What are the most common mistakes a startup medical device company usually make? Hear Ronny Bracken candidly disclose how to avoid some very expensive lessons when starting out in the medical device business.
With his 26 years of Research and Development experience for medical product development at the executive level, he will show us how to avoid a $20 million haircut on your valuation because your design controls and quality system are not up to speed.
For him, in order for a product to be profitable, it needs to listen to customer feedback. He relates an interesting point view about losing early, for him it’s important to know early on if you have the right product for the right customer.
The patient may be the beneficiary but it’s the medical practitioners who are the purchasers of the medical equipment. So it's still important to design a product that they will need and at the same time stay compliant with industry standards.
Some highlights of this episode include:
- Common mistakes that small companies make and how to do the right thing, graciously pointing out the aspects of the business that small companies need to focus on.
- His points of view regarding treating the regulations as a way of life, why embracing risk management practices is the key and how to have design controls that work.
- Merger and acquisitions and how it affects the small companies.
- How to create a team from research and development to the marketing aspect of the business. From manufacturing the product to bring it to the market.
- How to balance your product research and commercialization. Valuable insights about your passion and funding.
- When to figure out what the market needs and why it’s important to determine the product’s purpose early in the development.
About Our Guests
Ronnie Bracken is an accomplished Research and Development executive with a career that spans more than two decades of experience in the field of Research and Development and manufacturing. He started his career at Bard, stayed there for 18 years and is now busy running 2 start-up companies.
Presently Ronny is the Principal at Paladin Biomedical Consultants, LLC, as well as chief operating officer for a tissue engineering startup and an antimicrobial medical device startup.
His extensive experience has guided a lot of companies to have a solid business model that brings in revenue, ensuring sustainability of the projects in which he is involved.
Ronny has a knack for creating intuitive, valuable, and innovative products that solve very specific problems in their markets.
Jon Speer is the founder and VP of QA/RA at Greenlight Guru, producer of beautifully simple quality, design control and risk management software for medical device companies. Having spent 17+ years in the medical device industry, Jon realizes bringing a new device to market is hard, that is why he founded Greenlight guru to make it easier.
Announcer: Welcome to the Global Medical Device podcast where today's brightest minds in the medical device industry go to get their most useful and actionable insider knowledge, direct from some of the world's leading medical device experts in companies.
Jon Speer: This is Jon Speer, founder and resident guru of Greenlight.guru. Hey, I'm glad you tuned in today. We have a real exciting episode of The Global Medical Device Podcast. You're gonna hear from Ronny Bracken. Ronny is, he's one of those guys that's seen a lot of things and he's been through both sides of the equation in the medical device industry as a startup. But before that, he worked for a large company that was involved in a lot of mergers and acquisitions. Had a chance to talk with him a while back. And one of the interesting things that Ronny said and I quote, "$20 million might not seem like a lot of money to you, but if you get a $20 million haircut on your valuation, because your design controls and quality system aren't up to speed, I guarantee you that's gonna hurt." Yeah, Ronny said that. And you're gonna hear a lot more about his points of view on things like design control, risk management, and regulations in this episode of the Global Medical Device Podcast.
Jon Speer: Hello this is Jon Speer with greenlight.guru and welcome to the Global Medical Device Podcast. Today I'm super excited to have with us Ronny Bracken. Ronny is a super star these days in the medical device startup world. And I'll let introduce Ronny and let him tell a little bit about what he's up to and all the exciting opportunities. So Ronny, welcome to our program. And if you would just give us a little bit about who you are and what you've done and some of the exciting things that you're working on.
Ronny Bracken: Sure. Thanks, Jon. Good morning. My background, I have 26 years in medical device product development. I spent 18 years at Bard, 8 years of those in executive capacity, head of R&D, as well as the vice president of strategic initiatives for the last few years that I was there. Well, nowadays, what I'm doing is is actually running startups, I'm working now with a tissue engineering startup, Nanofiber Solutions as well as running as a president chief operating officer of a company called N8 Medical which is an antimicrobial technology, a novel, new compound that we're gonna use to coat medical devices. So that's a little bit about my background and what I'm doing nowadays.
Jon Speer: Very cool. I had a chance to meet with you and the team, actually both teams at N8 Medical and at Nanofiber Solutions and you've found some really interesting technology as well as a pretty exciting group of people to help bring those products to market. Congratulations at least on the beginnings of those two companies.
Ronny Bracken: Thank you.
