Week 5: Brainlab

Week 5: Brainlab

“Brainlab”
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Summaries

  • Coursework > Week 5: Brainlab > Video: Brainlab
  • Coursework > Week 5: Brainlab > Video: Brainlab 2
  • Coursework > Week 5: Brainlab > Video: Brainlab 3
  • Coursework > Week 5: Brainlab > Video: Brainlab 4

Coursework > Week 5: Brainlab > Video: Brainlab

  • A lot of the nomenclature and jargon is very obscure, but as a business person we have to understand something about that technology and where it fits in an overall framework.
  • Health care is, actually, health care technology, is the development of information about the effectiveness of technology in the care of patients.
  • What is the harm that might be associated with the technology? We’ll talk a lot about what the issues are with Brainlab and how, actually, downside risks are one of the things that drives the technology development in Brainlab.
  • First is, how much investments are required to develop the technology, and what are likely returns? And then the second issue is, how does the technology get paid for? In health care, a lot of times we have third-party payment through insurance.
  • Is the insurance company going to pay for the technology that we develop? And what standards might be required, as to evidence standards might be required to get them to pay for it? The next issue that we have to look at is regulatory considerations.
  • Health care and health care technology are all regulated markets in the United States and around the world.
  • In the United States, the Food and Drug Administration has a very specific set of criteria about how they’re going to look at specific medical technologies and will have to see whether or not Brainlab’s technology meets criteria for FDA approval for marketing.
  • In a business context, we have to look at competition, and competition from other technologies, other substitutes out there in the marketplace.
  • Patents are the cornerstone of intellectual property, and they give us protection that allows us to make a significant investment in the development of a new technology knowing that other competitors can’t use our information, our ideas, if we have a patent to come into the marketplace.
  • There are very specific guidelines about how we can manufacture products and technologies called good manufacturing practices that require a lot of documentation of our quality control.
  • Can Brainlab actually go on its own? What is going to happen to Brainlab if Varian, the dominant hardware manufacturer, decides to make its own competitive product to Brainlab? What’s Brainlab’s competitive response to that environment likely to be? To begin our analysis, we’re going to go to the eight specific factors we looked at our technology risk assessment so that we have a better understanding of Brainlab as a business.
  • Once we do that, and once we have analyzed Brainlab so we have a better understanding of the business and the business model, then we could look at some of the strategic issues and opportunities that Brainlab has to decide upon.
  • Right now, I want you to go out and look at our eight technology risk factors and assess Brainlab as a company, as a technology.

