, and protect them they will.  Even if the legal challenge is without merit, startups are easily diverted from their mission and drained of their resources by well-funded nuisance legal wrangling. Yes, the startup may “win” in the long run, and may even recover some of its legal fees, but by the time the courtroom drama has run its course, the product may well be dead and buried, or superseded by another technology.

4. One final problem with IP is the financial burden of getting patent protection. It’s more like an albatross for startups. Faced with the need to chase funding, develop their technology, pay for licenses to complementary technologies, put at least a few bowls of Ramen noodles on the founder’s table, pay consultants with specialized expertise, build and test prototypes, and so forth, this crucial gate to investment called IP can consume an inordinate amount of the very limited capital any nascent company has managed to scrounge up. This fiscal drain can bloat to the point where there’s not really enough left over to fully finance product development, and thus achievement of the next milestone that will assure continued funding. It’s a vicious cycle. 

I’m not arguing against professional services here; I’ve made my own living for decades as a consultant. My point, rather, is that there’s an enormous diversion of scarce and hard-acquired resources to support a prerequisite that may not ultimately make any difference.  A lot of technologies are races to market that succeed by being first, making a “land grab,” and securing a dominant early position that has little to do with the absolute strength of their IP.

Get Real About Competition

...Which brings me to competition. Many first-time (and other) entrepreneurs make the fundamental mistake of being so enraptured by their invention that they are utterly convinced it’s not only the relativebest, but probably the only best solution. How else could one explain a pitch I saw last week, with financials projecting a 50 percent primary market share of its therapeutic category within three years, versus a dozen or more variably effective existing therapies, all marketed by enormous pharma companies.

Of course, this company pitched a solution that was going to be less toxic, more effective, and easier to use. Cheaper would have been a better and more credible pitch, but even that presented a problem, in that much of this particular condition’s cost of treatment is in administration. The company also failed to note that adjuvant therapies don’t really cut that far into primary markets until they become a first-line standard of care.

Only a few things are really that good and, yes, those few transform medicine. For example, the immunosuppressant Cyclosporine, and not sudden advances in operative technique, made transplantation viable. It’s a remarkable — but rare — occurrence.

The point is, competition isn’t limited to the same device, diagnostic, or drug. It’s anything that serves the same market — doctors, patients, health systems — to accomplish in-part or in-whole the same purpose, in a more effective and/or efficient manner. Sadly, customer preference is not a determining factor anymore, unless the solution first satisfies the other criteria. How else to explain formularies that refuse the most effective therapy, outright, in favor of a less expensive (and less effective) alternative — or at least restrict access until a patient has suffered through trials of two or three of those less effective alternatives?

Don’t Place All Your Eggs In The IP Basket

Unless they’re researchers or academics, doctors don’t care about mechanism of action as much as they do about clinical impact. Also, unless they’re embroiled in a technology arms race in a hotly competitive metropolitan statistical area, or driven by their research profile and NIH grants, medical centers care less about cutting-edge medicine than about occupancy, utilization, and enhancing their reimbursement-related quality scores. 

I would similarly posit that, unless they’re in it for the satisfaction of intellectual curiosity and contributing to the advancement of clinical medicine, investors, including this one, care more about your ability to arrive at a better solution than how exactly you’re going to do it — which makes it at least worth questioning why the startup funding ecosystem puts such an emphasis on IP in healthcare. 

RETHINKING THE MEDTECH VALUE CURVE- Moving beyond feature- and cost-based differentiation

Guest Column | June 17, 2015 

By Scott Fishman, CEO of Envisage and Program Executive at The Wharton School

All product development ventures face the essential question of whether the opportunity is worth pursuing. Sometime in the distant past, before the hijacking of healthcare by the insurance industry — perhaps 15 or 20 years ago — the path from technology concept to medical device was a straightforward one. If you had an idea with clinical merit, and you were self-possessed and persistent enough, you probably could find a way to get your product to market.

Today, the odds are stacked against you, irrespective of your invention’s clinical merit. This is because proof of concept now carries a much more immediate imperative than demonstrating technological viability: proof of revenue potential in the short term. But profitability doesn’t necessarily have any connection to the potential improvement of human health, except to the extent that improving human health is a secondary outcome of generating revenue for investors.

