Should You Start A Hydrophilic Coatings Company?
Let’s say you’ve been keeping track of the growing market for neurovascular and cardiovascular products out there, and let’s also say you’ve realized that most of these products require some way of being slippery in order to get into those tiny spaces in the brain and peripheral blood vessels. You’d be on the mark. The neurovascular market grows at 15 to 20% per year and the cardiovascular market grows at about half that range, depending on who you read. One could take it from there to assume that these products all need some kind of technology, probably a coating, to remain slippery, so why not make a go of it as a business?
Making the right decision on that should involve a few considerations. Here are five of them to think about:
1) Changing a coating vendor is a huge pain.
If your dreams include landing the Johnson & Johnson’s, Medtronics, and St. Jude Medicals of the world, you need to have something really great up your sleeve, or you need to think again. When a company selects a vendor for a product, particularly for a hydrophilic coating, that selection is written into the regulatory submissions of the product. If it is in the US, that means the 510K (for a Class II) or the PMA (for a Class III) submission for the device mentions the coating by name. In order to put your new coating on their existing device, the company would have to re-submit their 510K or supplement their PMA…. a huge deal especially if that product is actually a product line with tens or even hundreds of SKU’s. The paperwork alone is staggering, not to mention revalidating production.
2) Sourcing is King.
With a strong technology that is far superior to everything out there, you may still yet convince the big wigs to change coatings. Maybe. However, when you do, think about whom you are convincing. One would think that the biggest influencers of this selection are the folks in R&D, and in some smaller companies that is the case. However for the big boys it’s the Strategic Sourcing Department. They are the ones that will need convincing, but on the other hand once you convince them there is little that can stop their advance.
3) Customers want more these days.
If you look at most hydrophilic coating companies out there, they are not just selling bottles of “goo”. They are selling services with it. Few customers, i.e. companies that are developing coated devices, just want the bottle. They want assurances and help with manufacturing. The major players in the field like Surmodics, Biocoat, Harland Medical, and others are readily incorporating contract manufacturing into their menus. Some have been for years. Regular contract manufacturers that do not do coatings are generally reluctant to get into it because it requires a much different set of skills from molding or machining. The lubricious coating companies are starting to see that and create special divisions within themselves or tight partnerships with other contractors that are willing to take up the challenge. The turn key solution is most popular right now.
4) Royalties are going the way of the dinosaur.
In the old days, hydrophilic coatings were novel and patented. Now many of the patents have expired. They still require a lot of know-how to make, but you can pretty much look them up and make similar versions yourself…. at your own peril. When a technology is covered by IP, you can ask for royalties. However, when it is no longer covered, royalties are not the correct legal term anymore. You can try to charge for a “know-how” license, but that usually falls thin on the ears of Strategic Sourcing. They hate paying royalties more and more. The vendors who sell for no royalty are gradually picking up, but the problem is this turns hydrophilic coatings into commodities, which is why they are being bundled with services more and more.
5) Your further research will be challenging.
The hydrophilic coatings business is a hush hush community. Everyone knows things. No one is talking. For the most part, this is for legal reasons. Everyone is under confidentiality because a company does not want things to get out in the event that something with the coating is recalled. The last thing any of these companies want is to have their name plastered all over the news for being the suspected cause of death of somebody’s grandmother. So, questions like “Who are your customers?” are off the table for a hydrophilic coating company. If you get in good with them, you may find that some of their customers can legally be divulged, but usually not willingly. This will make it hard to find out who the buyers are and how much they are buying. The same goes for prices and royalty rates.
One way around this is to find a consultant that can take you through it. A consultant cannot divulge confidential information that does not belong to him or her. However, the consultant can guide and offer suggestions about which customers to go after and what they are making. They also tend to have an understanding of what the other competitors are doing. On many occasions, I have been a consultant in this regard.
Deciding whether or not to get into this business has a lot more talking points than these. Getting them all straight can be challenging but ultimately it will help with the right decision. Taking it all into account, the best prospects seem to be startup companies with underdeveloped Sourcing departments. These folks will definitely need a contract manufacturing partner, and if anything they tend to be in a weaker position when it comes to asking for royalties. Starting with them can pay dividends before swinging for the fences and trying to land the big guys.