Coursework > Week 5: Brainlab > Video: Brainlab 2

  • So what are we supposed to do as common business people when we’re looking at a case like Brainlab.
  • The software is really the product that Brainlab creates and it’s integrated into the hardware produced by Varian.
  • So what’s in the black box is a combination of this hardware in terms of the linear accelerator and software that’s produced by Brainlab.
  • There’s no long term clinical trials, there’s very little discussion about outcomes of care and how they might differ between different technologies.
  • We see a lot about discussing with neurosurgeons what their concerns are in terms of using technology and a lot of creativity on the part of Brainlab in addressing those concerns.
  • There’s not a lot of detailed clinical evidence here that if you were in charge of paying a reimbursement, you would say Brainlab’s technology is superior to the other technology and it’s proven in clinical care in terms of its impact on patient outcomes.
  • What’s the issue that radiation oncologists and neurosurgeons were facing that actually spawned the idea of Brainlab? Well, radiation therapy actually kills cancer cells.
  • So the question is can I focus this radiation beam on the tumor and avoid involving any of the local tissue in terms of radiation side effects? That’s the idea of Brainlab.
  • One is investment in new technology and expected returns, and the second issue is reimbursement in the marketplace.
  • In terms of investment, there’s not a lot of detail in the case about how much money Brainlab spends every year on developing new technology.
  • So that’s for Brainlab as a whole, but we can actually impute that some substantial portion of that funding and investment is required just to keep the software up to date.
  • Brainlab investing in the app business model might extend over two years of development and then another two years to get to market.
  • Brainlab is kind of more of a razor model at least in terms of iPlan software, there’s a big upfront investment that’s required to license the software.
  • There is some residual in terms of maintenance fees but Brainlab’s very heavily weighted right now towards this idea of a razor compared to razor blade.
  • Is there separate reimbursement for Brainlab software? What we learned in the case is actually even if the hospital has to invest $1 million in Brainlab’s technology, there’s no specific reimbursement for having Brainlab software versus somebody else.
  • Even if Brainlab’s software was more expensive or much better by any type of measure.
  • So why is it that people would invest in Brainlab’s iPlan software compared to a competitor? There’s some information in the case that’s interesting about productivity.
  • There’s a suggestion in the case that with Brainlab’s software, I can treat 10 brain metastisis at a single setting compared to having to come back 10 different times with our competitor’s software.
  • There’s a lot of discussion in the case about how easy it is to set up the Brainlab technology at the provider site, and about throughput in terms of cancer centers.
  • All those are going to be compelling arguments to go back to a hospital and say with Brainlab software, I can improve your efficiency, I can improve your throughput, and as a result, I can improve your billing because they’ll have more patients going through using that specific hardware that you bought.
  • Now that Brainlab software has been on the market, it’s very easy to point to Brainlab software as a predicate device or to Varian and its hardware as a predicate device.
  • So we’ve talked a lot about Varian that’s been working with Brainlab on developing their technology, but there are other competitors out there in the field- especially Elekta- that’s really kind of the up and comer in this space.
  • One of the issues, one of the key considerations is who’s using Brainlab’s technology? Right now it’s Varian, but we also see a new, interesting deal with Mitsubishi for a new type of partnership arrangement.
  • We also see some details in the case that hospitals that have Elekta’s technology could potentially use Brainlab software as well.
  • We don’t see anything in the case about a recent competitor to Brainlab, but obviously the case starts in the early days with Varian actually having two different software providers and eventually choosing Brainlab over a competitor.
  • What you could see when Brainlab’s talking to Varian, Brainlab’s about a tenth of the size in terms of revenue of Varian, but a little bit overstaffed relative to Varian.
  • So this is really a David and Goliath kind of case where Brainlab’s trying to take on a much bigger competitor.
  • So Brainlab can think about- and we’ll see- whether or not it could marry up with one of the other players in the marketplace to be a competitor to the dominant market player, Varian.
  • As we said in introducing the framework, patents and intellectual property are really key questions in terms of technology and understanding whether or not we should make an investment in core technology to bring it to market.
  • So you might imagine that somewhere along the line Brainlab has actually patented some exclusive parts of its technology, especially we have medical devices as well as the software.
  • Easily Brainlab could think about trade secrets.
  • How are we going to make or manufacture this technology? How can we assure the quality of the technology to meet regulatory standards? One aspect of what Brainlab is producing is software.
  • We may not have to even build a manufacturing plant for medical devices although there are some device manufacturing aspects of what Brainlab has done.
  • How do we build software? How do we validate the software? How do we follow standard procedures in terms of making sure that our software actually doesn’t have errors in the code and that it performs reliably for our physician clients and for our patients? That’s the basics of our analysis of our technology framework for Brainlab.
  • Based on all this, what have we learned? We really do have a better understanding now of Brainlab as this very specific technology company in a very unique niche which has very specific considerations in terms of risk-benefit, in terms of regulatory issues, in terms of economic issues.
  • There are a lot of other people that are interested in taking Brainlab’s market share away from them.
  • Brainlab has five different potential strategic options in front of them.
  • We have a clear understanding now of Brainlab as a firm and now you are empowered to really think through what the future of Brainlab’s going to be.