Don’t get me wrong — I’m an investor myself, and I like making money as much as the next guy. But, if you’ve invented a device or a method that can improve the probability of survival from, say, a major cardiac event, I’d like to believe that technology might be available for my children and their children — regardless of whether it provides extraordinary short-term return on investment in the next three to five years.

Okay, that statement may be a bit pollyanish. Inventions need to stand on their own merits, and those merits must include being a viable investment proposition, as well as being a practicable clinical tool with a potent pharmacoeconomic argument that insurers will embrace. Oddly, many of the product developers I meet don’t seem to give much consideration to these essential requirements — not just for medical devices, but for any viable new healthcare technology. So, this is my four-point checklist to creating a cogent investment thesis:

  1. Ensure that your technology’s intended use addresses a clinical need that isn’t fully or adequately addressed.
  2. Confirm that you can identify and reach the people who have that clinical need (your product or service’s intended users).
  3. Convince them that your technology provides genuine incremental value, or has the potential to transform the way they currently do things in a way that is at once palatable and useful.
  4. Be able to coherently explain the clinical case and core of the investment proposition in a 2-minute pitch. You won’t have years to convince people to change what they’re doing — even if they are completely unaware right now that your product or service is something they need or want.

The simple fact is that most of your prospective customers don’t really care about how brilliantly your new invention diverges from the state of the art, or how it captures a stunning new intellectual property domain. Exceptions may include lawyers (who get paid for their interest), biomedical engineers (who are intellectually curious), and wealthy individuals or “family offices” (who will fund you because they have a personal connection to the clinical outcome you intend to improve). Yet, the early guidance inventors receive almost always focuses on protecting their intellectual property and advancing the science of their technology.

Ingenuity and genuine technological advancement are perfectly valid issues, but they’re insufficient to sway potential investors. The question you really need to answer is whether anyone is looking for the solution you’ve devised, and/or whether they actually will care. Those answers will inform the fundamental question of value you’re going to face with investors or internal constituents who might fund your venture: “What’s in it for me?”

I gave a talk this month to Phase II Small Business Innovation Research (SBIR) and Small Business Technology Transfer Programs (STTR) grantees of the National Science Foundation (NSF), and I proposed that these company founders reset their thinking about value. Traditionally, everyone thinks about adding value by creating a better way of doing something, and that often means a more costly way because innovation needs to have strong revenue potential. I introduced the NSF attendees to the idea of modifying the value curve — something that’s pretty well known in business school classrooms, but often absent from the field of medical device development. What I proposed is to change the rules of the game.

Historically, companies either: 1) offer more at a higher price (product-based differentiation), which seems to be the primary conceptual driver behind medical device development, or 2) offer less at a lower price (cost-based differentiation), which seems to be the primary driver behind insurer reimbursement. This is a logical way of thinking: You don’t expect poorly made clothes when you buy at Nordstrom’s, and you don’t expect world-class service when you shop at Walmart.

But there’s a third path less taken. What if, instead of focusing solely on the technology solution and its inevitable higher cost (due to the time and money necessary to develop and market), you spent half as much time and attention deconstructing why your prospective customers do what they do, and then translated your findings into a roadmap to a better offering? It might — and should — mean subtracting rather than adding: modifying lesser features that don’t add incremental value proportionate to their cost, and elevating to prominence the one or two key features that matter more than anything else.

Classic examples of shifting the value curve in this manner haven’t come out of the medical device area. The companies usually lauded for prowess in conquering so-called “blue oceans” include Cirque du Soleil, Southwest Airlines, and Yellow Tail wine. But there is no reason this kind of thinking can’t be brought to bear on our domain.

For example, it is generally accepted that dual-energy, X-ray absorptiometry (DEXA) is an accurate way of measuring a parameter — bone density — but it has lousy predictive value. Take two patients with the same demographics, family history, lifestyle, and bone density scores, and tell me on the basis of DEXA which one will suffer a catastrophic hip fracture from a slip and fall. You can’t. So let’s consider why this “standard of care” might persist:

  1. It’s relatively cheap.
  2. It’s reimbursed.
  3. It’s an ingrained habit.
  4. It gives patients and doctors a reference point to track over time.
  5. It’s easy to do.
  6. It’s a source of practice revenue.
  7. There’s nothing better out there.

