#411: Unlocking U.S. MedTech Market Access: State-Specific Compliance Pitfalls Medical Device Companies Miss

Adam Steadman: Welcome to the Global Medical Device Podcast where today's brightest minds in the medical device industry go to get their most useful and actionable insider knowledge direct from some of the world's leading medical device experts and companies.

Etienne Nichols: Most medical device companies spend more time getting ready for audits than they do.

Etienne Nichols: In the audits themselves.

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Etienne Nichols: See how Greenlight Guru Quality can help@www.greenlight.guru.

Etienne Nichols: Hey everyone. Welcome back to the Global Medical Device Podcast. My name is Etienne Nichols. I'm the host for today's episode and in this episode of the podcast we we're planning to uncover some of the most commonly overlooked aspects of US MedTech compliance, which is state level registration and regulations.

It's not just about getting your 510k tomorrow from the FDA. It's also about successfully navigating the US market, which requires understanding a complex web of state specific requirements, sales tax laws, distribution challenges.

Whether you're expanding domestically or entering from abroad, this episode should provide critical insights to help you avoid compliance pitfalls and make informed strateg decisions. And to talk about this is my guest, Adam Stedman.

He's a seasoned global executive in the medical device and diagnostics sector with over three decades of leadership experience spanning commercialization, clinical development and strategic advisory. He currently serves as CEO of MDD Options and Adam has played pivotal roles in driving US Market expansion and successful exit exits, including his tenure as Chief Commercial Officer for Smart Trial during its acquisition by Greenlight Guru.

He's a chartered accountant by training. Adam brings a unique blend of financial acumen and operational expertise to the medtech industry. How are you doing today Adam?

Adam Steadman: Thank you. I'm very well. Thank you. Thank you for that introduction.

Etienne Nichols: Glad to have you with us today. I know when I look at what you post online and some of the things that you're talking about, you're passionate about. Making sure medical device companies avoid the valley of death.

But not the one that most startups think of. Not the product realization or go to market fit, but more of the post clearance that that commercialization pitfall. Valley of death after you have your regulatory approval, for example.

Is that accurate and would you elaborate on any of that?

Adam Steadman: Absolutely. It's something I am passionate about. I've seen many, many issues and problems arise because of this.

First thing I'm going to say is when did you last go to a conference or a meeting talking about getting your product to market, where they spoke about getting your 510k or they spoke about getting your PMA, spoke about quality aspects, spoke about your ISO standards and FDA requirements and MDR and all these things.

When did you ever hear them talk about state level registrations? Never. It's never brought up.

When do they talk about all the complications of having a warehouse management system, of having to be able to track serial numbers, lot numbers, expiration dates and manage sales taxes and sales tax exemptions?

There's so much to consider and think about. And so what the observation I have is I've been talking to companies, mainly foreign companies, because you know, if you come from Israel or you come from Germany and you've worked with say vat, you have no idea what the concept of sales tax is.

And the biggest issue I think is the companies overseas coming into the U.S. they think they're coming into the U.S. a single country. Well, they're coming into 50 states and D.C.

and it's not a single country. There's a lot more to it. It's a lot more complex. There are a lot of issues. Some states are easy, some states are difficult.

Thresholds are different.

Crazy as the FDA definition of a medical device differs from the state level definitions.

Etienne Nichols: Yeah, that's a really good observation. You're absolutely right. I don't know if I've ever heard anybody talk about it. I guess to answer your rhetorical question and the fact that something you mentioned how the US not necessarily being a single country is a pretty good perspective, especially when you consider how many states will sue the government,

you know, to block certain things. So I mean, everybody wants to do their own thing, be their own little mini country within the United States. So all that being said, what are some of these, what are some of the first state level steps a medtech company should take after receiving their 5,

10 clearance or whatever, whether PMA or the other areas, what are some of these steps that they need to be taking?

Adam Steadman: Well, the first thing is, you know, it depends very much on how you go to market. If you go to market through a distribution network, your distributor's already probably got all those things in place and certainly should have.

If you're, if you're going with the distributor, if you're going direct, you need to be considering the requirements and regulations and so forth. So when you look at state level regulations, you really need to, for your product, research pretty much every state and see what the requirements are.

And the reason for that is if you have a drug combination in any of your products, you're doing a combination product.

That's led by the Cedar, not cdrh.

You will probably have to register in every state in the. So that's 50 states plus D.C. and that's because pharmaceutical regulations are very tight because obviously they want to control things like oxycodone and all these other drugs that are very attractive to sideline from the pharmacy and the state Board of pharmacy,

state by state or whatever they call it in the state. Sometimes it differs. State Board of pharmacy is called that, not the state Board of Medical Devices. So the standard is the drug standard.

You've got to follow first of all, and then it falls back to med device.

So then the next thing is, well, okay, does that mean that you have to look at all states? Well, only 24 states actually require registration. Up to 24 states require registration if there is no drug component to it.

