All startups must navigate the “Valley of Death” as they transition from initial discovery and ideation to market launch. This critical period, characterized by heightened risk of failure, is particularly daunting for neuroscience companies, given the complexity of dealing with the human brain and extensive regulatory hurdles involving medical devices.
It is tempting for entrepreneurs, especially those emerging from academia, to focus too narrowly on technological validation. However, deferring crucial factors like regulatory compliance, IP fencing, and market access until later stages of development can prove costly. This is especially true in healthcare, where reimbursement and path-to-patient must be included as part of the early vetting process. After all, there is no point continuing the lengthy development, validation, and verification if the technology does not have the potential to clear all the necessary hurdles.
Here, we examine the key components that neurotech startups must address to traverse the Valley of Death and scale the “Mountain of Opportunity” to commercial success. Addressing these issues up front will provide founders a clear go/no-go on technology development that could otherwise be wasted, enabling you to increase your likelihood of success and realize the full potential of neuroscience innovation.
1. Establishing Clinical Need And Stakeholder Support
A startup must first determine whether its solution addresses an unmet need within the target disease state or positively affects the care continuum, either financially or in terms of outcomes, before establishing a robust scientific foundation. Understanding the fundamentals of the condition, existing treatment options, and patient care pathways is key. But you must also conduct the early market research and stakeholder analysis to confirm your offering is truly novel and offers clear clinical advantages over existing therapies.
The technology must also demonstrate clinical efficacy through early testing and data collection. Without clear proof of concept, you are unlikely to attract investor attention or secure regulatory approval. Incorporating feedback from clinicians, patients, and other users at the earliest stage is crucial. Neurotech companies must therefore integrate a user-centric design process from the beginning, allowing input from providers and patients to shape the final product.
2. Developing Your Approach To Intellectual Property
IP considerations are a key determinant for long-term success and so you must decide early on which avenue to pursue. Following an off-the-shelf strategy will speed up market entry and reduce costs, while also lowering the hurdles for trials and validations. But it will also make it harder to build robust IP. On the other hand, developing something novel from scratch will typically provide a stronger IP position, but it comes with higher costs and longer validation and trial timelines.
You must therefore ensure your technology is defensible, scalable, and able to meet the rigors of the evolving market. By defining your IP strategy and erecting the necessary fences from the outset, you can protect your innovation and competitive edge.
3. Navigating The Regulatory Landscape
Navigating the regulatory environment is one of the most arduous challenges for device makers, with the assigned class determining the level of oversight, trials, and approvals required. Understanding the regulatory landscape early on can smooth the terrain and prevent downstream delays. The opportunity for an investigational device exemption (IDE) or ability to achieve Breakthrough Device designation (BDD) can streamline the approval process and provide unexpected benefits, as when Cala Health secured BDD for its Cala Trio therapy, which saw the company granted two unique HCPCS codes and strengthened its IP.
By building clinical and regulatory teams early on, startups can formulate a coherent regulatory strategy and avoid costly missteps. Understanding the priorities of governing regulatory bodies will create opportunities for you to work with regulators to advance the process. As the regulatory environment evolves, developing a compliance team at this initial stage helps mitigate risks and streamline the approval process, allowing you to focus on scaling the technology.
4. Navigating Reimbursement
Reimbursement is key to financial viability and ultimate success. The technology must appeal to payers by demonstrating cost savings — be it through reducing hospitalization and readmittance, preventing relapses, or lowering the overall cost of care. You must therefore build a strong economic case for your solution and demonstrate early on the ability to reduce the financial burden. You must also address coverage concerns to ensure access to patients. This requires demonstrating clinical effectiveness, cost-savings, and alignment with payer priorities that should be baked into the reimbursement strategy from the outset.
5. Designing For Security And Privacy
Hardware and data security are critical concerns, especially when collecting and transmitting sensitive neural information, as seen with California’s recent passing of legislation to protect consumers’ neural data, following the example set by Colorado earlier this year. Neurotech startups must create a data security plan from the outset, ensuring that all data collection, processing, and storage activities are protected. This must define data ownership, establish clear handling policies, and identify where data is housed.
Key considerations include safeguarding proprietary technology and research with robust security measures across the development cycle, while ensuring third-party compliance among vendors and partners to identify and mitigate potential risks. A thorough risk assessment and developing a threat matrix early on to map out potential vulnerabilities will help secure data flows between all stakeholders and establish a contingency strategy in case of breaches. This will allow you to respond quickly to events and avoid having to retrofit security into an existing system.
6. Strategizing For Market Access And Sales Channels
Having cleared the various development, clinical, regulatory, and financial hurdles, it is essential to have a clear strategy in place for market deployment prior to product launch. You must determine whether to build your own sales network or leverage an existing one that will provide access to the relevant prescribers and physicians. Understanding the concentration and centralization of your customer base will be key to shaping your approach to reaching and engaging potential prescribers.
