Clinical evidence: essential for both investors and regulators

Wien, 09.07.2024 – Text: Catarina Carrão

Medical technology start-ups: popular demand

The need for innovative healthcare solutions is high, as such medical technology start-ups are increasingly popular. Whether developing new technologies, devices, and/or software that has the ability to improve patient outcomes and reduce healthcare costs, the incentive is there to identify a niche and develop something new. However, starting a medical technologycompany is not easy, and entrepreneurs need to consider several factors before launching their venture.

Funding

One of the key challenges facing start-ups is funding. These companies require significant investment to develop new technologies and bring them to market, with start-ups seeking funding from venture capitalists, angel investors, or other sources to support their growth and development.

Investors are also increasingly interested in the medical technology industry due to its potential for high returns, with Deloitte reporting that venture financing in medical technology increased by 67% since 2017, with most investment going towards late-stage diagnostic and digital companies. 1,2 Angel investors are also an important source of funding for early-stage medical technology start-ups, providing capital in exchange for equity in the company, and offering valuable guidance and expertise to help the start-up grow. 1,2

As Deloitte reported, investors are more likely to fund a project that has a higher probability of commercial success. Since, investing in the medical technology sector involves a significant amount of risk, especially for early-stage start-ups, there is a need to build strong clinical evidence to help mitigate some of these risks by demonstrating that the technology has a tangible, positive impact on patient outcomes. In the mind of the investor, strong clinical evidence lowers such perceived investment risk. As such, investors have become more astute over the last few years in assessing value, clinical efficacy, and return potential of new medical technologies.

Clinical Evidence

Strong clinical evidence proves that a medical technology is both effective and safe for use. This is crucial because if a product cannot demonstrate these fundamental qualities, it is unlikely to be perceived as marketable, or even profitable. So, not only design verification and validation studies are needed, but also strong clinical evidence from clinical trials is fundamental for both market entry and to persuade fresh investment in the start-up. 

Therefore, to attract investment, medical technology start-ups must prioritize the generation of robust clinical evidence as part of their development process. Such plan ensures the star-ups meets regulatory requirements and are appealing to investors who are looking for viable, effective solutions with proven market potential.

Companies that have a product prototype supported by clinical and feasibility data are morelikely than companies with concept-stage products to attract attention from investors. But without adequate funding during the earlier stages of development, it can be difficult to generate the data needed to attract interest from investors. Start-up companies often struggle to make it out of the so-called “valley of death” period between initial investment and the development of a commercially viable product. So, start-ups need money to generate the clinical evidence necessary to demonstrate commercial potential, although they also need clinical evidence to breed investment. It’s a vicious cycle.

Conclusions

The medical technology start-up world is fierce: investors may be less willing to make significant ventures without clinical evidence or near-term regulatory approval. So, start-ups that want to attract investment, or be acquired by strategics, need to prioritize acquiring clinical evidence in accordance with the possible market-share of their innovative product.

Image: Stock Photo


Further Reading:

All references assessed 09 July 2024.

1. https://www.pitchdrive.com/academy/medtech-startups-profitable-niches-strategies-business-models-and-risks

2. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/life-sciences-health-care/new-strategies-for-medtech-startups.pdf

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