Walk the Talk

The USAID, our country’s primary agency for doing good works around the world (about $47 billion worth in FY2012, USAID Fact Sheet), has jumped on the “let’s help young people create solutions to the world’s problems” bandwagon with a new program, the Higher Education Solutions Network (HESN).  I heard about HESN recently since the USAID sent a serious chunk of change ($25 million) to my alma mater, MIT (specifically the D-Lab), in November to lead a group of six other institutions of higher learning over the next five years in a program that is “intended to fight poverty by developing and evaluating useful technologies for communities around the globe” (MIT News).   While I think the intention behind the HENS is good and I can’t complain about more money being available to people who may start technology-based companies for global health, I always wonder how effective these programs are first, in developing technology (or more importantly, making products) and second, in making a difference in the lives of the intended beneficiaries.  As regular readers of my posts know (cf., “Singin’ Be-BOP”), my skepticism results from observations that:

  • the academic world is awash in technological fixes for many problems of poverty (e.g., Global Health and Innovation Conference 2013)
  • there is little empirical research to support the idea that university-originated technologies decrease poverty (I’d be happy to be corrected especially by a study from MIT’s  Poverty Action Lab); and
  • turning university-originated technology into products, especially products meant for needs and markets in the developing world, is very difficult and requires more than talking and grants.

So what specifically will the USAID-funded MIT program do?  One half of the funding is for an International Development Innovation Network (IDIN) which “will create eight innovation hubs and venture accelerators worldwide that will support and connect promising technologies and innovators to the resources and training necessary to bring solutions to the populations that need them most” (IDIN).   As I understand it, this Network will be an amplification of the International Development Design Summits which the D-Lab has organized outside the US since 2007 to create a “user-based community of active, creative designers [who] can invent, innovate and inspire each other to create new technologies” (IDDS).  I understand the inspiration part but did not find any stats on what happened to the new technologies created by IDDS participants.  The IDIN will be more directed toward venture acceleration and providing “resources,” but I could not find any specifics on how this will be accomplished.  In my experience as mentor in MIT’s Venture Mentoring Service and elsewhere, venture founders benefit from advice and connections from sector-specific, former entrepreneurs and, not surprisingly, money from interested and involved investors.  The other half of the funding will go into the Comprehensive Initiative for Technology Evaluation (CITE) which will evaluate technologies (or products? a big difference) along the three axes of:  suitability (is the product needed by the intended user and will it work as intended); scalability (can the product be used widely); and sustainability (can the product be provided over the long term) (CITE and MIT News).  While it makes sense to standardize the way in which technologies and potential products for poverty alleviation are evaluated and certainly in the interests of USAID to do so, since it or its subcontractors may be buying those products, I would think that CITE will be just confirming what the inventor(s) should have done in the first place, i.e., figure out if the technology/product is needed and how to distribute it to those who need it.  The best test of a product, of course, is the marketplace, and two notable attempts to create an on-line marketplace for technologies for the developing world is Kopernik that, although inefficient since it is donation-based, lists dozens of products (Kopernik), and Maternova, for birth-related products (Maternova).  Perhaps, CITE could start by performing the equivalent of Consumers’ Report evaluations on these products.

As I noted first in a post in 2010 (“USAID and Innovation”), the USAID under its new director Rajiv Shah is promoting innovation in technology and policy for international development and clearly the HESN and the new MIT programs are extending that effort into the universities.  However, as I noted my review of the USAID participation in the grant-giving Savings Lives at Birth program (“USAID Rhetoric or Reality”), the USAID needs to employ the several well-recognized means of venture initiation and support like experienced advisers and engaged investors (unlike those giving “no-stings-attached” grants).  The main USAID program for funding non-/low-/for-profit start-ups is its Development Innovation Ventures program (DIV), which I’ve mentioned before (“MONGO Bingo”).  It now has a nice portfolio of 28 “ventures,” and it will be interesting to see how USAID tracks the success (and expected failure) of these, learns from the effort, and improves the DIV program.  Of course, as I wrote in “USAID Rhetoric or Reality”, USAID should also be learning from successful venture acceleration programs like the MassChallenge, which has turned about $2 million in funding each the last three years into $365 million invested by others in new ventures (MC).  Perhaps, the D-Lab and its fellow institutions could figure out away to sponsor its IDIN and CITE “graduates” to apply to and attend MassChallenge or a similar venture acceleration program.  I think it could be done for under $500K per year, or way less than the portion of the grant going into institutional overhead.

