Lessons from an experienced medtech innovator/investor

By Glenn Snyder, principal, MedTech Practice leader, Deloitte Consulting LLP

In 2018, TIME Magazine named Todd Pope one of the 50 Most Influential People in Health Care. After more than 30 years, Todd tells me that he remains passionate about technology and medical devices. The companies he’s worked for and launched have developed surgical robots, stents, nanotechnologies, and the world’s first handheld UVC surface disinfection device for hospitals. Last year, Todd was named chairman of AdvaMed’s Accel—the trade group’s division focused on small (i.e., less than $100 million in annual revenue) and start-up medtech companies.

I recently talked with Todd about medtech startups, the funding challenges they face today, and how their innovations could help enhance wellness and change the way health care is delivered. Here’s an excerpt from that conversation:

Glenn: You’ve been a part of the medtech landscape for three decades. Where did it start?

Todd: My first job out of school was with a large life sciences company that was pioneering minimally invasive surgery through an internal effort. This group operated as a start-up, which meant we were able to reach milestones quickly. Not only did I witness a high-growth opportunity, but I saw first-hand the impact that medical devices can have on patients. My philosophy has always been that medtech can have a profound impact on patients by helping to make procedures safer and more effective. After seeing decades of surgical procedures, I thought robotics could improve precision. That idea led me to start my own company, which focused on robotic surgery. I met with robotics experts from around the world, and from a wide range of industries. We raised venture capital, built a prototype, and eventually took that company public on the New York Stock Exchange. I ran that company for 10 years. Every company I’ve been involved with has been incredibly enjoyable and very gratifying.

Glenn: How has the nature of medtech, and medtech investments, changed over the past 10 years?

Todd: Ten or 12 years ago, investors seemed to be more willing to acquire start-ups in the earliest stages and take on some risk…as long as the company had a good concept, big market, and a clear path. It seems the appetite for risk has moved further away from early-stage companies. Large companies are less willing to make a big bet on a small company that is just getting started. There are also more concerns about everything from how well a medical device will work, to the intellectual property, to the regulatory-approval process, to reimbursement and sales potential. Also, after a decade of acquisitions and consolidation, there aren’t as many large medtech companies around as there were 10 years ago. That means there are fewer companies left to acquire or fund start-ups.

Glenn: How long does it typically take for a start-up company to become successful?

Todd: Many medtech companies will spend about 10 years and upwards of $100 million to develop, test, and gain regulatory approval for a new medical device. That’s typically not part of the initial business plan, but it’s often the way it goes. Some companies won’t need nearly as much capital or time, but some will need more. Start-up biopharma companies typically have an easier time finding funding and going public than medtech companies. Public markets haven’t historically been as open to early-stage medtech. In addition, the number of pure medtech investors, like venture capitalists, have dwindled over time.

Glenn: What is AdvaMed’s Accel program doing to help medtech startups?

Todd: A lot of medtech companies just never make it because they don’t have the funding or the time … or both. That makes it essential to find alternative streams of funding. There is often funding available, but young companies might not know how to access it. Some investment firms provide start-ups with funding in exchange for equity and a return on the investment. We are trying to help emerging companies explore alternative ways to get these early-stage companies funded. For example, we try to connect start-ups to angel networks (i.e., individuals who provide capital in the early stages of a start-up) and philanthropists that might be interested in funding innovation. I’m a proponent of family offices and their ability to provide financial backing. Family offices are typically exceptionally wealthy families that are interested in investment opportunities. Many of these philanthropic families want to invest in companies that could make a difference in the lives of people and are often drawn to health care. Some of these families are passionate about using technology to improve the health of people who live in underserved areas. Medtech entrepreneurs often don’t know about these groups. We are trying to connect family offices to emerging medtech companies.

Glenn: How critical is it for a medical device to have a digital component?

Todd: It’s becoming huge. But companies need to do more than just say they have a digital component. If they claim they are using artificial intelligence, they need to be able to demonstrate how it’s being used. I'm working with a company that uses AI to identify potentially cancerous polyps with 98% accuracy. It has an algorithm that compares images to digital videos from about 20,000 colonoscopies. I estimate that close to half of emerging medtech start-ups have some type of digital strategy or offering.

Glenn: Does a digital component make a company more attractive to an investor?

Todd: I believe so. Many investors expect it. A new car today might have AI that keeps the driver from drifting into a lane by making the seat or steering wheel vibrate. It might automatically brake if the car gets too close to another vehicle. But we continue to rely on medical devices that haven’t changed much since the 1980s. I'm glad that my car can parallel park by itself, but I'd rather have that level of technology in the medical devices that can be used to save my life. I think investors are interested in technology that can take medical devices to the next level.

Glenn: How might AI impact medtech and medical devices?

Todd: Car companies are developing self-driving vehicles. Why couldn’t self-driving surgical instruments be developed? Theoretically, a computer will probably be more accurate and efficient than a human. Consider an experienced gastrointestinal doctor who finds a polyp during a procedure. Based on decades of experience and hundreds of procedures, that physician might confidently assure the patient that there is nothing to worry about. But what happens when that doctor retires? A wealth of knowledge is lost. Now imagine a new doctor who can use an AI-enabled device to quickly and accurately compare a patient’s procedure to 100,000 images.

Glenn: Over the past several years, we have seen consumer technology, such as smart watches and other wearable devices, make inroads into the medtech space. How is that impacting medtech start-ups?

Todd: We are trying to bring in technology investors that have not traditionally invested in medtech. There is a natural connection between technology and medtech. For example, every smartphone is now equipped with a remarkably inexpensive high-definition digital camera. Similar cameras could be made to put on the end of an endoscope, for example, and thrown away after being used. That's where consumer technology meets medtech. But consumer-device manufacturers usually don’t want to go through the regulatory process like medtech companies.

Glenn: The health care sector generates a significant amount of waste and is a major contributor to carbon emissions. Are medtech innovators starting to look at ways to address waste and the environment?

Todd: It’s a double-edged sword. Disposable devices can generate tremendous volumes of waste. One surgical procedure might result in a trashcan full of red-bag waste that will need to be incinerated. But reusable devices can lead to infections if they are not properly sterilized…and sterilizing devices requires chemicals that can be bad for the environment. Most health care professionals can make a pretty good argument for either side, and medtech companies are discussing both sides of this issue. Innovators who launch medtech companies typically want to make a difference. They have to possess a certain passion to improve the lives of people. It’s amazing to think that a product we developed is being used to save people’s lives in the operating room. I’ve been in sales meetings where patients talk about how one of our devices saved their life. There is a strong benevolence in health care that sets it apart from other industries.

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