So if we go back to our catheter company example, this is the,
a top down view of the revenue ramp for our catheter company.
So, this, basically, outlines the number of,
patients that you have access to in this market.
So the first thing we do is take a, we go ahead and
we say here are the number of patients that I can possibly treat.
What I want to do is actually go out find some good source find a good data
that helps me understand the number of patients that are actually potential,
that could potentially benefit from my technology.
I plot that number here, into the first year, and then it grows
throughout the rest of the years based on this, low population growth rate.
So those are the total number of patients that have paroxysmal atrial fibrillation,
which is the condition that we believe we're going to treat, but
again remember I said that the key task in a top down market model is segmentation.
You've gotta divide your market into little pieces that you're going to be
able to penetrate.
So, for this particular device we need those patients that are drug refractory.
So that means these are patients that don't respond to medical treatment.
Instead, they'd be more open to our device approach.
Again, I've gone out to the internet and I have found a very credible citation that
helps me understand what percent of atrial fibrillation patients are drug refractory.
So, I go ahead and I multiply the number of patients that are out there,
by the number that are drug refractory, and that goes ahead and
forms this sort of addressable market, I call, which is the re,
in this case, those atrial fibrillation patients that are drug refractory
Then what we do is we determine a penetration rate.
So this is a percentage of all of those patients that are treated using
catheter oblation technology, and we go ahead and multiply the number of
refractory patients times the number of, times the percent penetration.
And in this case,
we're also assuming that we're going to be doing multiple procedures per patient.
And that gets us a total number of oblation procedures performed.
In this case, in Year Two, that's 13,000 procedures.
Now, we've also gone out and done some work to understand our pricing.
So, many comp many students ask me, how do you determine pricing?
And there's really a couple of things that I look at when I'm determining pricing for
a new medical device.
The first thing is to say, well what are the comparables?
What else is out there?
Are there other ablation catheters out there, in this example?
If so, what do they charge?
Are we better than them?
Are we faster than them?
If so, then maybe we can charge more.
If not, maybe we have to charge less.
If there aren't comparables in the market.
We often do something called primary market research.
Primary market research usually involves interviewing physicians
to understand exactly how much they believe a product needs to cost.
If we're selling to consumers, we'll actually do a focus group, and
interview several consumers.
We may run a large survey over the internet to determine what
people's perceptions on the pricing may be, and, of course, finally, if,
if we are working in a regulated device environment we have to
understand how much reimbursement is available for this particular procedure.
To understand if our proposed pricing will fit into that
into that payment and then, therefore, will be a good business for our customers.
So, that's a very quick, high-level approach on pricing.
Back to our model.
So if we have a total number of procedures performed we multiply that by price and
you can see we end up with a total market size.
So that's just the total market size.
This line here indicates the entire market size, but
we've gotta determine our share of the market and
to do that we need to understand when we're going to introduce our product.
So, we're going to go back to our operating plan and
look up when we forecasted that we would get approval.
So in this case, in this example, we're saying we get FDA approval in year three.
So in year three, we can then calculate our market share of the entire market,
and, it obviously, to then calculate our revenue, it,
everything kind of flows through there.
You can determine the total number of units sold, and
the average selling price and then that will get you your revenue per year.
So when I do this in class,
most of my students ask me, where do I get these numbers here.
This is the penetration rate of the market, and the answer is experience.
I've done this a lot of times before and so
therefore I know what these numbers need to be, and then when I say that, usually
the engineers get very uncomfortable, the business guys first say yeah, yeah,
that makes a lot of sense, and the doctors are usually asleep in the corner anyway.
The reality of this is that what you want to do is look for
a comparable company again, so
we, so who has launched a product into a market, and how did their sales ramp go?
And what was their slice of the market as a group?
One of the, the pitfalls I often see is that these numbers here,
these early numbers here are often too high.Um, those numbers.
The temptation is to give yourself ten percent of the market in your first year.
I'm telling you it's not going to happen.
It takes a lot of time to actually convert customers and
to have them purchase your product for the first time.
So, be conservative, show these numbers to other,
people in the industry with experience, and you will.
triangulate.
I am very confident on
the right on the penetration rate for your technology.
So that is the top down market model.