Matrix Medical

Keywords: New Product, Product Pricing, Healthcare Core Skills: Understanding figures, math, market entry strategy
Problem Statement
Our client is Matrix Medical. They are a start-up medical device company with a device that treats benign prostate hyperplasia (BPH).
They have finished 2 of their 3 stages of clinical trials and the results look promising. This is Matrix Medical’s first product and they need
help designing a go-to-market strategy and pricing strategy. How would you advise them?

More information for the interviewer

• When the prostate gets excessively large (called BPH) it makes evacuating the bladder difficult and impacts quality of life. It is a non life
threatening issue but it affects all men as they age
• The device uses an electro-chemical ablation technology that kills excess prostate tissue and thus relieves the symptoms of BPH
• Go-To-Market – who is our target consumer, what do we want to ‘sell’ about our treatment, how do we reach our audience
• The treatment is an outpatient procedure (i.e. no hospital stay required) – more info in Figure 2
• The first two clinical trials have proved safety and some efficacy; the last clinical trial is much larger and is required by the FDA to prove
both safety and efficacy

Core story for the interviewer

Matrix Medical has a product that should prove to be in demand by physicians and patients as it is quick, efficient and less painful when
compared to the competition. The product release strategy should highlight this to physicians and hospitals. The interviewee should use
value based pricing to determine a selling price, the range of proposed prices should be above cost but below reimbursement.

58
Matrix Medical - Possible Structure

Product Market Company Price

•This product would help •There are four competitive •Start-Up company •Complication of pricing
men with BPH, usually over treatments plus some •Has never brought a medical devices is the
50 years old drugs that slow the speed product to market before reimbursement for medical
•The treatment kills of BPH •They have a separate devices
unnecessary prostate •Market share in Figure 1 prostate cancer device in •This class of device is
tissue safely and •Men used to ignore the development, 3 years away reimbursed at
effectively symptoms from BPH but from the market approximately
•Disposable product more and more men are •This device must be $1500/patient to the
•Treatment requires local getting treated successful to provide hospital
anesthesia •# of patients treated/year adequate financing for •Table 2 shows cost and
•It is an outpatient in Figure 1 cancer device effectiveness of other
procedure •Current reimbursement is treatments
•Less painful than other $1500 •Should suggest a value
methods based pricing scheme
based on product value
•A patient only needs
rather than cost+
treatment once in their
lifetime

59
Matrix Medical– Interview Questions
Question 1
What are some of your primary concerns in bringing a new product to market?

Notes for the interviewer

• Interviewee should start a structured brainstorm or refer to their initial structure
• Possible buckets could include
• Market Strength
• How fast is the market growing
• How many/few competitors are in this space
• Barriers to entry
• What are the FDA regulations in this space
• Are there significant IP/Technology barriers
• Device marketing
• Who is the target Audience
• Physicians, hospitals, or patients? All three?
• What about the product will resonate with the target audience
• Competitive response
• How will the current competition respond when our product gets to market

60
Matrix Medical – Quick Primer on Reimubursement
More information for the interviewer
Properly giving this case and requires some understanding of how reimbursement works between providers (Hospitals) and payers
(Insurance companies) for medical devices and treatments so here is a quick and dirty 101 level overview in the form of an example
pertinent to our case.

A patient comes in for any of the treatment options described in Table 1 other than TURP. The hospital incurs the cost of purchasing the
medical device to treat the patient, the staff needed to administer the treatment, and the time required in the hospital to recover.

The patient will be billed for 2 main things:

1.The treatment itself
2.The amount of time the patient spent in the hospital to recover from the treatment

Only the (1) treatment cost is reimbursed by Payers under something called the current procedural terminology (CPT). The CPT code for all
four of these treatments is the same and reimburses hospitals at $1500. If the hospital can acquire the device and administer the
treatment for less than $1500, the hospital and physician can pocket the rest as profit. For example, if the device costs $1000 than
performing the treatment will net the physician and hospital $500 to split.

61
Matrix Medical– Interview Questions
Question 2
How many patients/customers could use our device (provide Figure 1)?

Additional info to provide

• Assume US population 300MM
• Assume 50-50 split of male/female
• 50-59: 15% of population
• 60-69: 10% of population
• 70-79: 5% of population
• 80+: 2% of population

Step 1: Calculate number of males in each age group Step 2: Calculate number of males receiving treatment:
• 50-59 -> 15% *(300MM people /2) = 22.5MM men • 50-59 -> 22.5MM * 10% = 2.25MM
• 60-69 -> 10% *(300MM people /2)= 15MM men • 60-69 -> 15MM * 15% = 2.25MM
• 70-79 -> 5% *(300MM people /2)= 7.5MM men • 70-79 -> 7.5MM * 25% = ~2.0MM
• 80+ -> 2% *(300MM people/2)= 3MM men • 80+ -> 3MM * 50% = 1.5MM
Total = 48MM Men Total ~ 8MM potential patients

62
Matrix Medical: Figure 1

Diagnosis and treatment of BPH population

80+

70-79
Age Groups

60-69

50-59

0% 10% 20% 30% 40% 50% 60% 70% 80%

% Receiving treatment % of Population with BPH

63
Matrix Medical– Interview Questions
Question 3
Would Matrix’s device be competitive in this space (provide Table 1 and Figure 2)?