Coursework > Week 5: Brainlab > Video: Brainlab 3

  • This was challenging segment, to think about the strengths and weaknesses of each of these five different options available to Brainlab.
  • The first issue that we have to face is how much does Brainlab make for each technology sale.
  • When we look it Novalis, the idea of a software that’s coupled to the hardware, Brainlab is able to sell its technology for about $1 million.
  • When we look at iPlan as an application, Brainlab sells that for about $250,000.
  • They’re much bigger than we are, as Brainlab as just a software producer.
  • Brainlab, at the end of the day, is a software platform with a lot of installed customer base at Varian sites.
  • So how might Varian retaliate, in terms of migrating our existing customer base into a new platform? And how much opportunity is there in the hardware market? We’ve seen a lot of discussion in the case about how mature the market is, how in developed countries the market’s really slowing down due to economic pressures in the marketplace.
  • Lots of people are using our software, and we could actually work really aggressively to partner with Varian’s competitors, to see if in fact their sites would adopt our software as well.
  • Can Varian take over the installed base that we have with iPlan, and actually have us lose all those competitors? And in fact, is Electra even interested in partnering with us? The third option is to really branch out into something new, and this is the app model.
  • Can we develop kind of indication-specific software that’s so unique it provides a barrier to entry, and a compelling rationale for people to pay us our license and maintenance fees.
  • So even if Varian came into the market and eventually migrated people off the iPlan platform, they would still have the huge need for our very specific niche software, that in fact Varian won’t ever be able to catch up with.
  • One, we’ve seen in the case that there’s a big risk to this idea of moving the software market and losing the Varian partnership.
  • Remember, Varian’s ten times our size, and if they really decide to go after us in the marketplace, it’s going to be very hard for us to respond.
  • Are there people that’d be interested in buying the software business, Brainlab’s oncology business, is not addressed in the case, and that’s an interesting question, because every one of the people outside of our business is going to look at Varian breathing down, and say, well, this business isn’t worth all that much.
  • So how much cash would we really generate to reinvest in our business? And then the final option is to sell Brainlab as a company.
  • The culture clash between the leadership at Brainlab and Varian could be resolved, because in fact, we’d retire our CEO of Brainlab.
  • Is he really willing to walk away from Brainlab? He owns 50 percent of the shares of the company.
  • I want you to all go back to your teams and ask the question, which of these five options should we pursue? Brainlab’s future is waiting on your decision.

Coursework > Week 5: Brainlab > Video: Brainlab 4

  • Huge issues in terms of financial considerations and our ability to actually execute against these business plans.
  • What would I do? One of things that really turns the decision-making of Brainlab is this idea of relationship with the customer, relationship with the doctor.
  • It’s in the case in several different points how close the relationship is between Brainlab and the oncologists.
  • So Brainlab can actually leverage that relationship to really move from this razor to razor blade business model.
  • That’s an exciting opportunity to really transform Brainlab into a very different business.
  • Brainlab didn’t acquire another hardware vendor.
  • Brainlab maintained the iPlan software platform because we have this very large customer base, and was able to continue to do that as Varian tried to develop new software because of how loyal the customers are and how good Brainlab software really is.
  • Brainlab began to execute on their app model, not betting the farm, but slowly developing this app business model over time, and introducing a limited number of apps to the marketplace.
  • The good news for Brainlab is their surgical unit actually continued to increase revenue.
  • Brainlab’s continuing to grow as a business.
  • How does my answer, and how does the revealed preferences of Brainlab’s founder, jive with your discussion? There’s not really a right or wrong answer here.
  • The idea is, can we actually have a rich discussion of the strengths and weaknesses, understand the market, and understanding how to think uniquely through technology solutions and business models in health care.
  • If we skipped the idea that it is a regulated market and we need FDA to approve our app before we go to the market, well, our cash flow timing would’ve been off substantially.
  • So how Brainlab was able to exploit and leverage that relationship is really critical.
  • We’ve said over and over again that Brainlab’s better.
  • So thank you very much for spending time with us to go through Brainlab.
  • Again, this is a very specific idea about how to look at technology and how to look at the business context of making decisions with a health care business model.

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