But having said that, that's 24 states that require registration.

Certain states and a number of states have specific regulations relating to DME durable medical equipment when it's sold directly to patient. So I'm talking about things like blood oxygen systems and things like that, or sorry, oxygen systems, I should say,

yeah, just sent to the patient. But that has to be either financed or maintained over a period of time. And honestly, for things like that, you really need to have a huge network.

They have regulations in many states that say that you have to operate within. You have to have premises within 100 miles of where you operate. Just imagine the kind of network you'd need across the US to comply with that, to be a national distributor of one of those products or national supplier of those products,

even if you're the manufacturer.

So you know, at that point you. So if we then look at the 24 states, you then have to look at them state by state and look at the regulations.

How do they define a medical device? Some of them actually say a medical device is something that is stated by the fda, has to be issued with a prescription.

So they define it as being a prescription required medical device, not being. So it's completely different definition than you'd normally have for a device.

And then you've also got varying levels of requirement. California has two organizations that you have to register with.

And then if you manufacture in California, there's a third registration requirement in California. The foreign manufacturer has to register in California along with the distributor. In most other states, a foreign manufacturer doesn't have to register just the the distributor.

If you manufacture in Texas and sell the products in Texas, you have to,

you have to register. But if you don't manufacture it in Texas, you don't need to at all. So there's a huge variability in regulations and it varies according to your product.

It is not simple. There's a lot that goes into it and this is why it takes companies months and months and months to get on the market. The alternative is what I believe many companies do ignore the regulations so they don't get caught.

That's really not the point. You know, we talk about regulatory strategies and we talk about regulatory all the time in this business and QA and making sure we're doing things right.

Well, state compliance is a regulatory requirement. State sales tax is a regulatory requirement. State income tax is a regulatory requirement. All of these things need to be considered and thought about when going to market.

And you need to be legally compliant. It's not okay to break the rules.

Etienne Nichols: Yeah. And aside from that, that non strategy I so of just, I guess of just ignoring the rules, it sounds like maybe there's potential for multiple different strategies as well. I've not really heard much about this completely open.

So I'm trying to come at this with a beginner's mindset. But if I have a medical device company and I'm coming to the US for the first time and I learn about this, does this mean, I mean my immediate reaction is well, okay, do I analyze each state for their,

the addressable market within each state and then do a piecewise approach or is there another way? Or what are your thoughts as far as the different strategies and approaches?

Adam Steadman: So, so the easiest approach is to go distribution model. You know, get, get a national distributor or something like that. They're not effective ways of doing things. And the reason for it, there's, there's a number of them and I don't want to be critical specifically of any one company, but very often they have their own branded products.

So when they'll, and this is a pitfall that many people don't realize. You have a new wound care product, for instance, and you decide to go to a major distributor of the wound care.

I'm careful not to mention names because I almost did that. I don't want to get sued.

But what can happen is you could have a product that's superior to the one that they're selling, but the one they're selling they have ownership of and they make 80% margin, whereas your product, they only make 30% margin.

They could sign a deal with you, a three year deal,

non compete exclusive deal and then they can put that on their listing and sell the absolute minimum required to maintain the contract. And effectively block you from the market. So there's lots of pitfalls and things you really have to be careful about in this.

So distribution model can work really nicely for some companies, but some companies doesn't. So what do you do if you're going to go directly?

There's several ways of doing this. One is you can look at it and say, okay, my primary customers are. And then maybe you've got a product that you've been trialing in hospitals for the last three years and you've done your pivotal here and you have 10 hospitals or 20 hospitals that you've worked with.

Well, then maybe decide which states are those in. Well, they're only in six states now. I'm going to focus on those six states because they're going to be my first customers.

So that's the format. And the problem with that is it's not really good with expansion. And the problem with that also is that the big name hospitals, the Johns Hopkins and the Cleveland Clinic and Chalk and all these other places, tmc,

pretty much every one of them is in one of the states that is heavily regulated.

Wyoming doesn't come up very often as the biggest hospital.

Alaska doesn't either. You know what I mean? So, yeah, you've got 24 states. You got to register it, but 24 of the most important states.

Etienne Nichols: Yeah.

Adam Steadman: So, you know, that's, that's the problem. But so, so you got two choices. One is you go for where your first customers are going to be or you look at it and say, you know, other hybrid models, I mean, MDD options.

My company offers a hybrid model. And that's why you've set up, set it up to get around some of these problems. I didn't mean get around to make these problems somebody else's problem.

Make them my problem and not your problem is the plan.

Etienne Nichols: Right.

Adam Steadman: But you've got,

you know, the other option is just to say, okay, so which of the 26 states I don't have to register in? And that's fair ground, that's fair game. I'll go and sell to them immediately.

First off, while I'm building the race right now, whichever strategy you take, one thing is make sure you follow the rules. Two is make sure you're doing nothing in the market to damage future sales.