How the solution is commercialized will ultimately be determined by your target market. Factors including geographic location, accessibility, and the type of healthcare providers involved will further influence sales efforts. Targeting a remote or niche population may require an alternative distribution strategy compared to solutions sold through conventional channels. Tailoring your approach to align with these factors will be crucial to bringing a product to market and ensuring it reaches the intended users.
7. Prioritizing Resources And Expertise
When it comes to tools and resources, integrating all the necessary specialties to get the go/no-go on a technology is something very few startups can accomplish in-house. The regulatory and reimbursement landscapes are especially nuanced, with a single technicality potentially delaying or even terminating product development. Engaging specialist consulting firms that live and breathe regulations and reimbursement can mitigate risks, providing a clearer path to understanding compliance and market access. It also serves to provide that essential interim guidance and support until you are in a position to create in-house clinical and regulatory teams.
Similarly, for engineering and design, instead of building in-house engineering departments, working with specialized firms for the R&D and technological development can shorten timelines and reduce costs. You can then focus internal resources on building a more agile and diverse core team that can handle clinical, regulatory, and market strategies to smooth the path to commercialization.
Scaling The Precipice To Success
The key to surviving the Valley of Death therefore requires a holistic approach from the outset, accounting for all the factors in play – from regulatory hurdles, IP protection, and market access to clinical feedback and reimbursement options. Prioritizing these considerations at the earliest stages of development can provide a clearer path to commercial success, saving valuable time and money in the long run.
Neurotech startups that successfully bridge this valley consider these components early in their journey, allowing them to optimize development strategies and avoid pitfalls. Aligning your technology with market needs, building strong IP portfolios, and anticipating regulatory and reimbursement hurdles, will position you to not only survive the valley but scale the “Mountain of Opportunity” to success.
This article was originally published on MedDevices Online on November 1, 2024, and can be accessed here
Over recent decades, neuroscience has transitioned from a predominantly academic endeavor to a field rich with commercial potential. Consumer neurotechnologies emerged in the early 2000s with NeuroSky’s EEG-based toys, which decoded brain waves to move objects. In the burgeoning landscape of technological innovation since then, neuroscience startups have promised breakthroughs ranging from enhanced brain-machine interfaces to novel therapies for neuropsychiatric conditions. Yet, a sobering pattern has emerged as, too often, these startups find themselves struggling early on, or worse, declaring bankruptcy.
This can, and has, damaged the reputation of the domain, with nightmarish consequences. Up-and-coming solutions produced by companies in the field can suffer from years of setbacks to their progress, as financial resources and talent flock to other, more lucrative sectors. Moreover, the regulatory and reimbursement bodies may become more stringent in their standards, while consumers may dismiss rigorous reproducible neuroscience research with blanket statements.
Such events send shockwaves through the investor community. Due diligence processes become more invasive and capital scarcer, even for promising startups in the same vertical, sowing investor doubt in the broader neuroscience startup space. This can lead to reduced funding for an extended period, stifling innovation and growth and resulting in slower growth until the sector can achieve both the technological maturity and venture confidence needed to build and commercialize in the space.
While conventional wisdom emphasizes the significance of product-market fit and founder fit, we have seen that the downfall of neuroscience startups often arises from complex factors that are regulatory, financial, and clinical in nature.
With the tremendous impact that neuroscience innovation is poised to have on humanity, founders and investors have an opportunity.
By understanding the traps and challenges — seeing where others have failed — entrepreneurs in this sector can map their strategies early on, address these issues, and set themselves up for long-term commercial success.
1. Regulatory Barriers to Neuroscience Advancement
The stringent FDA regulations for medical devices and therapies demand rigorous testing and evidence of efficacy. Companies such as neuromodulation startup Nuvectra had promising technologies, but still filed for bankruptcy due to regulatory hurdles that prolonged their product’s time to market. Even if a startup can survive the prolonged development phase, the cost involved in regulatory compliance is often exorbitant, putting immense financial strain on the organization.
Some neuroscience solutions have been reclassified by regulatory agencies over the years. For instance, Nixon’s War on Drugs has prevented the use and research of many psychedelic substances in the United States since the 1970s. However, in recent years, academic research has demonstrated the safety and efficacy of psychedelic substances in improving outcomes for various mental health conditions. As a result, some types of psychedelics have become decriminalized in a select few states. With a growing pool of trained psychedelic practitioners, psychedelics are only now becoming a more accepted treatment option.
On the flip side, some well-researched devices with strong safety profiles are facing tighter regulations. In 2022, EU regulators reclassified noninvasive brain stimulation devices not intended for medical purposes as Class III medical devices. This resulted in technologies such as transcranial magnetic stimulation and transcranial electric stimulation, which optimize brain activity without surgery, being regulated as strictly as technologies that require surgical implants in the EU.