Notes for the interviewer

• This will be a test for the interviewee to scan and understand a complex table. They may need some time and some
help
• Matrix Medical’s product will directly compete with TURP (surgery) and the Microwave, RF, and Cryoablation products
although perhaps more directly with the non-surgical options.

• Matrix Medical vs. Surgery: Matrix Medical’s is superior in every way but efficacy. TURP fully removes the prostate
and is thus 100% efficacious. The reimbursement is higher in surgery but so is the cost of treatment.

• Matrix Medical vs. Other Ablation devices: Matrix Medical is superior in its level of invasiveness, efficacy, recovery
time, and pain level. It is approximately equal with the competition on length of treatment.

Notes for the interviewer

For those patients who do not opt for surgery, Matrix Medical’s product appears to be the best in the market place. The
Cost/Treatment will need to be competitive with other ablation devices however.

64
Matrix Medical: Table 1

Treatment options for patients who undergo treatment for BPH

TURP* Microwave Ablation** RF Ablation** Cryoablation** Matrix Medical**
Facility In-Patient Out-Patient Out-Patient Out-Patient Out-Patient

Reimbursement/treatment*** $2,500 $1,500 $1,500 $1,500 $1,500

Level of Invasiveness 10 6 6 6 5

Efficacy 100% 65% 70% 65% 75%

Treatment Time 120 min 25 min 25 min 90 min 30 min

Recovery Time 2 days 1 day 1.5 days 1 day 0.5 days

Pain Level 8 7 7 6 4

Cost/Treatment*4 - $500 $500 $750 -

*TURP = Surgical removal of prostate
**Ablation treatments kill tissue in the prostate. This relieves symptoms of BPH but is not as efficacious as fully removing the prostate
***Reimbursement/treatment – Hospitals receive reimbursement from insurance companies in this amount for performing a treatment
*4 Cost/Treatment – The cost to the hospital/physician for the device.

65
Matrix Medical: Figure 2

Breakdown of annual procedures by procedure type

Cryoablation
10%

RF Ablation
20% TURP
50%

Micowave
Ablation
20%

66
Matrix Medical– Interview Questions
Question 4
What price should Matrix Medical set for their device?

Notes for the interviewer

The interviewee should come-up with two key-insights:
1. The Matrix Medical device is more appealing than other ablation devices on the market
2. The device must be priced below the reimbursement level (otherwise hospitals lose money for each treatment they perform and thus
will not adopt the technology)

With this information, Matrix Medical should price their device on a value based approach as no cost information has been provided. The
other treatment options allow the hospital/physician to make $700 (TURP), $1000 (Microwave), $1000 (RF), $750 (Cryoablation) – this is
the difference between the reimbursement/treatment and cost/treatment.

There are many possible correct answers here. One possibility is to price the device at $700. This allows hospitals to make
$800/treatment. This makes it more profitable for physicians to use the Matrix Medical product than either TURP or Cryoablation but less
profitable than Microwave and RF. Because it is a better treatment than RF or Microwave, the goal with this strategy is that doctors will
recommend Matrix Medical’s device to patients as it balances both profitability for them and value and results for the patient.

67
Matrix Medical– Interview Questions
Question 5
How much revenue can Matrix Medical expect from this pricing scheme?

Notes for the interviewer

The revenue will depend on two factors
1. The price set by the interviewee in Question 4
2. The market share they believe can be taken from the other ablation technologies and surgery

This question should be used to push the interviewee on their underlying assumptions rather than the math used to get to the answer as
the math should be straightforward. Push the interviewee on every assumption they make, i.e. “Can you really gain that much market
share at the price you set?” “Do you really think we will/won’t steal market share from TURP given how good our treatment is?” “What if
competitors slash their prices when our product gets to market”

We want the interviewee to defend their assumptions if they are defensible and carefully and tactfully reconsider if their assumptions were
too aggressive or timid.

68
Matrix Medical– Interview Questions
Question 6
What strategy would you propose?

Notes for the interviewer

• Interviewee should close out the case (final solution shown on next page)

69
Matrix Medical- Solution
Solution
There should be a few main conclusions drawn by the interviewee. There is significant market potential for this device
due to affected population. Matrix Medical’s device has a few definite advantages over the competition including the
level of invasiveness, recovery time, and pain level. The level of predicted market share the device could take will vary by
the interviewee and the price they set. The actual device price should be based on value not cost and must be less than
$1500 which is the reimbursement rate.

Next Steps
• Develop a plan to sell the device to doctors – emphasizing its strengths
• Work out supply chain and production line
• Determine marketing strategy – target patients, doctors, both?

Risks
• Device hasn’t yet finished clinical trials – risk that results could come back poorly
• Doctors may not like device or may like other devices more, i.e. may not be willing to switch
• Pharmaceutics could develop a pill that makes BPH a thing of the past

70