You know, you don't want to be setting precedent by going to states where you have less regulation. And because of that,

you may be harming your market in some other way. And there are areas that I'm not an expert in, you know, There's a lot of the reimbursement considerations and payments and local payments so forth that you've got to think about.

So, so that's one thing and well.

Etienne Nichols: Question, question about that. I'm curious if you could maybe. Or if you're able to elaborate how some of those state registration requirements vary. And is there.

Adam Steadman: Sure, I mean, yeah, yeah, absolutely. So. So some states will say if you're sending a medical device, you have to register with them. And that would be a Class 2 or Class 3.

Another state might say, well, prescription products only. You only have to register prescription products. And remember, prescription products aren't necessarily ones a doctor is going to write scribble on a notepad or send an electronic prescription on.

Pretty much anything that's a Class 3 device is going to be a prescription product as far as the FDA is concerned. So even though you don't write a prescription for a sten, it is still a prescription product.

Etienne Nichols: I see.

Adam Steadman: So it still does have fairly wide coverage. But then the other thing is when it comes to the actual registrations, one or two of the states, and it's only one or two of them, it's really fill in the form, send a tax and be done with.

You know, they take the 300 bucks a year from every device distributor and they're happy. Other ones want you to set up your facility. First thing, you got your 510k and you go and rent some premises, you set up your facility.

They want to see the security requirements. And again, remember what I said about these being state boards of pharmacy that are looking at this. They're looking at this from an oxycodone theft perspective, not from somebody's going to steal a stent because nobody would ever do that.

So what they wanted to see is they're wanting to see photographs of your facility. They want to see your procedures, they want to see your cages, they want to see your specific security systems.

They want to know that you've got all of the controls that are required. So you've got to do all of that. You've got to go and get fingerprints done, background checks on all your management.

There's a ton of things and some, some states require them, other states don't, and they differ by state. The definition of when it's required differs for each state. So it really is a landmine.

It's very hard to do. And there are many consultants who specialize in this space.

Etienne Nichols: Yeah, I mean, you mentioned at the beginning,

still it's interesting question having never heard this, you know, how, you know, when's the last time you heard somebody talking about statewide requirements or state specific requirements? I'm curious though, I mean if, if a lot of companies do try to sidestep just what the real world impact of ignoring these or delaying this state level compliance would be.

Any thoughts there?

Adam Steadman: Well, the good news is at the state level, you're not going to get a 483, you're not going to get a warning. So that's the positive side.

Etienne Nichols: But may not be a lot of pr perhaps.

Adam Steadman: So yeah, yeah, it's bad pr. You can get sued. I mean, to be honest, states sue companies all day long and you never hear about 90% of it. So you know what's a big impact?

I would say when you're doing due diligence with a strategic and they're looking at your data room and they're looking at how you've got your compliance set up and so forth and you're not compliant, they're not going to be very impressed.

So you know, there's lots of things you got to think about here that maybe it's not the state that's going to care, maybe it's the investor, maybe it's strategic. Now a lot of these things you might say, well, when you get bought, it doesn't matter.

They don't want my infrastructure anyhow. And they don't. And that's why you shouldn't really necessarily be building all that infrastructure because you know you're building it for what purpose? If you know you're going to get bought or you're certainly hoping you're going to get bought soon, why build the infrastructure?

But it does speak a lot to the professionalism of your organization. If I'm going to put $40 million into your company to help you commercialize, I want to see that you've been following the rules.

Etienne Nichols: Yeah.

Adam Steadman: Because if you haven't been, do I really want to be in business with you?

Etienne Nichols: Yeah. And you know, you're talking about whether or not a strategic is going to care, you know, take a, take away all of your infrastructure. I think that's kind of an interesting point because a lot of, a lot of companies want to be bought.

You know, before that we won't even make it to market.

Adam Steadman: Which one doesn't?

Etienne Nichols: That's not really true. Yeah. The more I hear, the more companies I talk to, that's always the desire, but it's very rarely the case. They, they usually, especially for 5, 10k or class 2 people want to see a little bit of market viability before they are interested in acquiring that company.

So is that something you've seen?

Adam Steadman: Oh, yeah, no, absolutely. No question about it. And to your point, you know, you think of the number of companies that have actually gone to commercialization before they got bought. There aren't many.

I mean, the recent one of Edwards acquisition of.

Etienne Nichols: I'm not thinking of it.

Adam Steadman: I'm thinking of the name of the company.

Etienne Nichols: I'm not going to think of it right now either. But maybe it'll come to. What is it?

Adam Steadman: Endotronics.

Etienne Nichols: Endotronics, yeah. Okay.

Adam Steadman: That was a surprise to everyone because it happened so quickly. I mean, they announced that they got their approval and paying. The next thing we know they've been bought and that, you know.

But that is the exception to the rule. No question about it.

So there's a couple of things. One is probably the best way. So you say, you know, you brought up the question earlier about, well, how do you get around the state or how do you navigate the state regulations?

