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The Business of Hydrophilic Coatings (for Engineers)

First of all, I want to wish everyone well after this US Thanksgiving weekend. Now off to business!

When I was in college, there were two kinds of science and math courses. There was science and math "For scientists", and there was science and math "For Engineers". Generally, the "For Engineers" suffix meant the course was more Calculus-based, which everyone took to mean "harder". However, when it comes to business, as an engineer myself (who also happens to have an MBA), I like to make things easier for engineers who are usually the first people to call me up. So here is how the hydrophilic coatings business works.

In most businesses, when you want to buy something, you call them up and ask for a price. Then you make some decision to buy or not. If you decide to buy, you hand them your money and they ship you the product. Done.

The first mistake most people who call me make is thinking that getting a hydrophilic coating is exactly like that. It's not. It's nothing like that for most vendors.

Biocoat Top Coats - Hydrophilic coatingsSince (as I have said probably a million times before on this blog) hydrophilic coatings are non-trivial components that require a lot of fine tuning and process work, they cannot be sold in this fashion. If you were to call me up and ask for some coating solution and I were to take your money and send you a bottle of it, you would have no idea what to do with it. You might think you do, and you might try to do something, and you might even get a decent coating on a lab-bench scale, but even if you got that far, you would run into some significant delays when you tried to develop and validate a process you have no idea about. Eventually, you MIGHT get a process you can use, but without any help from one of us, you would be re-inventing the wheel and it might take you a couple of years or more. There are so many idiosyncracies with each hydrophilic coating out there, that it will take you a while to figure it out, even if you are already a coatings expert. Then, on top of all that, the hydrophilic coatings company would not make any money at all and would go out of business, and you would be left with nothing. (Selling bottles of coating solution at near cost is a bit of a dud as far as business models go.)

So, this is why we do not do it that way. There is a body of know-how surrounding hydrophilic coatings that you, as the client, will require to get up and running, and only a few companies are willing to share that know-how, for a price. Enter the "License Fee" and the "Royalty".

Some hydrophilic coatings are patented and some have had their patents run out a long time ago. Either way, what you will often be asked to do is pay a license fee for using a hydrophilic coating. The license fee will cover the patented material and/or the know-how. For this license fee, you should get a lot of tech support, technology transfer, and a can-do customer service attitude. If you do not, then you might have picked the wrong hydrophilic coatings vendor.

However, even before the license fee is paid, you will need to do some development. Each device is unique and requires its own tweaks when coating it. To do this, you will need to work with the hydrophilic coatings company before you license. That means, you will need to send them samples of your device and have them coated by the vendor as a test. When you get the devices back, you can see if the coating is appropriate, and it may take several rounds of testing back and forth to see if you can make the coating work. Not everything works on the first try.

Some differences between vendors occur at this point. Some vendors will charge you an arm and a leg for "Development". They will make you sign a big contract, and they will make you pay a lot of money for it. Other vendors won't, unless your project is so far out that it will require significant time and resources from the coatings vendor to figure out how to coat your product. If all you have is a simple catheter, and a coatings vendor wants to charge you major dollars to sign a development agreement, go somewhere else. You should be able to get the first few samples coated for free, and then after that each sample for a nominal fee.

Another difference will occur at the royalty end. The actual royalty rate that each company charges is secret, but we all know approximately what our competitors charge. The big difference here is whether the coatings vendor charges minimum royalties or not. If the coating vendor charges you $100,000 minimum royalties per quarter just to maintain your license agreement, steer clear. The point of a minimum royalty is to make you worthwhile to the coatings company. If you are a small operation, it is not lucrative for us to coat for you. The way some coatings companies get around that is by charging you a minimum royalty to make sure you are serious and to make you worthwhile for them business-wise. However, if you are coating anything upwards of 10,000 items per year, there are plenty of hydrophilic coating companies that will take you without a minimum royalty. If you are coating only 500 units per year that sell for $50 each, then not so much. Again, this is a business, and we cannot coat things that do not make us profit, else we will no longer be in business and everyone will suffer.

So, to sum up, this is not a normal buying cycle. The steps for buying a hydrophilic coating break down thusly:

1) Call up vendor and ask for basic coating properties

2) Send sample of your device for vendor to coat

3) Receive your coated sample and test it.

4) Repeat Steps 2 and 3 as often as needed until you are satisfied with the coating on your product

5) Sign a license agreement with the hydrophilic coating company

6) Begin transfering the coating process to your facility or a designated third party's facility

7) Start bringing up the process and testing its parameters, i.e. limit testing, etc.

8) In parallel, start coating your own samples for Design Verification and Design Validation of the device

9) Nail down the manufacturing process and Validate it

10) Start producing your coated devices.

11) Profit!

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