Would you have invested in Amazon in the 90s, when it was a scrappy startup exploiting this new thing called the ‘world wide web’?

Or would you invest once it had bedded down the book business and was getting into groceries?

With hindsight it’s obvious you’d pick the 90s startup; it IPO’d at $US18 a share after all.

But in the moment, when the product and the market aren’t clear, most people would prefer the scaleup, the business that is generating revenue, knows where it’s going, and has survived the legendary 90 per cent startup failure rate.

But picking a scaleup before it has done the scaling is tricky. They can move very fast from first revenue to material revenue and share prices can move even quicker.

For example, burns technology company PolyNovo (ASX:PNV) went from being $500m at about 76c a share in March last year to a billion dollars three months later, after hitting in May its “million dollar month”– its break-even milestone.

PolyNovo hit a peak of $2.2bn in February, and after being beaten up in the COVID-19 March rout is heading back up.

Experts say the market pullback caused by COVID-19 panic is presenting unique opportunities to invest in some interesting scale-ups at significantly reduced prices.

But how do you tell whether a company will scale-up or just fizzle?

Stockhead reviews four medtech scale-ups to find out what their secret sauce is that will start the money rolling in.


PKS Holdings (ASX:PKS): Get the tech right

The first sale is always the hardest, says PKS chief Ron van der Pluijm, so you’ve got to have technology you’ve proved works and people will use.

PKS is at the start of a ramp up in sales for its subscription clinical decision support software that automates the human decision-making process in healthcare organisations. It has a clinical version and financial version to help organisations organise payments and work with the Medicare system.

“You need to have a proven technology or an established technology, as the first sale is always the hardest,” van der Pluijm says.

“Our technology has been used for many years. It has a very strong use case with customers and it has very strong cost savings, a clear efficiency proposition and strong international partners, such as Phillips, with good connections.”

PKS listed in June last year with a plan to launch direct sales, raise prices, and get set in the US. It recently bought a cloud software business called Pavilion that provides audit and other software to hospitals, as part of a further expansion into the hospital sector.

van der Pluijm says scalable technology needs to be easy to use and maintain as well as able to be used outside the small Australian market.

It’s more common to think of scale-ups as cash-starved scrappers waiting to see the revenue but PKS is profitable and has cash: $4m at the end of December.

“It is important because you never know what markets, for example, will do,” van der Pluijm says. “If you have a profitable business you can use that money to expand the business using your own funds. For me that is a very important part.”


Opyl (ASX:OPL): Lose the startup mentality 

Thinking like a startup has been mythologised in the business world, but it doesn’t work in practice if a company wants to grow.

Opyl chief Michelle Gallaher is ensuring all the right processes are in place, from billing to HR, to ensure the company can capitalise on rising client numbers and bigger deals.

“What we’re doing at the moment, because we think it’s the key, is being fanatically disciplined around getting our operational framework right,” she says.

“Instead of having that startup mentality of making do, everything needs to be codified which means any new client can implement your product easily.

“I say ‘fanatical’ because when you’re a startup it’s very, very easy to say it’ll do for now. Then you get stuck with these really poor legacy systems that take a really long time to transition.”

What that means for Opyl, a company that is using artificial intelligence to extract information from social media posts for clinical trials recruitment, is to make sure the business is set up correctly and staff have the right skills.

It also means partnering. In Opyl’s case this was with hummun, a UK sales, marketing and medical communications company that could have been a competitor but as a partner opens international doors to the Australian company.

“We are collaborating for scale with hummun. I could see they were complementary and potentially a competitor, so decided to collaborate instead with a revenue sharing deal both companies can leverage,” Gallaher says.


Orthocell (ASX:OCC): It’s all about the KOL

The ASX is littered with medtech companies that believed regulatory approval equalled sales.

It can, but only if the groundwork has been laid in the years preceding by developing an army of medical professionals who have tried and love your product, says Orthocell managing director Paul Anderson.

Orthocell is developing collagen-based ‘scaffolds’ that allow tissue to regrow around a damaged area. That tissue could be the jaw bone, a tendon or ligament, cartilage, or, in future, nerves.

Anderson says the company has been cultivating “avant garde” surgeons and key opinion leaders (KOLs) in Australia, Europe, Asia and now also in the US from as early on as when they were still doing basic science.

It has done this by asking those people to lead the preclinical and clinical trials, so when the time comes to start selling hard there is already a market ready for the device.

“That complements the regulatory approval process and that puts us in position, from a scale-up point of view, of having medical influencers who support commercialisation,” Anderson says.

A high-quality KOL will discuss a product at conferences and write papers on it when it’s still being tested. Later that KOL is more likely to become a brand ambassador who will actively promote that product in their practice because they like it.


Rhinomed (ASX:RNO): Get customers to love it early

Where Orthocell is quietly building its medical KOLs as it conducts clinical trials before it even goes to market, snoring tech company Rhinomed had to go direct to its customer first.

“Patient acceptance is what will make or break your drug or device. If you don’t tackle that upfront or you don’t accept that up front you’ll always struggle,” CEO Michael Johnson says.

“Scale is all about products that appeal to mass audiences, to mass populations, to mass markets. That’s the key for any company that wants to scale, that you have a product that is able to scale.”

Rhinomed sells nasal stents that initially were designed as a snoring cure and now includes a nasal decongestant.

“You can pursue a strategy of doing clinical trials… but ultimately we were aware we were asking people to wear something in their nose,” Johnson says.

“It was going to be different and require a fair degree of socialisation.”

The stents could be sold over the counter immediately so for Rhinomed scaling up meant going straight to the consumer in a small market, in order to mitigate the risk of people not accepting it after costly clinical trials.

They got the initial ‘Turbine’ stent into Australian pharmacies and watched how people used it. That informed some design changes and formed the information deck for a pitch to the Walgreens-Boots global pharmacy chain.

Now the products are sold in about 15,000 Walgreens pharmacies, mostly in the US.

“Nobody ever buys a product because of its intellectual property position or because it has a magic ingredient. More than often it’s the brand and the way products are presented,” Johnson says.