Well, one of the things to think about is, are you going to run pilot studies? Well, not, not pilot studies, sorry, you've done studies. Maybe or maybe you haven't. But let's not talk about them as studies.

Let's talk them as pilot launches. You're going to launch in a specific territory, you're going to launch in a specific area, and you're going to measure feedback and get feedback from your, from your users, from your customers, from your patients.

So, you know, you can, you can use things like that. And, and you could be strategic about which states you choose. You could choose to do that in states that don't require the registrations and regulations covered.

Again, though, it comes back to the problem of, well, you probably want to do it in the places of a big badge recognition. And so you probably get stuck going to those states that you were hoping to avoid.

Sorry, I've got a call coming in.

Etienne Nichols: No worries. That's okay.

Adam Steadman: I'm just killing it.

Etienne Nichols: You got me kind of curious about some of the specific things. I'm. My mind just goes to something like varying sales tax laws. I know some, some, some companies or some states have much higher sales tax than others, and that is likely going to impact your pricing models and the structure of how you price things out.

But what are the different things there?

Adam Steadman: And yeah, no, it's interesting you bring that up. I hadn't mentioned sales tax yet. That's a whole, a whole another cluster that you've got to deal with as a manufacturer. Now, look, honestly, you can get your accounting firm or whatever to manage and deal with this, but it's still got to be done.

So you've got 46 states out of 50 states in D.C. that require registration for sales tax. So you've got to do the registration, that's the first thing. So before you, well, not before, in each state you have to reach nexus before you have to register for sales tax.

So what that means is that you've got to hit a certain level of economic activity in that state. In some states it means that you've done $100,000 worth of transactions.

In other states it's 200 transactions. So it's either a dollar base or it's a quantity of transactions base. It applies to software. So when you're doing San Diego and things like that, it also applies to that,

but you've got to do the registrations. When you hit that nexus, not only have you done that, but when you've been selling your product without charging sales tax, if the product is subject to sales tax in the state, the buyer is actually obliged to submit use tax returns on the stuff that sales tax hasn't been paid for.

Now again, that's one of those regulations that doesn't get followed very often. But if you're a high volume buyer in a state throwing out a name here, I have no idea what their situation is.

But take an organization like Kaiser, supposing they were buying stuff,

they're big enough to have the attention of this tax authorities looking at their use tax and are they paying use tax? And so now you're introducing another level of hassle for the manufacturer.

Sorry for the hospital is buying the product. Not only have they got to buy the product from you, but they've got to track whether or not you've charged sales tax on it.

And therefore do they have to pay the use tax. Now this is getting into into finite detail. It's probably not important. But I think the more important thing to consider here is when you do register,

you have to be ready. You know, once you have registered, you're probably not going to be charging sales tax for med device products, generally speaking there will be exemptions. So in fact, from a pricing perspective, it's not really going to impact you.

And usually your contracts will be X tax anyhow. But that doesn't change the fact that for every single hospital ASC doctor, whatever it is that you sell to that has an exemption, they still have to provide you with an exemption certificate.

You still have to maintain that exemption certificate on file and have it available for audit, you've still got to do monthly returns, you still got to do monthly remittances. And even if you don't have to do remittances because 100% of your sales were exempt, you've still got to do the returns.

So whichever way you look at it, there's a huge amount of work to do there.

Etienne Nichols: Yeah.

You mentioned some of the risks, some of the red flags, I guess, of entering that maybe a long term distribution contract with somebody. I'm, I'm kind of, my mind's going back to that a little bit.

And how would you assess whether distributor, logistics provider, whoever, how do you assess whether they're really aligned with what your product and business, what goals are?

Adam Steadman: So they're probably not. Let's start there and then figure out how we mitigate that problem. Because their objectives and your objectives are probably not the same thing.

You know, a manufacturer, when they take on a distribution. So let's look at a big national manufacturer. National, sorry I said manufacturer meant distributor. If we're talking about, you know, look at a national distributor and they take on your product, what they're going to do is they're going to say to you,

first year,: 2000

And maybe it's a high value product, maybe it's $50,000 for each one that they're selling. But the way they're going to look at that is they're going to say, okay, we've got to invest money into getting this into the market and making some progress.

Either that or we just let it sit on the shelf and it'll sell by accident. And we're not going to put too much effort into it in the situation where it's a big deal.

What they're going to do is they can say, we'll commit to selling a thousand a year, but we want an exclusive deal. And the manufacturer's thinking, well, you should be able to sell 2,000 a year.

And I don't think I'm giving you exclusive. Well, that's the first butt of heads that happens with that model.

And then the problem is because they're building a market, because they are supposedly investing in your market and education in the market, putting their salespeople in front of doctors and administrations and so forth,

they're not giving it back to you at the end of three years, just saying, oh, here it is. Or you know, you decide to do a strategic deal with a major manufacturer and you want to exit out after six months.

