Blog | 5/14/2024

Successful Commercialization of New Devices: What Does it Take?

By Russ Rapaport, Andrew Millar, and Tracy Walters

Introduction

Boston Scientific kicked off 2024 with one of the biggest MedTech deals in recent years, acquiring Axonics for a hefty $3B.[1] The deal further solidified BSC’s drive to add high-growth products to its portfolio[2] with Axonics’ net revenue up 49%[3],[4] from 2020 to 2023. But Axonics also faces another exciting milestone in 2024: net profitability. Just 4 years after launch, the company is expected to turn a profit for the year.[5]

More recently, Johnson & Johnson’s acquisition of Shockwave Medical for $13B similarly represents the market seemingly rewarding growth and a profitability milestone: Shockwave achieved 50% sales growth in 2023 following its first full year of profitability in 2022.[6],[7]

Axonics’ and Shockwave’s rapid growth and drive to profitability (not to mention exits) are impressive, but at what cost has this success come and can other medical device innovators do the same?

To put Axonics’ and Shockwave’s commercialization in context, we examined additional new therapeutic device procedures receiving FDA approval between 2013 and 2019 (Figure 1). We further limited our sample to those devices manufactured by public companies for data availability. The resulting list includes the following 7 products, which represent a diverse mix of clinical areas and MOAs.

Big Spenders

To assess the commercial launch of each product, we examined company-wide SG&A spend and compared it to revenue. While there are other contributors to profitability (notably, R&D spend), SG&A is typically the largest line item for new device players post-approval and thus highly relevant. Across the board, SG&A spend for this group was unsurprisingly high. After all, it takes a lot to launch any new device, let alone one that requires a therapeutic procedure. In the first 5 years, SG&A spend per company was cumulatively over $570MM on average. This figure interestingly rivals spend associated with drug launches analyzed in an earlier Health Advances analysis. Such high expenditures appear fairly persistent across time in the commercialization, too. Five years after launch, the average SG&A spend as a percentage of revenue across the group still hovered around 85%, much higher than the 30% average for mature medtechs (Figure 2). This underscores just how intensive and long a road it can be to introduce any new device technology. Even among this small group, though, there is a good deal of variation. Inspire and PulmonX were spending over 100% of revenue 5 years post US launch, while Axonics and Shockwave had the lowest SG&A spend as a percentage of revenue 5 years out, at 64% and 45%, respectively.

Paving the Way

Truly novel products introducing a completely new technique or mechanism of action face some of the biggest challenges in commercialization. These can range from convincing surgeons of basic safety and overcoming steep learning curves, to securing CPT codes and payer coverage. Inspire faced exactly this situation when it first sought to disrupt the sleep apnea market with a surgical implant, completely unlike anything on the market. PulmonX faced a similar situation as the first approved endobronchial valve for COPD (though Olympus’s valve followed months later)[8],[9],[10]_. In both cases, we see persistently high SG&A spending as a percentage of revenue (100%+, 5 years out). Compare this to later entrants, Nevro (fourth to market in spinal nerve stim) and Axonics (second in sacral nerve stim) which achieved 60-80% SG&A spending in just year 2 of commercialization.

Getting Patients in the Door

For better or worse, some conditions grab patient attention more than others. Overactive bladder and sleep apnea, while serious, may not spark initiative in patients’ minds. Compare this to Inari and Shockwave. Both companies have a captive patient audience simply due to the nature of the condition they treat. In the case of Inari, many clot patients present acutely with significant symptomatology. The difference could mean companies playing in lower acuity settings may need to factor in an additional line item for their commercial launch to raise patient awareness: DTC advertising. Indeed, Inspire and Axonics spent a remarkable $74MM and $20MM respectively on DTC in 2022[11],[12]_.

Playing Specialist Matchmaker

Some new devices enter markets with consolidated call points or at least well-entrenched referral patterns. Axonics, for example, calls upon implanting urologists who likely already have a pool of patients with OAB on medical management. Shockwave’s users (interventional cardiologists) already had relationships with upstream referrers, reinforced by the procedural needs of several disease states. Compare this once again to Inspire, which, in the absence of pre-existing relationships, had to build a pathway between its implanter users (primarily ENTs) and likely referrers (sleep specialists). Similarly, Neuropace had to bolster epilepsy referral pathways from neurologists and PCPs to neurosurgeons. Such a dynamic increases not just the number of physicians requiring education, but also the complexity of rolling out a technology to disparate audiences.

One Size Does Not Fit All

Order of entry, patient acuity, and referral patterns are just three key factors new entrants must consider when planning for launch, but there are many unique challenges each new technology faces. Thus, we cannot readily say whether any of these analogs under- or over-invested, or that higher SG&A as a percentage of revenue is necessarily a “bad thing”. But it is critical for companies to understand their unique challenges when planning, hiring, and setting expectations for their commercialization.

In our experience, it is not just about the size of the investment either, but also the timing and allocation of those dollars to various commercial line items (Figure 3). As discussed above, DTC may make more sense for some products versus others. Virtually all physician preference products will need some kind of salesforce, but truly novel products may start smaller versus those seeking to take share. (Compare Nevro and Axonics 100+ person salesforces at launch to Inspire’s team of fewer than 30)[13],[14],[15]. Similarly, companies must right-size their reimbursement personnel to unique market access considerations, such as prior authorization and the coverage landscape of their technology.

Subsequently, within each category of spend, also lies a question of strategic execution (Figure 4). One hundred sales reps may seem like the right number, but not if they are disproportionately focused on proceduralists versus referring specialists. Nor will the marketing team be effective without strong, validated value messaging. For these reasons, we strongly believe innovators should have well-informed plans and justification before spending $200-800MM+ on a commercial launch.

At Health Advances, we frequently help clients prioritize and plan their commercial investments. With over 30 years of experience in the medical device industry, Health Advances can identify the driving forces that get patients through the door and position salesforces to be as efficient as possible. Using thoughtful industry benchmarking and in-depth research with key opinion leaders, Health Advances crafts a pragmatic, tailored approach to commercial launch. We believe this process is critical to success. Indeed, if the size and timing of the recent acquisitions of Axonics and Shockwave are any indicators, innovators that can scale efficiently will be rewarded.
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Authors

Tracy Walters is a Partner at Health Advances and co-leads the MedTech practice. She has led over 250 client projects in product commercialization, revenue forecasting, and due diligence assessments. Her device sector experience spans sites of care including hospital, ASC/OBL, and physician office, and many therapeutic areas including neurology, ophthalmology, and cardiology.

Andrew Millar is a Director at Health Advances, leading projects for medical technology companies and investors with experience in growth strategy, due diligence, market assessments, and market access planning.

Russ Rapaport is a Senior Analyst at Health Advances with experience in corporate strategy, market access, commercial launch strategy, and due diligence across medical device, digital health, and biopharma.