Steve Blank

We’re teaching a Lean LaunchPad class for Life Sciences and Health Care (therapeutics, diagnostics, devices and digital health) at UCSF with a team of veteran venture capitalists. The class has talked to 1,780 customers to date.

• Part 1:  issues in the therapeutics drug discovery pipeline
• Part 2:  medical devices and digital health
• Part 3: described what we’re going to do about it.
• Part 4: a snapshot of what our teams found outside the building.
• Part 5:  value proposition and customer segments in Life Sciences

This post is an update of what we learned about life science distribution channels.

Life Science/Health Care distribution channels differ by Category
It turns out that for commercialization, the business model (Customers, Channel, Revenue Model, etc.) for therapeutics, diagnostics, devices, bioinformatics and digital health have very little in common.

This weeks topic was distribution channels; how your product gets from your company to your potential customer segments. You can get a feel for how each of the cohorts address the channel by looking at the distribution channel lectures below – covering the therapeutics, diagnostics, devices and digital health cohorts.

At the end of the lectures you can see a “compare and contrast” video and a summary of the differences in distribution channels.

Diagnostics

Week 3 Todd Morrill Instructor 

If you can’t see the presentation above click here

Digital Health

Week 3 Abhas Gupta Instructor 

If you can’t see the presentation above click here

Devices

Week 3 Allan May Instructor 

If you can’t see the presentation above click here

Therapeutics

Week 3 Karl Handelsman Instructor 

If you can’t see the presentation above click here

Life Science and Health Care Differences in Distribution Channels
This weeks lecture and panel was on distribution channels; how your product gets from your company to your potential customer segments. Therapeutics, diagnostics, devices and digital health use different different channels, in the video and the summary that follows the instructors compare and contrast how they differ.

If you can’t see the video above click here

Medical Devices (Starting at 0:50)

• Medical Device Distribution Channels in general are a sales team hired directly by the company.
  • A sales team typically includes a sales person and clinical applications specialists.
  •  The specialists help train and educate physician users. They assist with the sale and work with marketing to create demand.
• Some device industries are controlled by distributors (indirect sales.)
  • Distributors tend to resell commodity products from multiple suppliers.
• Channel Cost =  $350-400,000 per sales team. On average there’s 1 clinical applications specialist to 2 salespeople.  A lean rollout for a startup would be 4-5 sales people plus 2-3 clinical applications specialists at a cost of ~$2.5 million/year
  • Increasing the number of sales people much past 4-5 for a rollout does not proportionally increase revenue in most cases, because you are on the front end of early adopters and wrestling to overcome and reduce the sales learning curve
  • Travel and Entertainment is a big part of the sales budget since they are all flying weekly to cover accounts
• 90-180 days for salespeople to become effective
• Expect little or no revenue for 2- 3 quarters after they start
• Major reason for failure = hiring sales and marketing staff too quickly
• Generally an Educational Sale – Hire sales and clinical people first to help early adopters, such as Key Opinion Leaders (KOL’s), master the learning curve with your device so they can write and present papers to influence their peers 

Diagnostics (Starting at 5:16)

• Diagnostic Channels = Direct sales in the US, with limited Distributor options
  • Many Distributors in Europe and in Asia
  • Sold to hospital laboratories, reference laboratories, or performed in CLIA labs
• Channel Cost = $350,000+ per supported salesperson
• Direct to consumer is a (rapidly) growing channel

Digital Health (Starting at 7:25)

• Digital Health Channels = Direct Sales but you’re selling software to both end users and enterprises
• Can use existing tech channels and new emerging channels such as Wellness platforms. (Audax Health, Humana Vitality, ShapeUp, Redbrick Health, Limeade)
• Cloud-based Electronic Medical Records (EMR) are quickly becoming another distribution platform
• App Stores, and Box are also channels for consumers and enterprise customers, respectively

Therapeutics (Starting at 10:17)

• Therapeutics Channel = what you’re selling in the early stage is data and Intellectual Property to the pharmaceutical and biotech companies
• Complicated Sales process – takes 18 months
• Led by the CEO with a dedicated business development person and your science team
• You need to define the data they need – this is influenced by how they view their pipeline, and how your technology can fill gaps in their pipeline
• Pharmaceutical and biotech companies have therapeutics heads, technology scouts and business development people all searching for technology deals to fill their pipeline
• This is a bound problem – there’s probably 80 people you need to know that make up your channel

Lessons Learned

• Each of these Life Science domains has a unique distribution channel
• In Devices innovative products require hiring direct sales people
  • but for commodity device products you may use a distributor
• Diagnostics requires a direct sales force in the U.S.
  • Distributors in Europe and in Asia
• In Digital Health direct sales is a possible channel, as are traditional software channels (App Stores, Box, etc.)
  • other DHealth channels such as Wellness Platforms, and cloud-based EMR’s are also emerging
• In therapeutics it’s a direct sale of data and Intellectual property
  • led by the CEO with a dedicated business development person and your science team

Listen to the podcast here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131111.mp3]

Download the podcast here

Filed under: Customer Development, Lean LaunchPad, Life Sciences (NIH), NIH (National Institutes of Health), Teaching |