We’ve seen legislation in the neuroscience space shift over time, with the changing culture and scientific understanding of decision makers. This has posed a barrier for many in the space to advance from research to commercialization.
Keeping an eye on the regulatory landscape, understanding its direction, and working with advocacy groups to steer it forward can help founders navigate the regulatory minefield and ensure they are working in an environment that can support the adoption of new neuroscience solutions.
2. Reimbursement Models Prevent Market Entry
Startups in the neuroscience space must also navigate the intricacies of healthcare reimbursement models. Unlike tech companies where revenue often starts flowing soon after market entry, medical technologies often face long gestation periods before they are covered by insurance, a pivotal factor in consumer adoption.
Pear Therapeutics serves as a compelling example of the challenges that neuroscience and digital therapeutics startups face. The company had secured FDA approval for its prescription digital therapies, suggesting a strong product-market fit. Yet, Pear Therapeutics struggled with insurance reimbursement and had discrepancies in its clinical trials, which evaluated a different product than that which it was trying to commercialize. This led to bankruptcy and caused investment in the digital therapeutics sector generally to dry up.
Interestingly, some neuroscience wellness products are neither reimbursable by insurance or tax-advantaged accounts but have nevertheless achieved strong market penetration and helped many people to be proactive with their health. This has been the case for wearables, meditation aids, and monitors for sleep and exercise. However, companies developing wellness products face the challenge of creating moats of defensibility in a world of potential copycats, as well as true demonstrations that the products do what they claim to do. These defenses can come through intellectual property strategy and a strong applied science backbone for the technology.
Notwithstanding, learning from the Pear Therapeutics example, neuroscience solutions must have strong product-market fit, the science must fully back up any claims for the specific product in question (more on this next), and there must be a pathway to reimbursement from the healthcare system.
3. Scientific And Clinical Evidence Can Make Or Break A Startup’s Success
Rigor and reproducibility in science are critical elements for a company’s success. A startup’s leadership must therefore ensure they fully understand how to evaluate scientific research and assess risks. If not, they may find themselves hamstrung in reproducing results with their products.
The scientific rigor required to substantiate medical claims is exceptionally high. And while science serves as the foundation of engineering, if engineers ignore the science when building, they may end up creating a “pseudo technology” that claims to do something it cannot.
To overcome the hurdles of rigor and reproducibility of neuroscience technologies, founders must provide robust scientific and clinical evidence in well-controlled studies and with well-constructed technologies. In doing so, they can win the trust of consumers and medical professionals.
Despite the immense potential to improve lives, neuroscience-based technologies, such as transcranial magnetic stimulation devices, often require specialized training to be used properly. Relatively few psychiatrists are neuropsychiatrists. Among those early adopters of new neuromodulation devices, the training timeline can have a limiting effect on the adoption of the technology, even if the clinical outcomes demonstrate great safety and efficacy. Similarly, mental health treatments using ketamine and psychedelics may need specialized training among clinicians to aid patients in their healing journey. These market dynamics make it difficult for solutions to reach patients.
4. Consumer Acceptance Beyond Early Adopters
As such, some startups begin, pivot, or expand into wellness products to circumvent stringent medical regulations. Wellness devices are not required to have their claims evaluated by regulatory agencies, such as the FDA, but may have the potential to improve people’s lives. However, moving to non-medical status requires a change in marketing focus, from clinicians to a wider consumer audience, necessitating a shift in strategy and customer engagement models — something companies may not be prepared for.
Whether for medical use or wellness applications, there remains intrigue among consumers and clinicians in the possibilities created with neuroscience-driven innovation. Yet, transitioning from early to mass adoption still poses a significant hurdle. Technologists, entrepreneurs, neuroscientists, and others invested in developing these new technological approaches must carefully consider their goals, who their end users are, and the financial runway that will be required long-term to achieve market acceptance.
Implications And Forward Outlook
The issues at hand are neither superficial nor easily navigable. Failure to address the issues will stifle innovation and jeopardize the substantial investments made in this sector. These are systemic hurdles that can obstruct even the greatest neuroscience startup teams.
Yet, knowing about the issues contributing to the failure of previous neuroscience startups can facilitate the development of resilient business models and help realize the sector’s immense promise. We can see the unique challenges in this space, and we are excited to develop robust strategies that extend beyond conventional notions of product and founder fit.
Collaboration between startups, regulatory agencies, and reimbursement authorities can pave the way for effective solutions. By understanding these common problems and proactively adopting strategies to mitigate them, startups in this field can navigate the complexities with greater confidence and integrity, and ultimately position themselves for long-term success.
Article originally published in Med Device Online
About The Authors:
Liron Nunez Weissman is the CEO of Corundum Neuroscience, a venture builder and fund advancing transformative neuroscience solutions from lab-to-life.
Sharena Rice, Ph.D., is a research scientist at Sanmai Technologies PBC and a contributing editor at Neurotech Reports.