If you signed a three year deal and you're only six months in it and you want to get out, you pay to get out of it. There's a big price to pay and that can be in the millions, depends what your product is and what the volumes are.

But it can be a really, really tricky way of doing things.

And so you know, really what you need to be doing is looking at ways of reducing that. And you know, you said also logistics. How does logistics time. Logistics companies do the same thing.

They also want to turn a long term contract. You know,

a lot of them have invested a lot of money in warehousing. When you put a lot of money in warehousing, you can't afford to, to have customers walk in and walk out.

So what you do is you try to tie them in for as long as you can. Yeah, so generally there'll be a two or three year contract with a logistics company as well.

And you know that again without being self serving. That's one of the problems I'm trying to solve. That's why MDD options is called options to give manufacturers the option to exit because that's how business actually works.

It's, it shouldn't be an adversarial relationship between you and your distributor or you and your logistics company. It shouldn't be a situation where for you to do what's best for your company, you have to pay somebody a couple of million dollars to change, to pivot or change or just go with the best deal that suits you.

It should be your option to you develop the product.

It should be your option to be able to get the product where you need it to be.

Etienne Nichols: Yeah,

I'm curious, I want to get into that winning go to market strategy, what that looks like for new devices entering the U.S. but before we leave, kind of the pitfalls, I wonder if there are any other common pitfalls for distribution compliance when it comes to this.

International companies entering the US Any, any thoughts come to mind?

Adam Steadman: Well, first thing I'll comment on is yes, it's more attractive or more concerning I guess for foreign companies because they're less aware of these things. But most of these problems apply to domestic companies as much as international companies.

So the other ones we haven't spoken about a couple of simple ones here. One is State Secretary of State registrations if you do business in the state, and I was looking into one from Minnesota just a few Days ago.

So in Minnesota, regulations say that if you do business in this state, you are not allowed to do so without a certificate allowing you to do so. What is a certificate?

It's a $200 something payment. It's a tax at the end of the day. And if you can imagine, you know, a few hundred thousand companies doing business in your state, it adds up.

And there's quite a lot of cash coming into the secretary of State for that. But when you look at the definition, the way they had it is if you do more than.

More than one, you know, if you do anything that's not incidental transactions. And the way they define that is if you transact more than once, once every 30 days.

So if you do three sales in a week, technically you've hit their threshold. If you do one this month and one in two months time, then you'll probably get away with it.

But again, are they policing it? Probably not. But at the end of the day, it still comes down to do you want to comply with the regulations or not. And the bottom line is if you're going to be serious about doing your business and you're going to do business in that state,

what are the state's rules for doing business there? When you hit the threshold and you're doing it, you need to pay the tax. And that's a common pitfall. Another one that people forget about is you and I, when we do our annual taxes every year we do a federal tax and you do your.

Where are you guys?

Etienne Nichols: Say again, what state are you in? Ohio, Tennessee. So no income state tax here.

Adam Steadman: Oh, okay. So you're one of the seven states that doesn't have. Okay, well, that's cool. Florida is the same, I think Oregon is the same, etc. But here in North Carolina, I have the displeasure of having to submit a federal tax return and a state tax return.

Companies are no different.

And foreign companies have very often got absolutely no idea about this until it's too late. Not that it's too late. I mean, these things can always get fixed. But you come in as a foreign company, you're working in 40 states, next thing you know,

36 of those states requiring you to submit income tax returns. Well, it's not just submitting a return. It's now you've got to analyze your sales. And even harder, you've got to analyze your cost base and allocate it state by state so you can determine how much of your labor cost or how much of your distribution cost related to South Carolina,

which is 100 miles down the road from me or Alaska, which costs 5 tons more to get the product to. And it's not just shipping charges, it's all the other costs you've got to allocate and how they get allocated and what's a fair apportionment and all the rest.

And there are massive departments and I'm quite sure all the strategics are big departments with lots of AI, lots of software, lots of clever people, lots of CAs just figuring out these issues and problems.

Now I'm kind of exaggerating it a little bit because it's obviously when you're a multi billion dollar corporation it makes a bit more impact but the principles are the same and you don't have to get to massive levels of sales.

If you were doing $10 million worth of sales in the US, across the US, all of these problems are very real.

Etienne Nichols: Right, Yeah, I can see that. I can see that getting really complicated really fast. Having done multiple and worked in multiple states, I remember living across state lines and having to do two state income taxes one year.

I wouldn't want to do 40.

Adam Steadman: Thank you. There we go.

Etienne Nichols: Any other pitfalls before we move on from that? Any other things come to mind?

Adam Steadman: No,

the only thing is a couple of things that spring to mind. One is software is a medical device, clinical decision support software.

These things are often forgotten about and there's different ways of doing them. I mean I talk about distribution of software and when I'm talking about distribution of software I'm not talking about putting a USB stick in a FedEx envelope or going to Digital river and downloading software or something like that.

What I'm talking about is I'm sitting in a doctor's office in Chicago and I am accessing a AI driven software system that improves the, the readings of a, an X ray on there.