To Boldly Go

Up here around Boston, we are fortunate to have a diverse life sciences sector, including both pharma/biotech and medical device (medtech) companies, and I’ve been fortunate to have some experience and colleagues in both.  Given my global health avocation, I am interested the approaches of major pharma and medtech companies to global markets, particularly in the low income countries, and it seems to me that the medtech companies are moving more quickly than the pharma companies in recognizing the value of “right sizing” their products for the developing world (the vaccine business being an exception).  Most big medtech companies have made it clear that they have strategies for increasing their profits in both the BRIC countries (Brazil, Russia, India, and China with their expanding economies and middle classes) and ROW countries (rest of world with both growing markets like Mexico and Thailand and struggling like much of Africa) and a few are developing country-appropriate, affordable products.  For example, in a June 2011 press release on the opening of Johnson and Johnson’s (JnJ) research center in China (JnJ release), Michael del Prado, Group Chairman for Asia Pacific, described the company’s approach:  “Inspired by local insights, our engineers are adapting and refining products from Johnson & Johnson’s outstanding portfolio and pursuing adjacent and new spaces to make medical devices that better suit the conditions and needs of Asia’s health care professionals and patients. This might include focusing on devices for specific disease states that are prevalent in Asia Pacific or developing simplified or smaller instruments that better suit the conditions and capabilities within a rural health setting.  It may also include creating multi-use and disposable products that are more economical.”

More recently, as was reported last week in our local medtech e-newsletter (MassDevice article 1), JnJ’s CEO, Alex Gorsky, described the company’s global market aims in an investor call and said that JnJ will help governments in developing countries build health care systems based on access and affordability, unlike the US market with its emphasis on high-tech, high-cost treatments:  “… they [the governments] are building their healthcare systems in the developing markets, in not just replicating what’s been done in the developed markets, but looking for ways to expand access and, frankly, also to expand and accelerate their access to some of the new technologies in a cost effective way.”  Gorsky also said that the company’s strategy includes building R and D centers in BRIC countries and acquiring BRIC companies.

Other big medical device companies are in the same camp.  A year ago, Omar Ishrak, the new CEO of Medtronic, the world’s largest “pure play” medical device maker, told shareholders that:  “The biggest long term opportunity will be to meet the needs of billions of people who have no access to healthcare at all.”  (MassDevice article 2)  He also specifically mentioned the world’s growing middle class, but his statement and upbringing in Bangladesh imply an awareness of the lower income market’s potential.  Boston Scientific, our local medtech major, is now struggling to reverse its fortunes and stated in its 2011 shareholders’ letter it is investing heavily to increase sales in India and China through physician training programs, new plants, and improved distribution (Boston Scientific letter).  Covidien, a $10 billion medical device and supply company based in Ireland and Massachusetts, has as one of its corporate mantras, “To remain a global leader in our industry, Covidien much take responsibility for making healthcare more affordable and available.”  (Covidien annual report).  The company opened its new R and D facility in China today and its head said:  “By collaborating closely with local medical experts who use our products, we can tailor devices to meet the demands of China and other Emerging Markets” (Covidien release).  To me, these statements indicate the mechtech biggies are serious about developing products that are appropriate in terms of use and price for the BRIC/ROW counties as a counterbalance to their declining sales and profits in the US and Europe.

But what about interest in BRIC/ROW markets by the mid- and small-sized medtechs, which, like their biotech counterparts, are often the source of new products and need to be ahead of the majors on market trends for partnerships and possible acquisition?  The conventional wisdom seems to be that “going global” is too complicated for most smaller companies.  A panel of big company CEOs at a recent forum noted the challenges of achieving a presence, distribution, and compliance and appearing to be too risky to potential acquirers (MassDevice article 3).  I have a different view as I wrote in a recent posting (“New and Improved!”).  I sided with the authors of a PriceWaterhouseCooper report on medtech companies operating in India who concluded that innovation, not ignorance, was needed for companies to be successful.  Some of the report’s recommendations were appropriate to large companies (like building plants and distribution systems) but most could be managed by small companies:

  • understand the market and buyers’ needs and concerns, especially the middle- and lower-income out-of-pocket buyers;
  • redesign existing products to simplify procedures and decrease accessory cost;
  • design new products for affordability and value, not just low price (more focus on life-saving and less on life-enhancing) and partner with local universities or firms for R and D;
  • emphasize and deliver good service not only sales;
  • decrease the use of distributors and increase direct, in-person sales to maximize interaction with customers;
  • recognize and prepare for infrastructure limitations in communications and distribution; and
  • to be competitive encourage continuous improvement in products, service, and pricing (always good advice).

To these, I added:

  • reach out to NGOs or other groups that are delivering health care to understand the environment better;
  • utilize the services, knowledge, and resources of international economic development groups like the IFC/World Bank (see IFC Medtech Discussion), UK’s DFID (DFID Trials Program), and US’s USAID; and
  • look for successful operational models in used by technology-based companies in similar countries.

