Team:KU Leuven/Future/Economic potential analysis

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Economic potential analysis

An economic rationale analysis for investing in the use of micro-organisms for the production of artificial bone implants.

Because our research contributes to the base of fundamental knowledge, it could be used as preliminary research for many applications. A brief look into the future potential, from an economic perspective, could possibly offer the rationale for a deeper research into the applications. As we will see, there are many opportunities and challenges that pop up and need to be addressed, even in this early stage. The main goal of this potential analysis is to construct a bridge between the pure scientific research and the commercial environment, resulting in a marketable product. In this analysis, we mainly focus on the use of Spot E.Shape principles for producing novel ways of producing artificial bone replacements. Although a similar analysis can be made for each of the other applications of the project. For more details on this, please go to the application section.

A deeper understanding of the market and industry dynamics in the bone-implant industry

Nowadays, elderly people are more active than ever before. They cycle, play tennis, go swimming, travel, etc. Besides, they do not want to give up on those activities because of their age. However the chances for accidents possibly resulting broken limbs are quite high. Approximately 1% of all falls of elderly people result in a hip fracture with an acute mortality of 3%-5%. (23)

The ageing population and rising living standards are two major driving forces for the demand of orthopaedic devices. Apart from that, the medical world is confronted with an increasing number of patient with obesity and osteoporosis. These factors result in an enhanced growth of the orthopaedic industry. Medical device companies respond by continuously looking for new ways of treating fractured bones in order to reduce the curing time and to obtain a more performant device.

A closer look into the industry dynamics reveals that the industry is highly regulated and very dynamic where most of the industry players are well-established small and medium-size enterprises (SME’s). A start-up company often needs a significant better product to gain some market share in the medical device industry.

Relevance of using traditional materials for bone implants

Traditionally orthopaedic devices have titanium alloys as the dominant material used in most artificial bone implants. However alternatives with new and better functions having lower failure rates are finding their way to the industry. One of the most promising applications is tissue engineering where the cells from a patient or a donor are isolated. Thereafter, they are combined with biomaterials, grown in laboratories and then implanted into the patient. This futuristic approach is in fact becoming a reality and is facing some major concerns and drawbacks. The limited viable window from the point of extraction of cells to the reintroduction makes this technology less flexible. (4) The transportation of these cells to and from the laboratory is also a huge challenge. Besides, the storage of tissue engineered products (TEP) at a constant temperature of -37°C puts pressure on the cost-efficiency. (4) On top of that, tissue engineered products didn’t make a breakthrough in Europe due to the lack of regulation. TEP’s are beyond the medical device regulation and the pharmaceutical regulation. (4) This ambiguity concerning the regulation in Europe leads to a strong delay in market introduction. At the moment there is no dominant supply model based on mass production due to the capacity limits. This prevents TEP’s from really breaking through and becoming the industrially standard technology. (4)

In the last decade, composite materials, polymers and ceramics steadily found their way to the medical device industry. This is mainly due to the lower failures rates, recalls and their lower weight. With our Spot E.Shape project, we would like to take this to the next level by imitating the natural bone structure as much as possible through the use of micro-organisms.

The positive consequences of using micro-organisms for bone engineering

Spot E.Shape can be used for a wide range of bone prosthesis. Here we focus on hip prosthesis. Hip fractures impose an increased risk for complications which could seriously shorten the life expectancy.

Recently, surgeons are using a 3D printed implant made of titanium, polymers or ceramics for hip transplantations. Here the patient’s CT scan is used to design an exact replica of the femoral head. Our project could optimise this design by using bacteria that form and precipitate calcium carbonates in a controlled way. From there a porous, spongy structure similar to a bone can be formed. Thereafter, this can be used as a surface coating for the titanium alloy.

In order to identify and deal with the competitive implications of the so called salient attributes, we used the ACE Matrix (Attribute Categorization and Evaluation) by Ian C. MacMillan and Rita Gunther McGrath (21) applied to our orthopaedic device. The columns refer to the level of energy the attribute generates for the customer while the rows refer to the sentiment it provokes. (21) This analytic tool serves to identify the right mix and dynamic fit between the customer needs and the attributes of the product. (21) Particularly interesting are the powerful energizers that often become the determining factor for the purchase decision. The layer of calcium deposited by the bacteria can be seen as a coating for the titanium structure which reduces substantially the amount of constraint and wear of the prosthesis. Wear is something that more traditional metallic and polyethylene prosthesis have to deal with. Therefor it can have a great impact on the health.

matrix

An important issue is that dissatisfiers can encourage the customers (mostly the surgeons) to opt for a competitor that reduces customer loyalty. (21) In the case of our medical device, it is crucial to conduct long-term experiments to test possible health effects. Additionally already in the prototyping phase, we need to start thinking about possible ways to automate and fasten the production process. An improved cost-effectiveness of the product could turn the tolerable into a differentiator. On the other hand, a competitor’s action can turn a tolerable into a dissatisfier, e.g. the competitor eliminates a negative characteristic. To be one step ahead of competition, we first need to look for ways to keep the price of our product under control.

