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The economics of invention

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Small inventors benefit most from their inventions when they have commercialized and patented them. The more work you do, the less uncertainty your partner companies face, the higher your profit. Develop products to reduce risk and allow partners to see the benefits of the invention.

There are several stages in the path to becoming a product that can be sold to doctors.

First is idea stage.

It is roughly defined. This is the typical starting point for us. You want a “Widget” that performs some function and has certain properties.

Next is a developed idea.

This is where materials, specifications, all relevant specifications are quantified and modeled. Development includes making CAD models or product prototypes. With the documentation that is made at this stage, one can quote tooling, and manufacturing costs accurately. With prototypes, you can test your product concept (and usually refine it)

Next is “Prototype or small lot manufacturing” stage.

You usually are looking for manufacturing problems. Before committing to large volume and cost tooling and final development, it is conservative to test your idea in small volumes. This allows other doctors to clinically evaluate your idea and suggest changes. This also identifies the tradeoffs between product function, product cost, and product specifications. At the end of this stage, you have a clinically tested, manufactured product. It is easy to decide whether to approach a major company with your idea for distribution and/or manufacture or to manufacture and sell the product yourself.

Last is the “Product ” stage.

At this point regulatory issues are addressed. Quality specifications are established. All product costs are well known. The product can be manufactured and sold. Your attention then shifts to sales and distribution issues. What is the best way to bring this product to market. Is it complimentary to some existing products or procedures? Is it better to go it alone or partner with established distributors?

Risk versus Reward

A typical medical product has 40-60% gross profit. Why? Risk Reward! An invention starts as an idea of how to provide some new benefits. When the idea is “sold” or “licensed” to a major company as as idea, it is worth less to the company. This is because it is “risky”. The product may not work. It may cost more to manufacture than the end user is willing to pay for the derived benefit. The company must spend money to make prototypes to test the idea to prove it’s effectiveness and understand the manufacturing problems. The product may be difficult to manufacture. If the inventor does not believe enough in his/her invention to invest their money, why should the company? For 100 ideas submitted, 1 may be worthy of development each year.

An idea is not worth much. A patented idea is worth 1-5% of net sales price.

A clinically tested idea that has been patented and manufactured in small lots is worth 5% of net sales price (in typical licensing fees).

A proven patented idea without much competition and with a strong lecturer is worth 5-20% of net sales price (in typical licensing fees). The more is known and tested, the less the risk to the company. The less the risk to the manufacturer and distributor, the higher the reward to the inventor.

Problems of Commercialization

“Idea Creep” is a common problem for an inventor is after his/her invention is licensed by a company. After licensing the idea is passed to the engineering department of a company. The engineer will make some “minor improvements”. The manufacturing department will make “more minor improvements”. Marketing will make a few improvements. None of these improvements by themselves are huge but the additive effect of improvements by non-product users can make a good idea into a poor product.

The medical device industry has seen a tremendous explosion of productivity. Most of the new devices come from small inventors working quietly in small companies. The strong guiding hand of the inventor to maintain the focus of the invention during the development process is very important to deliver a final product that has the initial invention’s benefits. The larger companies tend to excel at distribution and refinement (“line extensions”) of existing products.

Larger companies also excel at using the latest high technology to make superior products. The barrier to entry for small companies is often that they cannot afford to use the latest high technology or cannot combine multiple technologies. It is our goal to reduce some of these barriers of entry for inventors and small manufacturers and distributors. We use these technologies everyday and wish to make them accessible to the “small guys”.

We have a great deal of experience in working with inventors and smaller companies.
Large companies do not want to upset their currently successful products. They may want to keep an invention off the market. They have millions of dollars in tooling and equipment invested in the current products and production methods. They are not usually willing to bring to market a new better product that is less profitable than their current products.

The best candidates for development by major companies fit this profile:

Manufactured on their existing equipment
New product is lower cost or much higher sell price than current products
New product is not disorderly. For example, the new product message is along similar lines to current company message.
High sales volume potential (HOME RUN PRODUCT)
For smaller, niche products, products using other technologies, products with different profit profile, it is better to think about self manufacture. If your invention is self manufactured by contract manufacturers, your main issue is developing a distribution network. We can help on this point. After development, select the best candidate major company and approach them for distribution. Or decide to “go it alone”.

Mouth Widgets Services

Our experience in all aspects of commercializing medical products can increase your chance of success. We charge an hourly fee for our services. A little money and allot of savvy can help a great idea see it’s true potential. Call or email us today to get started. We know how!