Jon Speer: All right, Ronny, you and I have spoke a few times and I'll have to confess every time that you and I speak, it makes my day. You and I were speaking a few minutes ago and I was telling you about all the red lights I hit this morning, but you're gonna help clear up all those red lights. And we're gonna find some green lights today if that's all right with you.
Ronny Bracken: Sounds good.
Jon Speer: All right. Well, one of the things that you've got good stories, and that's one of the things I've picked up every time that we've talked. And I want you to think a little bit, this one may be super easy for you or it may take a moment, but what is the single biggest mistake that you have seen a medical device startup make? I mean, of course, protect the innocent [laughter], but share the story.
Ronny Bracken: Sure. I'll tell... Well I think there's really two. And the first one is that a lot of the startups fall in love with their technology and have a tendency to be clouded as to what they really need to do to develop a real product. They still become so technology-focused that they're not really thinking about the end product itself. And the end product is more than just kinda like a scaffold or kinda like any device for that matter. It's that, a delivery mechanism, packaging, etcetera, labeling the whole nine yards. So small companies have a tendency to fall in love with the technology and wanna hold on to the technology versus transitioning to new products or product development.
Ronny Bracken: And with that being said, I think the second biggest mistake is that small companies don't really have the discipline. They complain about the regulations, they complain about the paper work. And what I try to tell people is that it's a way of life, and if you embrace it as not becoming a slave to the system and actually embracing it and trying to figure out the most efficient way to satisfy regulations, but at the same time, do good product development, it'll make all the difference in the world. And what I mean by that is that small companies really, they haven't yet grasped or really said that all of this documentation is necessary. And if done right, it helps them in the long run, it doesn't hurt them. And I think those are a couple of the big things that I see is trying to make the transition from their technology to a product, but at the same time how do I do that and use all of these tools that are out there to their advantage, not to their disadvantage.
Jon Speer: Right, right. So let me go a little deeper on a couple of these things. 'Cause I've seen where a startup has fallen in love, with their technology. And that seems to happen a lot when you've got the inventor who is still pretty involved with the day-to-day activity and maybe even taking on an executive role with the company. It's really hard for an inventor to kind of let go of their baby, so to speak, or realize that it might need some improvements. I'm sure you've seen that challenge a few times at the many stops in your career.
Ronny Bracken: Absolutely. And I think that the key is that whether it's a startup, whether it's a large company, I think the word "the team" matters. And if you're partnering with the company and you're going to go in and help build a startup and the inventor is there, well, making sure that the team works is still important. And if you ignore that fact and try to go in and in essence, look to rebuild a team or not help teach, it's going to fail from the beginning. So, my philosophy is not to tell people what they're doing wrong, but to tell people how we can get better.
Jon Speer: Sure, good advice. And then the other... The other story you shared is the mistakes that medical device startups make, the regulation. Let's face it, as you stated, they're here, they're not going anywhere. In fact, many signs point to the... The regulations are probably going to increase rather than decrease. And I think one of those areas that I've seen, at least in my practice over the past several years, is this emerging interest in risk management, not only from a regulatory perspective, but some of the standards that are out there. But do you have any thoughts or perspectives on risk management, how it can help a company or how it can hurt a company?
Ronny Bracken: Absolutely. I can remember... I've been in this business so long, I can remember when risk management... Everyone just thought it was a "check the box" activity.
Jon Speer: Yeah.
Ronny Bracken: Let's just do it and move on. However, as you really begin to embrace risk management and think about the intent of risk management, it can really change the way a company operates. So for example, risk management was intended to help you identify potential hazards, potential failures, the risk with those failures and ultimately have a company work to design those out. In other words, find a way to mitigate that potential failure, whether it be design, whether it be labeling, whatever, and then that does nothing but improve your device.
Jon Speer: Right.
Ronny Bracken: And what I've seen is a lot of people still wanted to treat it as a "check the box".
Jon Speer: Oh yeah.
Ronny Bracken: And that is not going to really benefit a company in the long run. It is a very good tool when used correctly to help a company have a better product.
Jon Speer: Right. Yeah, I can remember very early in my career as a young kid just starting out in the med device industry as a product development engineer, that check box activity, I remember that very well. I got to a certain point in a project and I was like, "Oh crap, I gotta do my FMEA or my risk management or whatever", and I would just spend an afternoon documenting that, and I would be able to check the little box in my form and say, "Yup, I've got it." But it really didn't add any value at that point, I didn't really understand that. And I think today, it's... As you stated, it's very important that companies realize that risk management is something that's here to stay and it's something that can be a huge benefit if the company would actually embrace the methodology behind some of the risk management standards and the criteria that's expected. So I know in a prior life, you used to be involved in a lot of mergers and acquisitions and you would come in and evaluate companies and determine whether or not they should be part of the... An acquisition target for your employer at that time. I'm sure you got some stories, good or bad, that you can share. Maybe some cases where people actually embraced the concept of risk management and probably a few others where they didn't embrace the concept of risk management. Anything that you can share on that... On that topic?