These all represent formidable market barriers, because any new device I might propose would require product and process education, breaking of habits, and modification of reimbursement.

Were I to determine that the primary reason DEXA persists is practice revenue, I’d design an alternative that could generate more income for physicians. If I found physician inertia was based on fear that a more complex apparatus would be too hard to use as a clinical monitoring tool, I’d focus my development efforts on the simplicity of “reading” the measure and relating it to clinical outcomes. The resulting product in the first instance might be a complex technology that could be economically mass-produced and then sold in mass quantities to orthopedists for use in their offices. In the second scenario, I might focus on creating a simple point-of-care (POC) test capable of producing a time-series readout for the physician after the patient has bought the test and used it at home. Neither technology is intrinsically higher cost for higher value, nor lower cost for lower value; they both establish a different but more relevant value curve.

This simply is an example. I don’t have a solution to the DEXA problem, but I know this approach is one that could be transformative in terms of clinical management, and it doesn’t have to increase the cost of healthcare to be profitable. It just requires some rethinking of the value curve.

We’ve become too used to thinking about clinical medicine on the basis of product- or cost-based differentiation. While the reimbursement industry has trained us to think pharmacoeconomics, that construct revolves around the classical relationship between cost and performance. Walmart-style efficiency isn’t inherently a bad thing; it’s just that insurers care more about income than health. There needs to be a counter, and it’s neither the traditional play of more features at higher cost, nor the new world focus on cost-cutting at the expense of efficacy. Let’s think about taking stuff out, not just putting stuff in, and let’s do it on the basis of what really matters.

In subsequent articles, I’ll address such questions as upper limits to customer capture and the fallacy of “hockey stick” market projections, why IP isn’t the whole story, capitalizing on market forces beyond your control, getting real about competition, and achieving a consensus on prospective value. Until then, have a glass of wine, capture the resulting break from strictly linear thinking, and try to focus a little less on technology improvements and a little more on changing the value curve.

Editor’s note: This article was adapted from presentation the author made to the National Science Foundation on June 2, 2015.

About The Author
Scott Fishman is a serial entrepreneur, investor, and market/technology analyst with over 30 years’ experience as a strategic advisor to the medical technology and pharmaceutical industries. He currently serves as CEO of Envisage (a division of Ethos LifeScience Advisors), which he founded to provide commercial guidance to entrepreneurs, startups, and new product developers in the healthcare space.  He is also an enthusiastic angel investor and sits on the Life Science Investment Advisory Committee for Ben Franklin Technology Partners, one of the nation's most successful technology-based economic development programs.

Actively involved in graduate education, Scott co-created and serves as program executive for the Commercialization Acceleration Program (CAP) at the Wharton School of the University of Pennsylvania. He also serves as a professor in marketing, management, negotiations, and strategic planning in the MBA program at Philadelphia University; co-teaches a commercialization course to bioengineering students at Drexel University; and lectures in translational therapeutics at the University of Pennsylvania Medical School. He earned his master’s degree in advertising from the University of Texas and bachelor’s degree in liberal arts from the University of Pennsylvania.



There’s a popular movie out now called Divergent, about “a world divided by factions based on virtues.”  While you’re probably not the protagonist in a sci-fi move, the term isn’t a bad description of the dynamics you may face in obtaining support for your new venture.  On the path to commercialization, and particularly in the context of seeking funding or other resources, it’s useful to bear in mind that your audience views the world through a different set of lenses.

You may have a dozen or more different constituents to satisfy, some of them immediately and some in the longer term.  These include scientists, university tech transfer departments, private and institutional investors, potential strategic partners in pharma or biotech, regulators, clinicians, health insurers, caregivers, patients, and others.

