Mar 2, 2011
Dr. June Robinson, a Professor of Clinical Dermatology at Northwestern University Medical School, sat back in her chair on a blustery fall day in 2009, her mind racing with thoughts about a new medical device for diagnosis of skin cancer (melanomas). The device in question detects and digitally stores information about the levels of melanin in the skin. Melanin is the pigment that gives color to the skin and protects the body from injurious ultraviolet light ray damage and melanin levels can be an early indicator of skin cancer risk.
As the first medical device in the U.S. that can detect melanin and store the data for analysis, Robinson knew that the dermatology community was buzzing about its potential. She was equally excited about the opportunity; after all, Dr. Robinson thought, in only five minutes the device measures melanin, stores the image on a computer and predicts a person’s chances of getting skin cancer. Robinson had at this point already spent a considerable amount of time and money on the development of the device and needed to ensure that the device was commercially viable before she invested additional resources for a patent application and regulatory filings.
Robinson thought about her recent study involving 430 young female users of indoor tanning facilities. She discovered that young women were more worried about wrinkles and looking unattractive than they were about skin cancer. By focusing on cosmetic concerns instead of skin cancer danger, Robinson realized she could attract her target demographic while moving away from the considerable regulatory hurdles associated with medical devices. In anti-aging and anti-photo-damage markets consumers demand products that reduce the signs of aging such as wrinkles and imperfections of the skin. However, skin cancer prevention was also experiencing growing consumer demand due to an increasing number of cases reported each year. Should Robinson focus on promoting her device as a lifestyle product for meeting cosmetic needs? Or should she focus on her mission of educating people about skin cancer and targeting physicians and hospitals? Robinson needed to analyze all of the critical intellectual capital management and commercialization issues, as well as their interactions.
Melanin Detection Device Overview
The Melanin Detection Device consists of a videodermascope (a high-end camera with a fiber optic light source) to capture a high-resolution digital image of the skin combined with software to display and save the image on a computer. The device uses wavelengths of light that can see 0.5 mm below the skin to convert the captured image into a melanin index number, which the physician can then use to provide a risk assessment. This assessment might incentivize a high-risk individual to more aggressively monitor skin changes and maintain a more stringent sun protection regime. The device is small, accurate, and easy-to-use. Consumers can save the images on a computer and compare their levels of melanin over time.
The innovation serves an important purpose in educating people about their skin cancer risks and addresses key unmet needs in current methods of predicting melanoma. If not detected and removed in its earliest stages, skin cancer will penetrate into the deep layers of the skin and spread to other organs. According to the American Cancer Society, the five-year survival rate for Stage 1 malignant melanoma (when the cancer is still in the epidermis) is 95%, versus 18% for Stage 4 (when the cancer has penetrated to the lower dermis).
Given the shortcomings with current methods of measuring melanin, doctors may be willing to pay for the Melanin Detection Device if there is enough patient demand. The device can be used by a nurse, which can give the doctor more time to focus on patients with more immediate medical need. Robinson weighed all of these considerations as she pondered her next move. While she recognized her lack of experience in commercializing medical products, she knew that her decades of experience as a dermatologist, surgeon, and professor could add credibility to the device and help her penetrate the hospital and physicians market.
There would only be one chance to launch the Melanin Detection Device into an initial marketing channel and Robinson knew she had to correctly choose between targeting the consumer market – focusing on tanning salons, or pursuing regulatory approval – focusing on the healthcare market. The channel launch choice would have considerable implications. If she were to focus first on the tanning salons and then obtain regulatory approval and target the healthcare markets. Even though catering to tanning salons was against Robinson’s early motivations for creating the device, this market could provide capital to fund the more intensive regulatory process needed for the healthcare market. By focusing on the cosmetic market first, Robinson could benefit from less FDA scrutiny and address a growing need of tanners to know the effectiveness of their tanning sessions.
In order to feel confident in her decision, Robinson spent time researching market data and demographic trends. The market has a natural growth rate—the incidence of melanoma has almost doubled in the last few decades. The increasing rates of skin cancer suggest that more people will want to know their risk profile in the coming years.
The average annual cost of care for melanoma in the Medicare population is $390 million. Skin cancer is highly preventable with adequate sun protection by the at-risk population. If a skin cancer is detected and removed when it is confined to the outermost layers of the skin, it is almost 100% curable.
The market opportunity therefore seemed fairly substantial. Third party research suggested that the Melanin Detection Device may be able to generate up to $400 annually million in recurring, high margin (> 90%) revenues from the dermatology market and $900 million from the general physician market.
Moving Forward: Strategic Decisions to Be Made
Robinson also needed to decide if she was going to start a company or license the technology to a manufacturer and needed to consider pricing and reimbursement. If she started a company she would need partners and considerable capital. However, if she licensed the technology, she would need to be careful in structuring the relationship and the contractual terms for information transfer and revenue sharing.
Pricing also posed a challenge. Without insurance reimbursement, it is unlikely that individuals would purchase a $600 device to measure their melanin index. If Robinson could reduce the price of the device to less than $100, she could reach beachgoers, skiers, golfers, and other people who expose themselves to outdoor rays. Knowledge of their melanin index would help people make informed decisions about how much time to spend in the sun, as well encourage the use of sunscreen (and suggest an appropriate minimum SPF) when planning extended time in the sun.
At a $600 price point, Robinson would need to find potential partners to pay for the device and make it available to individual consumers. Robinson, for example, could partner with sunscreen companies and encourage proper sun protection among consumers. Sunscreen companies would be willing to pay for a Melanin Detection Device in drugstores, especially if it increased sunscreen sales.
Based on this analysis, Robinson knew that there were clear opportunities and challenges associated with each strategic option. As Robinson tried to get her head around the idea of her prized medical innovation as a consumer product, she also recognized that this might be a necessary first step to achieving a real impact in the field of skin cancer. Robinson is extremely confident in her Melanin Detection Device, and believes it has the potential of becoming a blockbuster success. However, like many medical entrepreneurs, she also recognizes that the journey to commercialization is fraught with unexpected stumbling blocks but, as she turned to her computer to look through the contacts and network she’d established to help guide her journey, Robinson resolved to remain focused on the goal of improving skin cancer detection and prevention through the most effective channel possible.
 The U.S. Market for Suncare and Lipcare Products
 Brean Murray Carrett and Company’s Equity Research Report on MELA
 Daniel, Heckman, Kloss and Manne, “Comparing Alternative Methods of Measuring Skin Color and Damage,” Cancer Causes and Control.
 The assumption is that each of the 5,000 dermatologists uses the device every hour (or on 5-10% of their patients) for 200 days/year.
 Brean Murray Carrett and Company’s Equity Research Report on MELA