Ronny Bracken: Oh, well what I'd say is, is that... Well, I've seen companies that have really embraced the regulations in their entirety, not just risk management but regulations in their entirety and have tried to do a good job of building solid design history files with risk management included, etcetera, and I've seen some that haven't done so well at that. And typically what happens is small companies tend to forget that if you're going to be acquired by a large company, whether it be a Bard, whether it be a Medtronic, whether be a J&J, it really doesn't matter. Larger companies get more FDA scrutiny. So the minute they take on a smaller company through an acquisition, they have now taken on all the regulatory risk associated with that from a compliance perspective. And small companies, their systems may be viewed as okay because they're a small company, and they will be given some leniency during FDA QC inspections or in some cases, even ISO certification inspections. So, I would say that small companies need to realize that this process, this process of designing products using design controls, using the design realization standards to ISO. Risk management, etcetera, are ultra important because they can ultimately affect the value of the company.
Jon Speer: Right.
Ronny Bracken: Because if a small, if a large company has to go in and mitigate risks, you'd put additional quality professionals in place, additional R&D professionals in place, to rebuild a low cost design future cost, don't think they're not going to reduce their valuation in the company because it's money they're having to spend and mitigate those risks.
Jon Speer: Yeah, yeah, it's funny as a... Over the past several months we've been talking to a lot of startups and it's a common thing that we hear from time to time that the point you raised earlier about the startup falling in love with their technology. That happens quite a bit. And then the other thing that we hear from time to time, is the startup says, "Oh, I don't have to worry about that risk management or that design control or that quality system stuff because I'm going to develop my technology and focus on that and I'm going to be acquired by one of the big boys in the industry." And I'm just like, "Man, you need to talk to Ronny." Because Ronny was on that side of the table where he was putting offers to startups like yours and when you didn't have the design controls and the risk management that were necessary, he would basically say, "Alright, you want this? We're gonna reduce that offer significantly because you just increased our risk profile for your technology."
Ronny Bracken: Absolutely. Yeah, I think you can look around and you can look at large companies and you can look at things that they've acquired and you even look at recalls, you look at a host of different things. And a lot of times you will find that they were from a product line or technology that they acquired.
Jon Speer: Yeah.
Ronny Bracken: And you can find it every day.
Jon Speer: Yeah, and it seems to me, that back maybe 10 years ago, that there was a lot more M&A activity in our space. And it seems like that's slowed down quite a bit. Is that something that you've observed as well?
Ronny Bracken: Oh, I think it has. And I think what you're seeing now is the larger is consolidated amongst themselves. Because economics has changed totally within the hospitals and as economics have changed, companies have had to modify their business plans as well.
Jon Speer: Right. So where do you think this is all going? We've talked a little bit today about the increase in regulation. We've talked about the importance of design controls and risk management. And then your last point of some of the big boys are starting to join forces, so to speak. I mean, where do you think this is all gonna go? Do you think it's going to eventually return back to the ages of startup or do you think we're in the ages of startup now? Give me some sense from Ronny's point of view.
Ronny Bracken: I think startups will always have a place. I think what you're gonna find, though, is as you see these consolidations amongst the larger companies, you're going to find that, in essence, they have more purchasing power or they have more negotiating power. Which is something that startups have to recognize. So, for instance, the hot bed of startups is still cardiovascular or vascular technologies, one of the two and, but what you're seeing is, from a large company perspective, the number of players is getting smaller and smaller and smaller. And it's nowhere like you may have had eight suitors or what have you. Look at the orthopedic space, same thing. Now, look at the number of orthopedic players that were out there and even five years ago and look at what's there today. Lot's of consolidation went on. So, I think when that happens, startups have to recognize that, number one, they aren't as in a strong negotiating position as they once were, and not only that you really need to make sure you do have a unique innovative stand-out technology or product. As well as, making sure you're really buttoned up from a business perspective on all aspects. Including your design history files, business plans, market data, etcetera, so that you can really ensure that you're in the strongest negotiating position possible.
Jon Speer: Yes, so basically the tip there is to be a total package, don't be a one-trick pony. Make sure you've got not only the technology but the team and then also the back-end, addressing the regulatory matters, but also having a solid business model to move forward and actually generate revenue. I think that's probably a pretty important key advice for any startup, regardless of industry.