And I'm paying on a pay per click or a monthly subscription or whatever it is and it happens to be a German company or it happens to be a California company.

Makes no difference. I'm buying products from those companies, those companies are selling products to me. Be it pay per click, be it monthly, whatever, monthly subscription, whatever it is, there's still sales tax requirements.

If your software is a medical device, it's still a medical device per the fda. It still has reporting repliance and compliance. The other compliance issues, as a foreign IP owner and foreign software company,

I still have to have a domestic US based initial importer and US agent. I still have those requirements just because the software doesn't change Any of that.

Obviously I don't have serial numbers and lot numbers to worry about. But that's not the only thing that sort of gets obviated by being software.

So you still have state by state requirements in most respects. You still, in fact some states are even tighter on software than they are on medical devices. So that kind of gives you a double whammy.

And you've got the, as I say, the FDA requirements where medical devices or medical devices, be they software or not. Yeah, there's something, I think there's a lot of things here that people really don't realize for sure.

Etienne Nichols: Yeah. And I don't know if you want to touch on government purchasing processes versus private sector. I know that's a whole nother thing.

Adam Steadman: Actually there's a couple of things that you bring to mind. Another thing there as well, which I'll mention after government. So yes, government is a completely different setup. You do need to have different ways of looking at it.

You have many distributors that won't touch government. You say, well, how big is government? We don't have a government healthcare system. And that's a valid question. The biggest healthcare system in the country though happens to be the Veterans Administrative Veterans Health Administration.

So this, if you're going to be serious about selling the products in this country. Yes, you have to think about how you're going to work with the government. It does require registration, it does require setting up with them.

Foreign status isn't necessarily a problem. Size of your business is a problem. If you're a big company overseas and you're just coming into the US for the first time now, if you get classified as a big company, it's a lot harder to sell than a small company set aside.

And there's other ways of, of registering to get even more preferential treatments under certain programs and so forth. That is a different area to think about, but it's definitely an area that you've got to be considered.

You know, you've got to consider one of the other areas that I have no idea how these two connect because they shouldn't do, but it did sort of bring it to mind.

The other area is veterinary use.

You get this particularly with products like wound care products and things like that. You know, if I've got a wing product that's going to work on a, on a horse as well as it's going to work on a human, well,

how does that impact. So the first thing is veterinary devices have very few controls. They don't have a requirement for pre market notifications. There's no such thing as a 5, 10k or equivalent.

Etienne Nichols: Right.

Adam Steadman: For medical devices. So I have a wound care product that means that I can bring it in and use it on a horse. It may be the same product that I'd use on a human.

The thing is there are very clear distinctions there. First of all you've got to make sure you label it for veterinary user and you can't even hint that it can be used for human use.

Don't let that come up in your social media feed that in UK you're using it for humans.

And then quite frankly my advice to manufacturers would be separate your brands. Don't use the same brand for veterinary products. You do for a human pro that that's one way of helping around them.

But what people forget is the veterinary product you still need an initial importer,

you still have to meet the FDA requirements for importation, you still need to have product complaints managed, et cetera. And if your device is harming animals, there could be requirements to actually do reporting to the government agency the covers agriculture.

I can't think of their name.

Etienne Nichols: Usda, New Department of Agriculture.

Adam Steadman: I mean it wasn't a hard name. I know, I just couldn't think of it Ministry of Agriculture because I guess part of my background is in other countries and I knew it wasn't Ministry of Agriculture.

Etienne Nichols: Well, you have my respect for the level of detail that you're aware of in this country. Having not been originally from this country, it's pretty impressive.

Adam Steadman: Well, I've been here for 25 years so I hope you can picked up something.

Etienne Nichols: One other question I have, I mean maybe I'll blend a few questions into one so you'll forgive me if I do this, but I'm curious. So I mentioned what does a winning go to market strategy look like then for a new device entering the US or domestic initial launch and other tools,

platforms, ways of streamlining compliance, registration and distribution, tracking all these different things. What does that look like then?

Adam Steadman: Yes, this is a simple answer. Yes, there are ways of doing all of those things.

Etienne Nichols: Yes.

Adam Steadman: And the question is there's multiple facets to think about here. One is do you have the expertise and again coming into the country or doing it domestically? I'm a physician, entrepreneur, inventor.

Come up with a fantastic new tool,

do I. You know, and I've spent the last five years talking to design companies and manufacturers and regulatory and QA and so forth and I've never had any involvement with accountants or, or people who deal with state regulations and all that kind of thing.

So the first thing is you probably don't have the knowledge and you probably need to make sure that you're seeking that knowledge out and funding the companies that do have it.

There are a number of companies out there that do specialize in this space. Not that many, but there are some. And some of the bigger companies, bigger,

more globally oriented regulatory companies have these services.

Etienne Nichols: Those figuring out those unknown unknowns is kind of what you're talking about. You really need to know.