On the surface, it would seem that the interests of these parties would align.  After all, if your healthcare technology does well, then it will produce a psychic reward for you and those on the journey with you, a clinical benefit to end users, and a solid financial return for everybody involved.  But these are generally long-term outcomes, and they aren’t necessarily the same as the short- or long-term objectives these stakeholders want to satisfy. 

As an inventor/founder, you’re looking for realization of your vision, the opportunity to make an impact on medicine, perhaps recognition and not too far from your mind the opportunity to share in the financial rewards should the venture be successful.  Contrast this with the immediate and longer range goals of other people you’ll be dealing with:

·      Universities want visibility, reputation and impact that translates into the ability to attract top scientists, to serve the interests of existing faculty in seeing their aspirations realized, and enough deal flow to satisfy their support of a tech transfer function and then some. 

·      Investors, or anyone willing to take the financial risk of supporting an early stage venture are going to be looking at the potential payoff vs. the opportunity cost of the funds they commit, and that means a deep dig into commercial viability, timeline and probability of success, and development feasibility given resource constraints.  And those targets will further subdivide based on whether the help is coming from an incubator/accelerator, angel investor, early stage or late stage VC, or a potential strategic partner.

·      Health professionals have clinical goals, but they also have objectives associated with the efficient and therefore profitable practice of medicine.  Your invention isn’t an end in itself, but a means of accomplishing their mission.

·      Patients want to get well, but they also want to feel comfortable about how they’re being treated and not go bankrupt in the process.

·      Regulators are interested in safety, insurers in pharmacoeconomics, non-dilutive public funding sources in public health goals. 

·      Strategic partners have enabling goal; that is, their interest in a particular technology may have less to do with its intrinsic merit than with the extent to which it furthers their other product and market development objectives.

So while everyone can ostensibly align around financial return, and money is in some respects a common denominator, the decision to maintain or support your new venture is never about only one thing.

It’s easy to get wrapped up in a particular aspect of development, and there is no scarcity of specialized knowledge providers who will happily take your money.  A lot of entrepreneurs, for example, spend a lot early on investigating their ability to obtain a patent and freedom to operate.  There’s no question, this is important.  But it’s worth keeping in mind that there are plenty of successful ventures whose competitive advantage is exploiting a market rather than an IP gap, and there are plenty of spectacular failures with rock-solid IP.  The issue is operating context as much as it is IP per se. 

Similarly, it is possible to spend a great deal on prototype development or preclinical testing without having a concrete understanding of market potential.  Early stage companies are understandably hesitant to commit limited funds to market analysis, but can be victims of their own passion for their technology and fail to objectively analyze the real scope of an opportunity – or pursue an opportunistic rather than an optimizing development path.

We humbly suggest that you step back, look at the big picture from a 360-degree perspective, get a consultant who knows commercialization – not out of a book but because they’ve done commercialization – and decide what you need on the basis of the audience to whom you will be communicating. 

Whether or not you’ll progress your venture is going to ultimately depend on the extent to which you are able to understand, and therefore meet your stakeholders’ specific needs at each stage of development.  We’ve spent decades doing exactly that  successfully helping new ventures divine what those needs are, and helping clients tailor their product and message to get results.

Ten Things You Need to Know

In formalizing health care due diligence for a prominent regional group of investors, we created a list of key questions.  Whether you are an entrepreneur developing a health care initiative, an investor considering a financial stake, or a company looking at a potential acquisition, your starting point should include definitive answers to these essentials:

  1. Market landscape: what is out there now, and what is the history of this marketplace?
  2. Competition: who is selling something which accomplishes the same purpose (not necessarily the same technology or device)?
  3. Technology: what is the state of the art?  Is there an identifiable need for an incremental or transformative improvement?
  4. Intellectual property: what’s here that is unique, defensible, and reflects protectable and worthwhile differentiation?
  5. Clinical need: what do patients, physicians, hospitals, other healthcare providers need that is not available to them now in a satisfactory form?
  6. Addressable population: how many opportunities are there for use of the new technology?
  7. Regulatory environment: how much time, energy, money - and angst - will it take to obtain regulatory approvals?  What are the implications for domestic and overseas markets?
  8. Reimbursement: can a case be made that will convince someone to pay for it?