Ronny Bracken: Yeah, and revenue, you bring up a good point, you also find it particularly in med device space. Medical device companies buy revenue more than they buy technology.
Jon Speer: Yeah.
Ronny Bracken: You look around, they buy revenue. Medical device companies don't have the luxury or pharma to have these gigantic R&B budgets and as such, it's very hard for them to just take on technology and pretend that they're all technology.
Jon Speer: Right.
Ronny Bracken: They will take on some, but 80 plus percent of the deals that are done are for revenue.
Jon Speer: Yeah, I mean that's a very good point. I'm sure there are some pockets in the industry where there is a "pure research focus" as far as technology's concerned. But I guess throughout most of my career, the things that we called research were really weren't research. They were really just trying to figure out how to commercialize a particular product or device or an idea. But it was really about revenue, being revenue minded.
Ronny Bracken: Absolutely, Pharma is exactly the opposite. In the Pharma world, they wanna buy the new block buster drug, compound API very early on early, even as early as possibly just a phase one study and they pay big money for that and then they develop it all the way through. In a device you're really having to carry it through to the proof of possibly even clinical data and commercialization. Otherwise, chances are you're an after thought.
Jon Speer: Right.
Ronny Bracken: So, that's the other thing that I say is the small startups, most of them are gonna have to get through the FDA. They're going to possibly even have to get CE Mark. And as such, you'd better have a good system in place because you're at risk of being audited, and for CE Mark you will be audited.
Jon Speer: I think that's probably of all the things that we've talked about today. I think that's the important point. I wanted to drill down a bit on that. I mean, it used to be a time where a med device startup could do a few bench-top tests and maybe an animal study. And then say, "Hey we're ready for acquisition." And what your observation is that those days are probably numbered, or if they're not already gone. And instead, what I heard you say is a Med device startup needs to be ready to take it all the way through the regulatory process, get clearance, go to market and then do some actual clinical work on the product once it's been clear. So they basically have to be in a revenue model before they really become a good acquisition target.
Ronny Bracken: That's correct. And the unique startup that I'm involved with, my plans all include take it through approval and then determine whether it depending on the complexity of device, it may be an IDE approval, and a clinical or a top 10K and some post-market studies but I think you just can't assume that I've got 510(k) clearance or I've got a clearance therefore, a company is going to be interested in it. I would say no. They want to see some kind of evidence that your product is truly unique.
Jon Speer: Yeah, that there is a business that it's worth... That there's a revenue stream. Well, Ronny any parting words that you have for our audience today, before we wrap up our conversation?
Ronny Bracken: Sure, I think if I had to say, I say this all the time. First of all, if you're gonna lose, lose early. It's that whole fall in love with your technology and become blinded. If you really are going to lose, and you need to understand that early. Which leads me to the second part, understand what the customer wants 'cause chances are you'll understand whether you got the right product or not, or the right technology or not. And determining who that customer is, is just about as important as understanding the customer. A lot of people say, "Well your end customer is the patient." Well, yes and no. The patient is the beneficiary of the technology or the product. The customer is the person that's making the purchasing decision and that could be different in many, many cases. So, I generally say, you need to understand all of those things early and you need to cut bait early if you don't think that you've got something there. Otherwise, all you're going to do is burn up all your money, and you're not gonna be successful, and everybody's gonna get frustrated. The closer you get to running out of money, the more frustrated everybody gets the more panicked everybody gets. So, figuring these things these out early is important, and making sure that you manage your tax along the way.
Jon Speer: Well, folks, you heard it from a Ronny cut bait early. If it's gonna be a dog and it's gonna be a loser then decide that and figure that out as fast as you can. For as cheap as you can. I've seen plenty of ventures go way longer than they should and spend a lot more money than they should and I'm sure Ronny has as well. Well, Ronny, I appreciate your time today and I appreciate you, you having a conversation with me about some of the things that are intact in the med device industry. Let me just let our audience know that you can always check out more podcasts from the past, on the greenlight.gurus website. Can also learn a little bit more about our software solutions that are helping medical device companies address things like ISO 14971 risk management and design control and quality systems. My name's Jon Speer and you've been listening to the Global Medical Device Podcast.
About the Global Medical Device Podcast
The Global Medical Device Podcast powered by Greenlight Guru is where today's brightest minds in the medical device industry go to get their most useful and actionable insider knowledge, direct from some of the world's leading medical device experts and companies.