Adam Steadman: Exactly. So. So that's one aspect of it. Sorry, you bundled up lots of things into that and I'm now trying to unpack them.

Etienne Nichols: Yeah, well just in general the what a winning strategy looks like,

that's the thing that I picked out too is and that I would apply to my own knowledge is the fact that I have this lack of knowledge with whether state regulation, you mentioned Minnesota, that Secretary of State, the income tax requirements, the registration for those 24 states.

All of those things are probably not very well known. And I'm. I'm guessing there are other things that are equally or lesser known and just intricacies like how much does it cost to ship something to Alaska where you have very few sales versus something down the road in South Carolina or maybe somewhere in Tennessee that has very high sales tax.

Yeah, all of those are intricacies that I can see that knowledge being very important for the success. But what are some other aspects that you feel like are important to think about?

Adam Steadman: Well, I'm going to be a little self serving here and talk about what I'm trying to achieve.

I know this isn't an advertising channel but it's going to sound like one a little bit. What I've done is essentially looked at that whole bundle and said well what is the issue here?

Well the issue is the manufacturer wants to control sales and they kind of need to because if they don't control sales, they get.

Not always. It's always a caveat. There's always good operators out there but they've got the risk of running of working with a distributor that hasn't got their best interests that is going to take the line because there's some counter incentives in case they can get sales without putting any effort into it.

But you know, if you get a distributor that can make sales for you without putting effort into it,

they're basically blocking your market.

So what I did is I looked at this and said what's the big issue here? Well, the big issue is that companies then spend, try to do it themselves and spend forever trying to get through these regulations, get their state regulations done and so forth.

So what I've done effectively is created a hybrid distribution model. And what the model entails is a, if you like a front end, back end type setup, the front end is the sales activities.

The manufacturer is responsible for all of the sales activities.

That is everything from running a sales team. And you can use peos and things like that, professional employment organizations, if you're a foreign company to have an entity here that will manage your staff on a sort of personal one to one basis, whereas you provide the direction.

It's a co employment setup and you can use organizations like that.

And so you manage the messaging. You as the manufacturer, you're probably going to the scientific sessions and the trade shows and all this stuff anyhow, you've probably got the relationships with the kls.

Well, if you're using those relationships already anyhow,

keep with that. You're paying for the reimbursement, strategy consultants and so forth. You're paying for the company that's helping you with value analytics committee or analysis committee I should say.

Right. So all of these things that you've got in your commercialization you're probably having to fund anyhow. So all you're adding is sales team. So you're adding a sales team and that's the front end of the model.

So anything to do with sales is the front end. The back end of the model is everything else. I've been talking about building a warehouse management system, having warehouses, having, you know, things as simple as the SOPs that go behind the warehouse management and the serial number tracking and the rotation of timing spurring devices of getting all those registrations with all the states.

So the thing is with the, with the way I've got the model is because we do all of that, we're not going out and getting the registration with the states for you.

We have them already ourselves. So as we have them as an organization, we're reselling your product and it has to be on a resale model. But by being on a resale model, what it means is that, that we collect the sales tax, we manage the sales tax thresholds, we manage the,

the sales tax exempt fees, we manage the state by state Secretary of state registrations, we manage the income tax at the end of the year. So what we're doing is basically providing a model that allows manufacturers, be they domestic or foreign, to get to market months and months quicker without building infrastructure.

They build the sales infrastructure, but that's IP in some respect. When you're selling A company,

believe me. Stryker, Medtronic, Edwards, not one of these companies wants to buy your warehouse management system.

I promise you,

I absolutely promise they don't. So all that infrastructure you're building that you only need for six months or something, why are you building it when you don't? You have no intention of keeping it, but you have the option to keep it.

If you say no, this is going swimmingly well. We're going for an IPO and maybe that's going to be a better option for you and you have the option to keep going that way and you still have the infrastructure you need to be able to do so.

That's really what I've tried to set up. And it's just to make, get manufacturers to market quicker, get their products on the market quicker, make them more successful and ultimately to avoid the valley of death.

Etienne Nichols: Yeah, well I hope you're successful in that because we always put out a report at Greenlight Guru every year after interviewing. I think this year it was 536 if I get that number correct.

Last year was 613 medical device professionals. To see just the state of the industry and you know, I've Learned there's about 75% of medical device companies fail and it's hard that there are multiple valleys of death as I'm learning for a medical device startup.

And this is one that I hope, I hope you are successful in helping them get through that and successfully.

Adam Steadman: So you me both, thank you.

Etienne Nichols: Adrian, any last pieces of advice, recommendations, thoughts that you want to give the audience?

Adam Steadman: Well, I guess a couple of things. One is I'll talk to foreign companies first. Do not be surprised that the market is way more complex than you ever imagined it was.

It's not just the complexity of trying to get your, your CPG codes or your GPO contract setup and so forth. There's so much more to it than that. So that's the first thing and remember that is you need help, you need local help, you can't do everything from overseas.

