2.4 Market Analysis

Chapter 2.4
Additional Resources

Validating the market opportunity associated with a need is of critical importance, but can also be an exciting and rewarding experience.  The steps below have been excerpted from Chapter 2.4 and are presented with active web links to assist innovators in getting started.

Perform Market Segmentation
  1. What to Cover – Take an iterative, progressive approach to defining market segments. To address the complex interactions with multiple stakeholders in medical markets, start by segmenting patients based on symptoms and risk factors. Then, segment these patient subgroups based on treatments. Next, segment the patient/treatment subgroups based on their providers. Finally, segment the patient/provider subgroups based on payer attributes. Consider whether there are other unique characteristics of patients, providers, or payers in the particular area of need that should be “layered” in to the segmentation analysis to ensure a complete understanding of the similarities and differences among customers in this market.
  2. Where to Look
    • Business Plans – Reviewing the business plans of other innovators and entrepreneurs may help stimulate ideas regarding the development of segmentation frameworks.
    • Other Chapters – The analysis described in 2.1 Disease State Fundamentals may be useful for performing risk-based segmentation. The information in 2.2. Treatment Options may be helpful for provider segmentation and segmentation based on treatment options. 2.3 Stakeholder Analysis and 4.3 Reimbursement may be helpful with provider/payer segmentation.
    • Up-To-Date – A database of evidence-based clinical information.
    • PubMed – A database of the U.S. National Library of Medicine that includes more than 16 million citations from MEDLINE and other life science journals back to the 1950s.
    • Wrong Diagnosis– A disease and symptom research center.
    • Centers for Disease Control and Prevention – Part of the Department of Health and Human Services (HHS).
    • Clinical Trials (see clinicalTrials.gov or published clinical trials at PubMed) – Enrollment criteria for clinical trial designs can provide insights into how competitors segment the market.
    • Product Labels for Other Treatments – Located on the FDA website, the labels for approved treatments can provide insights into different market segmentation approaches.
    • Marketing Consultants – Professional market research analysts and marketing consultants can help to complete the process.

Size the Market
  1. What to Cover – The goal of this activity is to calculate the size and value of each market segment that has been defined. Perform both top-down and bottom-up evaluations and rationalize/reconcile the results. By combining the top-down and bottom-up approaches, confidence intervals also can be derived for the size of the market. Other factors to take into account include the potential cost of the new treatment relative to existing treatment, the likelihood and rate of reimbursement, and the growth rate within the segment. All of these factors will influence the total value of each market segment.
  2. Where to Look
    • Agency for Healthcare Research and Quality– AHRQ sponsors and conducts research that provides evidence-based information on healthcare outcomes; quality; and cost, use, and access. From its website, one can gain access to longitudinal data regarding patient interactions with the healthcare system, including all transactions and their codes (indicating procedures and diagnosis), as well as location of service, which can be used to help develop market segments. Important databases accessible via the site include:
      • HCUPnet – A free, online query system based on data from the Healthcare Cost and Utilization Project (HCUP). It provides access to health statistics and information on hospital stays (inpatient encounters) at the national, regional, and state levels.
      • MEPS Data – The Agency for Healthcare Research and Quality provides longitudinal data on the health expenditures of 30,000 U.S. households via the Medical Expenditures Panel Survey (MEPS). This data is publicly available for primary analysis. It is useful for more detailed analysis of market segments (and sizing), but working with the data can be labor intensive. This source is probably most helpful if the innovator or company needs to support a need specification with actual publications as part of a marketing strategy. Data is available for conditions with a 1 percent prevalence rate or greater.
    • Nutrition Examination Survey – Provides longitudinal data for large samples of patients regarding medical condition(s) and medical expenditures for families and individuals.
    • Professional Societies – Professional societies often provide statistics and data that can be useful in sizing a market.
    • Analyst Reports – When investment analysts begin coverage for a company, they typically write an initiating coverage report that gives an overview of the company’s products and the market for those products. These reports are available using a database such as Thomson's Investext, OneSource’s U.S. Business Browser*, and Business Insight. Typically, it is easier to find reports focused on established companies and treatment areas than for emerging companies and treatment areas.
    • Market Research Reports – Depending on the topic, Front & Sullivan: Healthcare, MarketLine, MarketResearch.com Academic, and Mintel may be useful sources (all offer healthcare selections). Market research reports can also be accessed on the Internet (e.g., through Google). Sites such as Datamonitor and Marketresearch.com have healthcare sections that provide detailed reports that sometimes include primary research. Unfortunately, these reports often cost several thousand dollars to purchase. However, if a market research budget happens to be available, this may be a lead worth pursuing.
    • Press Releases – Market research firms put out press releases when they divulge new research reports. If the report itself is too expensive, these one-page “teasers” usually provide overall dollar amounts spent on treating a given disease. Business Wire is one source for this information.
    • Disease and Treatment Research (see 2.1 Disease State Fundamentals and 2.2 Treatment Options for basic epidemiology and economics).
    • Annual Reports and SEC Filings – Large firms traded in public markets such as the New York Stock Exchange issue an annual report with detailed financial information and they also file an annual financial report, 10-K with the Securities and Exchange Commission (SEC).