To date, however, the smaller medtech players, except for the   diagnostics companies (e.g., Chembio, Cooperative Diagnostics, Diagnostics for All, and Daktari), have largely ignored the potential of developing products specifically for the BRIC and ROW countries.  My sense is that, if entering these markets poses too big a hill, at least they should be adapting their products and trying to license them to the major companies.  I guess I need to talk with my medtech colleagues to figure out if I’m all wet or if it is time for them to boldly go.

Singin’ Be-BOP

One of my interests (or distractions) is the idea of appropriate technology, that is, technology, usually in the form of a device or tool, that that is low cost and easy to use, yet is a powerful economic multiplier for an individual or group.  Here in the US, appropriate technology emerged in the heady 1960s and still is a big part of the alternative mainstream culture (c.f., the National Center for Appropriate Technology for “local solutions for a sustainable future,” NCAT).  Internationally, appropriate technology comprises a wide range of solutions (but not necessarily products and that’s a problem) for citizens of the less “industrialized” countries to provide clean lighting and cooking (without burning stuff), clean water, waste disposal, and technologies to improve agriculture like irrigation, crop processing and storage.  Unlike the solutions delivered on a large scale by international aid programs or NGOs, appropriate technology solutions are small-scale and are based on an individual user’s needs, are culturally compatible, affordable, and provide a clear benefit including generating income (c.f., International Development Enterprises, IDE).  In my thinking, these solutions could be delivered as high volume, low margin products, that is, the user understands and is willing to pay for the value provided, that are designed for customers in the bottom-of-the-(economic)-pyramid (BOP) market.

Of course, designing, manufacturing, and distributing such products is a challenge, but in February of this year a group of enterprising young people (mostly) launched an on-line marketplace for appropriate technologies.  This site is called the Kopernik (The Kopernik), which I learned is the non-Latinized version of name of the astronomer, Copernicus, and its goal is to help local organizations in developing countries find and purchase appropriate technology products (Kopernik About).  The mechanics are simple:  technology acquirers submit a proposal for funding the purchase of one of the products listed on the website, the proposal and needed funding is posted, individual donors make contributions until the total is met (the “crowd-funding” model, like Kiva), and the purchase is made.  The product originators also submit their products for approval and are responsible for shipping (Kopernik estimates the cost).  Revenue is through a 10% deduction from donations and a 10% share of the price of purchases (Kopernik FAQ).  To track customer satisfaction (and to generate advertising content), Kopernick requires successful applicants to submit regular reports with photos or videos and a description of the “overall improvement in people’s lives” achieved by the technology.

While I found on the site a list of the impressive media coverage Kopernik has received (more than 30 stories), I could not find the source of their start-up capital or their business plan.  I assume the founders intend their venture to be sustainable, that is, for revenue to cover costs.  I am guessing that their costs are about $300K per annum (salaries for the six staff, although they may be unpaid, but should be at least $40K each, server fees, website maintenance, travel, office).  As for revenue, I counted about $72K in pending and funded proposals which, if all are funded the first year, yields about $14K revenue.  Most start-ups are unprofitable for the first few years, but one can figure out what kind of growth is needed to achieve breakeven in a reasonable time frame.  I guessimate Kopernik needs a 200% annual increase in business to reach breakeven in three years, which seems extreme to me but then I don’t have the management consulting experience of the Kopernik team (Kopernik Team).  I also wondering if the team worked out several other points that their business model relies on:

-the number of providers of appropriate technology and whether they believe they need to use Kopernick in addition to the distribution channels in their original business plans;

-the number of purchasers and extent they can understand and articulate their needs, complete the proposals, and submit the post-purchase reports; and

-the willingness of individuals to donate given the many competing groups “helping” citizens of developing countries (I like the Heifer International model better).

Skepticism aside, Kopernick is a creative approach to the distribution of appropriate technology and made me think about adopting the model to medical technologies that are either not needed or unmarketable in the US where prices are kept artificially high by our warped reimbursement system and lack of incentives for cost control.  This on-line marketplace would be a MOD (middle of the pyramid) rather than a BOP play.  The purchasers would be regional or national non-for or for-profit health care providers (like hospitals, clinics, or medical mission NGOs) and the products would need to be low-cost, effective, and non-regulated (not drugs and vaccines).  Some products that come to mind are:

-Wadsworth Medical’s wound closure system (Wadsworth);

-any of the 20 or so devices listed by Maternova as maternal and neonatal health aids (Maternova);

-rapid diagnostic tests for which there are several hundred suppliers (e.g., listed on Alibaba, Alibaba RDT);

-prosthetic limbs designed by the Prosthetics Outreach Foundation and made in four countries (POF Programs); and

-self-adjusting glasses (as seen on Kopernik and from the Center for Vision in the Developing World, VDW).

One advantage to the purchasers could be to aggregate orders for better pricing or lower shipping costs. One advantage to the providers would be world-wide exposure and a channel for commercialization.  Hmm.. not a bad idea, now to write the business plan.