This blog post was written by Deniz Temelli, Business Analyst for TechAlliance.
Over the past few months we have had an influx of Advisory Services clients in the life science and biotech space. Although this is a very broad industry with multiple sub industries, one common issue is distribution – how to get your product into the hands of the customer. Of course, this is not a unique problem to this industry as all companies must have a strategy, but the challenges faced by those within the life science industry are definitely unique.
The two main questions that help shape a suitable distribution strategy are ‘who is the customer?’ and ‘who is paying?’. For products in the health space, it is clear that almost everything is geared towards helping a doctor get patients better faster. So is your customer the doctor or the patient?
For products geared towards doctors, like surgical tools or other equipment, the main requirement is a sales team which can visit doctors across the country face-to-face in order to build relationships and sell them on the benefits and features of their product. The numbers of pharmaceutical sales reps have been in decline across most major pharma companies as they are moving away from the traditional sales model and trying to find a new way to partner with doctors and medical devices sales reps double as technicians and trainers. In both cases, relationships with doctors are the key to sales, which can seem like an insurmountable hurdle for a startup. Working with key opinion leaders in the space and attending relevant conferences to spread word of your product would be first steps in overcoming this.
For products directed at consumers, like over-the-counter medicines or devices, the strategy is different. The first thing that comes to mind would be to sell product at Shoppers Drug Mart or other national pharmacy chains. Although this type of partnership would provide substantial national coverage and would likely boost sales, for start-ups this type of partnership is difficult to establish, as a pharmacy chain would have significant control over any negotiation or deal terms because you need them more than they need you. And often times, the big names that are already on the shelves make it difficult for smaller players to get any shelf space. So for a start-up, it would be advisable to approach independent pharmacies or stores that would be willing to stock your product. Online sales are also an option as long as you are willing to establish sufficient marketing to draw customers to your website.
The second major question that relates to products sold to both doctors and consumers is ‘who is paying?’. Within the health care system, there are multiple players who make the answer to this question less obvious. If doctors are the customer, who in the hospital or clinic makes the purchasing decisions and how much influence does a doctor have in the decision? That information will significantly alter the messaging as you try to sell your product. Within Canada, the government covers most medical costs, so are there approvals from OHIP or other provincial boards needed for them to pay? In the US, major players in the health care space are insurance companies and programs like Medicare and Medicaid. There is a lot of work that goes into getting a fee code that will allow these bodies to cover costs for a device or a drug, so it is important to understand the value chain to know if it’s even necessary before putting in the resources to do it.
For any start-up, determining the distribution strategy can be a make or break activity. For companies in the health space, thinking through the above can help set you on the right path.