Understand Market Dynamics
  1. What to Cover – Create profiles of the products and companies associated with the most dominant treatments. Identify the product costs and market power of each player. Also include emerging companies that may not have a product on the market yet. Perform a SWOT analysis for each of the most powerful market players. Use Porter’s Five Forces to evaluate the market as a whole. Then, summarize the results.
  2. Where to Look
    • Treatment Research (see 2.2. Treatment Options to identify competitors and results from gap analysis).
    • Analyst Reports
    • Market Research Reports
    • Annual Reports of Publicly Traded Companies
    • Company Websites
    • Press Releases

Assess Market Needs
  1. What to Cover – Evaluate how market needs may vary by segment by referring back to observations and research performed early in the needs finding process. Assess how well needs within each segment are being addressed by current treatment alternatives. Start by evaluating outcomes for the disease state without treatment. Then, analyze how these outcomes change when existing treatments are utilized. Make a qualitative judgment regarding the extent to which patient needs are being satisfied relative to improved outcomes and new/different complications and risks introduced by the treatment options. Revisit the SWOT analysis to ensure that no broad unmet needs or market gaps are overlooked.
  2. Where to Look

Assess Willingness to Pay
  1. What to Cover – Determine the price per procedure that the market will bear. Consider which stakeholder would be making the payment and each stakeholder’s willingness to pay by evaluating comparable devices, performing financial analysis related to the cost and benefits of the device, or surveying a sample of stakeholders to ascertain this information.
  2. Where to Look -
Define the Target Market
  1. What to Cover – Once various market segments have been analyzed, a target market must be chosen. Evaluate each segment according to the factors and criteria outlined above to determine the most favorable target. Remember to take into account other market enablers, such as the availability of investor funding, the accessibility of the market, and the receptiveness to new technology.
  2. Where to Look
    • Quarterly Venture Capital Activity Reports – Provides quarterly listings of venture capital investment activity in the U.S. based on data from PricewaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Association. (SiliconValley.com or MoneyTree Report)
    • VentureXpert – Provides data on mergers and acquisitions, IPOs, and venture capital funding based on data from Securities Data Corporation.
    • Venture Capital Firm Websites
    • Analyst Reports

Bring It All Together
  1. What to Cover – Validate the target market through the development of patient towers that summarize the size of the patient population, the extent of the medical need, and the growth rate for each of the primary market segments considered. These charts can be used not only to confirm that the right target market has been chosen, but also to convince stakeholders and potential investors that a sizable opportunity exists.
  2. Where to Look – Refer back to references used to segment the market and determine the size of its subgroups. Discuss the findings with key advisors and team members.

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