But the solution isn't to necessarily set up a company with a post box in Delaware and say, oh we've got a US company. Because it's kind of, there's a little bit more to it than that, like physical premises and things like that.

You know, you can also burn through massive amounts of money if you're not careful. And the point is burning through monies is multifold. One is you're spending money doing things that are not adding long term value like building warehouse management systems that Nobody else wants.

But also it's the opportunity cost of not being in the market earlier.

I'm on the MedTech Innovator program and we look at lots of new innovations coming through. And I can't tell you how many times I've seen somebody presenting a breakthrough new product that we're going to have on the market in a couple of years, and you look at it and think,

yeah, there's three of those in this room.

Etienne Nichols: Who's first? Right.

Adam Steadman: And if you're six months behind the guy there, you could well find that you don't have any market because he's already taken it. And, you know, if you've got three players in the market, number three doesn't come in and take a third.

Yeah. Just remember that. So, you know, time is money. Time makes a difference. Getting to market quickly makes a difference. Having the ability to go into a contract and say, I've actually been in this market already.

I can tell you that my product sells. I can tell you what my price points are. I can tell you the feedback from my first surgeons using the product in a commercial setting, not a clinical trial.

So you can start presenting that kind of information by getting in early.

Etienne Nichols: I think that's good advice. Anything specific to. And it may have. I missed it. You said you were speaking to European companies first. Have we switched over to US Companies?

Adam Steadman: I kind of did. Some of. Some of that applied to US Companies as well. Yeah. So the foreign companies. The main thing is that you will be surprised as a foreign company about the complexity of that.

And, you know, one of the common ones is like VAT and sales tax. Well, they're both taxes on products. Will they work completely differently?

Etienne Nichols: Yeah.

Adam Steadman: Spoiler alert.

You deal with one entity in Europe when you're dealing with VAT, you're dealing with 46 entities in the US when you're dealing with it. Just little thing to think about there.

I think the other thing is just be very careful about locking yourself into commitments. And I think that's probably one of the biggest problems. And very often it's a problem you think you can't avoid when it comes to negotiating contracts.

And you're the small guy, you're the little startup company.

Don't exactly have a lot of leverage on a contract.

So you can get pushed into all sorts of things and you can get people smiling behind the webcam or whatever it happens to be promising you a wonderful deal that looks great to you, and you don't really know what their true agenda is.

Sometimes it is blocking you in the market, they're making sure you just can't progress. They can lock you down in a way that that happens. I'm not saying it happens all the time, but, you know, be aware that there are pitfalls that you need to think about and, you know,

get professional advice.

Etienne Nichols: Yeah, just mentioning those margins as much as international companies.

Adam Steadman: Sorry.

Etienne Nichols: Yeah, just mentioning those margins earlier. If a company is, is a leader in the market and 80% margins and then you have something similar, a 30% margin, it makes total sense that they would want to block that.

I am a believer in humanity, but I also believe in following the money.

Adam Steadman: Well, I mean, at the end of the day, you can't go to your investors and say, well, all I care about is a patient, because they're not going to invest in you.

All you care about is the patient. Yes, we're all in this business to support improvement of medical devices, improvement of healthcare and so forth, but it's got to be done practically.

And practically means you have to think about the commercial aspects that go with it. And because quite frankly, none of this innovation would happen if we didn't have these commercial constructs that enable people to make money.

We'd be in the dark ages with our technology.

Etienne Nichols: Absolutely. Well, Adam, how can people get a hold of you? Where could they find out more about what you're doing?

Adam Steadman: Thank you very much for that. Yeah, getting hold of me, very easy.

-: 6932

Sure. So please join me on LinkedIn. I'd love to, Love to connect.

Etienne Nichols: Okay, well, we'll put your information in the show notes as well so people are able to reach out to you. You might be the first person who's offered their cell phone number on an episode.

Adam Steadman: I'll change the number in a heartbeat if I have to.

Etienne Nichols: It's a lot easier than you think. But you know, sometimes it doesn't hurt to have it out there. That's really cool. So we'll put that in the show notes. Definitely check that out.

And Adam, thank you so much for being on on the podcast today. Those of you who have been listening, thank you so much for listening once again and we look forward you all next time, everybody.

Until then, take care Fantastic.

Adam Steadman: Thank you very much, Adrian.

Etienne Nichols: Thank you so much for listening. If you enjoyed this episode, can I ask a special favor from you? Can you leave us a review on itunes? I know most of us have never done that before, but if you're listening on the phone, look at the itunes app.

Scroll down to the bottom where it says leave a review. It's actually really easy. Same thing with computer. Just look for that Leave a review button. This helps others find us and it lets us know how we're doing.

Also, I'd personally love to hear from you on LinkedIn. Reach out to me. I read and respond to every message because hearing your feedback is the only way I'm going to get better.

Thanks again for listening and we'll see you next time.