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Last week's most read: Medical device start-ups face investment catch-22

Fledgling businesses must spend enormous sums of money developing and protecting their inventions to penetrate the market and attract investment. But they often only have enough start-up money for one of those needs

Like any other fledgling business, a medical device start-ups need two things to get off the ground: a great idea and a lot of money from investors.

But sources at start-ups point out that these requirements leave them in a catch-22 position.
Unlike tech companies that can rely on open-source resources to kick-start product development, medical device companies must pour enormous sums into the development of a core product.
That investment leaves little left over to spend on patent protection, and yet a strong patent portfolio can be a critical factor in convincing investors to take a risk on a new business. 
That fact is particularly true for medical device firms because sources say only one in 10 inventions actually makes it to market, which makes medical devices a high-risk investment.
Unlike other start-ups, medical device companies also may not see a healthy return on investment for years.
Investors must also be convinced that a competitor could not simply swoop in and steal what they have invested in.
Thorsten Lubinski, co-founder of medical device start-up Diamontech in Germany, says patents are an excellent way to protect investments against the competition and show investors that the business’s assets are protected.
“I think the biggest reason for failed start-ups is a bad product or market fit – a product that the market doesn’t accept. If you solve the product-market-fit [problem], the patent protects your claim.
“If you have bad IP protection, someone else will do the same product without the research costs. Especially for cash-intensive research, patents protect this investment.”
Teddy Mudge, lead engineer of Straight Access Technologies in South Africa, adds: “You want to show your investors you can prevent competitors from copying you.”
He adds that before deciding to invest in a company, many angel investors will carefully comb through the portfolio to make sure the inventions are original and that a strategy can be put in place to keep away other competition. Having a strong patent that can fight off infringement is one of the many factors that investors will consider.
Filing as soon as the invention leaves the drawing board is a vital step in the life cycle of a good medical device, say sources. Like medications, medical devices have to seek FDA approval.

The hoops a device needs to jump through depends on the level of invasiveness of each device. A simple non-invasive device such as a patch can still take years to get from the drawing board to pharmacy shelves. The patent plays a vital part in helping to get the product to market.

Good help is hard to find

One problem many medical device start-ups face is that most inventors do not have a background in law. With much of the new technology springing from university labs and small groups of scientists with their own ideas, many are not familiar with IP laws and the necessity of filing a patent early.
Lubinski at Diamontech says: “Unfortunately good counsel is always expensive but not all expensive counsel is good. If you think you have a good patent idea, talk to a patent lawyer of a big or well-known firm.”
His investors were able to recognise the originality of the product, which uses infrared light beams from a touch screen to measure glucose levels, because they had training in patent law. With help from the patent-savvy investors, the pocket-sized glucose monitoring device will be on the market this year. But most start-ups are not so fortunate.
Lubinski advises early-stage start-ups to seek help from IP attorneys as early as possible. “Talk to the patent lawyer before you publish anything. In our case we are lucky enough to have a couple of patent lawyers as shareholders. This has proven to be an excellent solution.”

Mudge at Straight Access adds: “The best way to find good people is to use your network. You want to know if you have a good product early on so that you do not mislead your investors.” 

Put it in writing

It often happens that the conception of a device comes before the start-up is formed. Many medical devices now used on the market are the products of active collaboration of many different inventors.
Mudge says: “I think another reason start-ups fail is because you miss milestones or you lose talent.”
Some jurisdictions stipulate that without an agreement, a product belongs to the inventor. In these instances it is essential to get an agreement in writing from each individual stipulating that they transfer their rights to the company. Without these agreements a company can lose the confidence of their investors.
A good patent not only attracts investors, but it can add real value to the product.
Lubinski adds: “Usually the real value comes from a combination of a product, market fit, and patent. Also make sure that your patent actually covers your product. Sometimes the product doesn’t match the patent or the patent is so narrow that it is super-easy for the competition to build around it.”

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