We have to remark that the validation phase concerning the customer perceptions of attributes still needs to be performed. Keep also in mind that this analysis is a foresight for a medical device application, which implies that at this stage, not every attribute can be proved scientifically.

Barriers for the market introduction of orthopaedic materials based on micro-organisms

Introducing a brand new technology often comes with some major challenges to overcome. In this section, we are focusing on the different potential issues that need to be addressed in further stages of the project. We identify three of them, namely the financial gap, regulation gap and human capital gap.

Financial gap

Orthopaedic research is often time-consuming and requires a substantial investment during the development, production and distribution phase before it can be translated into a final product for patient care. (7) At the current proof-of-concept phase of the project, we already experience a clear need for large investments. Radical innovations need large investments in further technological development before a first working prototype can be constructed and tested. (14) From the perspective of potential investors, there is a lot of uncertainty about the outcome which will probably lead to a long payback time and thus few economic incentives to invest in this early stage of the project. (13) The phenomenon of investor reluctance is often described as ‘the financial barrier’ which plays a role on the level of private financiers, such as banks and venture capital firms. (16) The need for government stimulants through specialised funding programs is clearly present. (12) This is underlined by the fact that publicly funded venture capital firms are more willing to consider investing in early-stage university spin-outs than private ones (15).

Beside the proof-of-concept phase, the pre-seed funding phase further explores managerial and organisational aspects of the project in order to make it more attractive for potential investors. (12) In the proof-of-concept phase, government funding mainly serves the role of reducing the technological uncertainty while the reduction of the organisational uncertainty is mainly the purpose of pre-seed funding. For this phase we are currently fully relying on sponsorship from the industry and university organisations. For further research, the option of applying for a governmental grant remains possible.

The third major phase or seed phase takes place when the company is established, but basically it does not generate enough cash flow to survive on its own. For their early investments, investors are often given an equity stake in return. Attracting venture capital investors remains difficult because they prefer to invest in university spin-outs after the seed phase, when the research and following application proved to be robust. (17) Possible investors should be found in the industry, angel investors, crowd funding, government, etc.

When a company grows, at some point in time there will be an immediate financial need that is too high to bear for traditional investors. Often regional and national venture capital firms are then the only option to turn at. (11) However venture capital firms should be a well-considered decision. They bring along a new working culture, make demands (e.g. hiring professional managers and administrators) and put pressure on the firm to get the necessary in-house competences. All of this is done with respect to the return-on-investment they need so desperately regarding their 10-year horizon. (11) Venture capital firms could lead to tremendous progress for the company or they can break up with the company in the long term because growing organically with the company is not their primary strategic concern. (11)

A deeper understanding of the market and industry dynamics in the bone-implant industry

References

[1]	Ulrike Felt, Brian Wynne, Maria Eduarda Gonçalves, Sheila Jasanoff, Michel Callon, Maria Jepsen, Pierre-Benoit Joly, Zdenek Konopasek, Stefan May, Claudia Neubauer, Arie Rip, Karen Siune, Andy Stirling, and Mariachiara Tallacchini. Taking European knowledge society seriously. 2007. [ .pdf ]
[2]	Alison Hill, Mike Michael, Peter Wheale, Rene Von Schomberg, and Peter Glasner. Engineering Acceptance: Representations of 'The Public' in Debates on Biotechnology. The social management of genetic Engineering, pages 201-217, 1998. [ .pdf ]
[3]	Alan McHughen. Public perceptions of biotechnology, 2007. [ DOI ]
[4]	Eleonore Pauwels. Public Understanding of Synthetic Biology. BioScience, 63(2):79-89, 2013. [ DOI \| http ]
[5]	Peter Raeymaekers. Design ontmoet biologie: synthetische biologie in Vlaanderen. Brussel IST. [ .pdf ]