A primer on building Neurotech — part 1

Harikesh Pushpapathan
Stoic VC
Published in
6 min readNov 21, 2023

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The thesis for Neurotech is that by interfacing directly with the nervous system, we can more accurately map the pathophysiology of various neurological & psychiatric disorders. Not just at discrete points in time, but continuously.

Biology-driven conditions like Major Depressive Disorder, Schizophrenia and Alzheimers should be measurable and conservable. i.e relying less on symptoms and more on objective data to inform appropriate treatments.

Oncology has moved towards molecular precision, Neuroscience is fast following suit.

For founders at the bleeding edge, there isn’t yet a set playbook to lean into. But I’d argue that’s more of a reason to be sanguine than cynical.

Below I step through key questions and concepts to consider when translating your research — through the lens of an investor.

Does the market actually need my invention?

The key word is need. There must be an existing market pull driving your neurotechnology. You can’t afford to spend years building a high-fidelity prototype only to then figure out if a customer will pay for it (and well).

How do I know there is market pull?

Whilst it’s compelling when the nexus of a solution is personal, the market is objective and will see this as a single data point. Therefore, interface with as many appropriate stakeholders:

  • Customers: Identify who this is. More often than not, they are Providers. Try to get conversations with individuals making the purchasing decisions e.g procurement managers for primary care. The goal is to validate the problem. Uncover the pain points, understand the standard of care (SOC), what gets billed and for who (e.g. Diagnosis Related Groups (DRG). In particular, investigate what they were doing in the past to treat a particular indication i.e workflows. The trick here is to avoid imputing bias in the process. i.e Don’t lead the conversation with your solution! Pan for anecdotal evidence instead.
  • Payers: Responses from these customers should influence your conversations with payers i.e insurers. Will your offering likely be covered by Medicare benefits scheme (MBS) and Centers for Medicare and Medicaid Services (CMS) in the US? Understand the differences and why/why not. More on reimbursement strategy in Part 2.
  • End users: These are your prospective patients. Listen to them. Map their response against those you received from providers. Are there any discrepancies? Why? This can give you better insight into the problem.

TL;DR- if the market really needs your solution and is willing to pay, it will tell you.

Is my invention moving the SOC horizontally or vertically?

Neurotech spans a diverse set of modalities. It’s important to understand where your invention sits in this universe and what that means for your go-to-market motion and defensibility. We can segment this universe across four modalities: Monitoring, modulation, form factor and system control.

Energies as a Diagnostic (left) vs Energies as a Therapeutic (right)
Improving design and architectural elements

Most of the modalities themselves, aren’t really novel. It’s the application, that is.

Therefore ask yourself in what direction is your “application” advancing outcomes for healthcare; Horizontally or Vertically.

Horizontal

You’ve identified the SOC (standard of care) and trying to eliminate friction.

e.g Training programs for neurofeedback devices or miniaturization of existing neural implants.

Broad implications

  • Direct competing products/modalities in the market being utilised by patients and providers.
  • Efficacy, workflow application and reimbursement coverage are well understood. (Will vary for in-patient/out-patient)
  • Implies there is a predicate or ‘prior art’ in the market. Opens up the 510(k) pathway to market. Cheaper, faster, more likely of approval.

Vertical

You’ve imagined the ideal SOC and back solved.

e.g Stentrodes which interface with cerebral endovasculature to unlock brain-computer comms for the paralysed.

Broad implications

  • There may not be direct competition, but there is always some form of indirect competition. e.g Competition for an eTNS wearable headset treating epilepsy is everything currently used as treatment. i.e Pharmacotherapy (Diazepam) or transdermal patches for generics.

If the invention is in a blue ocean, ask yourself what the gating factor (barrier to entry) has been in the past. Why hasn’t this been done before? There is always a good reason. And no, its not “Nobody has thought of it.”

  • Efficacy, workflow and reimbursement coverage not well understood. Customers (patient or provider) and payers need to be informed of the existence and benefit of the solution. Especially if an outpatient service.
  • Likely to result in the De Novo pathway to market. Longer, more expensive, lower probability of approval.
Left: Vertical Advancement, Right: Horizontal Advancement.

Precedence has shown us that following either approach itself isn’t a predictor of success. In fact, one doesn’t necessarily exist to the exclusion of the other. e.g Many inventions at conception are step changes in SOC (Vertical). Once a successful steady state has been established, the product may benefit from steady improvements overtime (Horizontal). This dynamic is in constant motion, and I’ve illustrated this above.

What is my defensibility?

A defensible business is one that has a proven and perpetuating economic advantage over its peers. This is what the venture folk coin a “moat.”

For Neurotech, the value of your company isn’t just defined by the balance sheet (i.e Intellectual Property). Sure you might begin with a stack of provisional patents, but it’s the intangible assets you build over time that sustain this competitive advantage (CA). We can think about this from both the supply and demand side.

Supply Side= Invent something that is difficult to replicate.

Ali Tamaseb’s Super Founders proclaims that IP alone isn’t defensible. It’s the engineering itself that is. This has two implications:

1. Complexity of engineering makes it challenging for “followers” to play catchup.

If you believe the market is a winner-takes all , then this can help entrench your position overtime. If not, then having other competitors can actually help educate a nascent market e.g alt treatments to MDD.

2. Incumbents incur a net-loss to mimic your product, which opens up downstream M&A opportunities.

Demand Side= Acquire and retain customers by demonstrating therapeutic + financial benefit.

Therapeutic benefit means demonstrating the potential to replace existing modalities as a first-line. Pharmacotherapy is associated with tolerance and side effects. Developing a safer solution with proven bioequivalence (+ higher efficacy) is thus attractive. For insurers this can increase Life-time value (LTV) of policyholders by lowering readmission rates + risk profiles. For end users, it’s intuitive and especially sought after in paediatric conditions.

Instead of displacing the SOC entirely, positively augmenting existing well-used modalities can be an equally, if not more attractive approach. We can enhance the way current medication is delivered or monitored by demonstrating superior efficacy and safety profiles. This is one way to create a sustained competitive advantage without customers incurring high switching costs.

Financial Benefit means demonstrating significant net-financial gain for customers. The truth is providers aren’t contracting your service because it can change somebody's life. They do it to optimise the bottom line.

Neurotech development isnt cheap. On average development costs for a de novo medical device is c.$54m – excluding capitalised costs. Therefore making operations more cost effective is what will drive uptake. e.g Perhaps your device has demonstrated efficacy and thus can move patients off expensive pharmacotherapy or inpatient services and decrease readmissions. This can alleviate the claim burden for insurers, operational costs for providers and healthcare costs of users.

In part 2, we’ll look into packaging this up to the market and best practice approaches for securing reimbursement.

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