Last month, I was a speaker at the Med Tech Monday Conference in Irvine CA. It was a great conference with speakers covering every aspect of the medical technology market – from product development to regulatory approval.

I spoke about how to use licensing as a strategy to get your medical device technology into the commercial market. The presentation focused on seven key reasons why licensing is one of the best go-to-market strategies for the med-tech industry – especially for startups.

Here are a few summary highlights from the presentation:

High Risk and Development Costs: Medical devices are a convergence of technologies, mainly based on mechanical/electrical, information and systems engineering. Many devices are technically complex, requiring many different technologies often protected by hundreds of patents covering the structure, function and/or methods of using the device. Many devices must go through the complex approval processes of the FDA and other regulatory bodies. Few if any medical device companies, especially startups, are capable of mastering these capabilities in-house.

Intense Competition from Big Players: Medical technology is an intensively competitive industry driven by the large number and variety of devices and designs with lots of variations in improvements. In addition to the traditional medical device players such as Johnson and Johnson, leading tech and consumer electronics companies, such as Apple, Google, IBM, and Samsung, are spending billions on digital health initiatives, especially around wearable, life sciences and smartphones. These players are well-honed in the managing and commercializing IP in the consumer marketplace, and will use their marketing and sales muscle aggressively to compete in this fast growing market.

Shortening Technology Lifespan: As a result, the medical devices industry is becoming a high-volume, consumer electronics market. This in turn is shortening the commercial lifespan for med device technology to 18-24 months, much shorter than the patent lifespan of 20 years. Succeeding in this market requires the strategic use of your med tech IP. Especially when it comes to patent technology, where both the patent and technology lifespan is limited, and getting it into the market sooner than later is the goal.

Why Big Players Want to License Your IP: Innovation is moving too quick in the medical technology industry, and many of the largest companies are moving out of the R&D part of the business. Their internal systems are too slow, and many lack a structure that supports the type of fast innovation process that’s needed. Instead they are setting up incubators and corporate investment funds to partner with startups and small businesses.  In effect, they are outsourcing their R&D.  And that is creating a great licensing opportunity for med tech startups.

Licensing and Med Tech Value: The closer your medical device technology is to market ready, the more value it has in terms of licensing.  Or another way of looking at it is as your med tech device goes through the development process, from concept to market ready, each stage it goes through reduces market risk. For example, the royalty rate for just an idea is 0% because its unproven and extremely risky. If it’s at the prototype stage, its risk is dropping but it’s still high.  At this stage, the royalty rate can range from 2% – 3%.  Once your med device is in the market, it’s at the lowest risk stage, its value is high, and the royalty rate could be 8% or higher.

Negotiating the Licensing Deal: There are some key business terms to keep in mind when it comes to licensing your med tech device, such as exclusivity, field of use, and territories.  Before licensing it, you must understand all the applications for your device technology.  Is it a single market or can it be used in multiple areas of the health care industry? This is important to consider, otherwise you can wind up locking up your IP rights with one company and missing revenue opportunities in other markets.  The best licensing agreements are performance based.  That means making sure you and your licensing partner agree on key milestones, such as development timelines, marketing dates and royalty payment deadlines. It’s a long-term partnership and it’s critical to make sure it’s clear about what you will do during the term of the agreement.

Forming strategic licensing partnerships is a go-to-market strategy for your med tech startup. The fast changing health care marketplace and rapid pace of new devices entering the market is shortening the lifespan of med device technology. And that means you must get your med device into the market sooner than later. By partnering with bigger companies through licensing, your device technology gets into the market faster, than trying to go it alone against these big med device, high-tech, and consumer electronics competitors.

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