Healthcare Startup: From Idea to Viable Business

  From finding an idea to assembling an experienced team and working with the FDA, expert Michael Delmage walks you through the steps of starting a business in the medical and scientific field.


I’m Michael Delmage. I’m a cofounder of ArcPoint Life Sciences, a consortium of experts in the field of life sciences, particularly medical devices and pharmaceuticals. Often times, we are asked to identify the most important piece of a new business. Honestly, there’s no one piece: there are a number of pieces that all have to fit together.

From Concept to Company

The first piece is a concept. Typically this comes out of academia. For example, in the case of a startup, someone at a university typically comes forward with a new idea or discovery, but that idea is not enough to build a company. So what we do is take that idea and figure out the additional pieces needed to turn it into a company.

The Market Need

The next step is to learn about the market need. Does the idea really fit a need, or is it just something that’s nice to have?

For example, someone at a university comes forward with a new antibiotic. If we already have antibiotics that take care of that disease, it could be a great idea and it could be a great compound — but it’s not enough to start a company. Instead, it could be offered to an established pharmaceutical house as an internal project.

On the other hand, if it’s a brand-new category of antibiotic that’s drug-resistant, it might be very attractive. That’s an example where there’s a real market for the concept.

Step Three:Your Team

After the concept and the market need is established, the third piece is the team. We need to have a team with experience and expertise. Two or three decades ago, a young entrepreneur could come out of academia, be funded, and form a company.

Today, investors largely require experience and expertise; you need to demonstrate that you’ve already started a company successfully. Building a team with people who have experience is absolutely crucial.

Putting Together Your Plan: An Honest Assessment

When you have those three pieces, then you’re ready to pull them together into a business plan and approach investors. You have to plan, evaluate, and adjust. Every quarter, you have to look at your performance based against your strategic plan. If you’re not on track, why not? It can be difficult, but honest assessment is required.

Project Drift and How to Avoid It

Once you have made that honest assessment, make the necessary adjustments. However, you need to make sure that your adjustments are in sync with your investors’ goals.
One problem we see fairly common is a gap between the entrepreneurial group and the investor. The entrepreneurial group tends to move in a slightly new direction as the project moves forward — but without the investor agreeing or knowing about it. So what happens is the investor shows up after a year and finds the team working on a slightly different project than the one he initially invested in.

So constantly renew your plan, but never without all participants. The investor has to agree, has to be educated in why the project has moved, and frankly your team needs to ask a fundamental question: is this project drift or this a necessary move?

How do you avoid project drift? In some cases, you don’t. In some cases, the technology is so new that you simply didn’t know. I’ve been involved in a couple companies where there’s a fundamental idea, but no one in history had done it before so there’s no precedence. So as you move forward, you may learn that your compound or the medical device works differently than expected. In this case, it’s a necessary project drift: you need to follow the science. In order for the company to succeed, it must move, and hopefully your investors understand.

The problem is that sometimes a project has a goal and it drifts unintentionally. The energy and focus of the company are being moved into a new direction. The company is chasing one problem after another and — without the science leading them there — end up with a new target.This causes a problem because the investors invested in a particular project, but now you’ve drifted off into a totally different category. We see a number of companies that are terminated due to project drift.

Reaching Out From Day 0

We’re often asked about outreach. Historically, outreach in a young company occurs in year two or three. My view is quite different in that we need to do outreach from day 0.

We do that because potential partners have knowledge and interest and money. Make them part of the team. Use their expertise, their funding, their energy. In many cases, these groups have critical knowledge that can help you get to the end faster. They’re also the avenue to corporate partnering and additional corporate money. Get out there today.

Virtual Company vs. Brick and Mortor

People approach us and ask whether they should hire or run a virtual company. Both can be viable, it depends on the specific nature of the business. If it’s innovative, brand-new technology that isn’t well understood, I would lean toward a virtual company because you might need work at a dozen sites around the world. Brick-and-mortar might be more appropriate if you have a medical device where you understand the technology and you could actually manufacture it.

Building the Dream Team

How we build the dream team? There are a few things to avoid: one is to hire people just because they’re great people who you’ve worked with before. In many cases of a startup, you only have enough time and money for 2 or 3 hires, and if you give it to a friend who isn’t an expert, it diminishes your capability to get to the end game.

As start-up, you have to be ruthlessly honest. Who do I need to survive until next week? That’s the hiring plan.

The FDA is Your Friend: Making Regulatory Agencies Part of the Tram
Many young groups are afraid of regulatory agencies due to their reputation. I advise people to make them part of the team. For example, I have a personal relationship with the FDA; I’ve been there many times, and when I show up, they know me.

We once had a medical device company and we wanted our facility to be registered as a manufacturing site. The FDA shows up for an audit and, on the first day, found some things that they felt needed to be changed. So when the auditor left at 5 o’clock, we called in the entire group and worked all night to fix the issues. When the auditor came back the next day, I asked if we could review the improvements.

That changed the entire relationship with the auditor because, instead of having six items on the checklist, now they had zero. Those items had been fixed and signed off over an 18 hour period. The auditor was a partner; somebody who knew we were serious and were going to respect their needs.

Staying On-Time and On-Budget

Nine out of 10 companies struggle with being on-time and on-budget. This is probably the number one reason a gap forms between an entrepreneurial group and the investment group, which often leads to the investment group to terminate the company. You lose credibility if you are not consistently on-time. The investor comes to the conclusion that you’re not serious about delivering the product.

We advise people not only about the urgency of staying on-budget, but also on how to do that. In some cases, you run into surprises that will prevent you from moving forward, but often times, those are avoidable. It’s all about being time-efficient and cost-efficient.

Planning for the Unknown

If you’re in a young company, you’re going to find things that you didn’t expect. An experienced group knows to have time and budget built in for those unknowns.

The company needs the flexibility to adjust to reality; the investor needs confidence in knowing there is money to adjust for nuances. While the project cannot be allowed to drift, it needs to be allowed to breathe. Build a buffer into the business where you plan to avoid a situation where you don’t have enough time or money because you didn’t anticipate the unknown.

About Michael Delmage

Dr. J. Michael Delmage is a seasoned executive in the pharmaceutical, biotechnology, and medical-device industries with over 25 years of experience successfully bringing promising products to market . He brings a unique blend of passion and expertise as a Board Member and key manager in the development and commercialization of cutting-edge biotechnology products, therapeutic drugs, medical devices, and OTC aesthetics.

Dr. Delmage served as President and Chief Executive Officer at Transvivo Inc., where in just two years he developed and obtained Federal Drug Administration and CE Mark Approvals for the Omni-DL system, a miniaturized portable dialysis system that supports all current acute dialysis treatments, apheresis and Continuous Renal Replacement Therapies. Previously, he worked at Senetek PLC as Chief Technology Officer, overseeing development of the company’s aesthetics, medical devices and therapeutics, as well as Santen International, where he was one of three founding executives who built the 500-person pharmaceutical firm.

Dr. Delmage received his doctorate degree in cellular and molecular biology from the University of Southern California and a Master of Business Administration from Pepperdine University. He holds a PhD in Cellular and Molecular Biology from the University of Southern California and an MBA from Pepperdine University.