Guest Column | August 9, 2016

10 Med Device Regulatory & Commercialization Traps That Kill Valuation

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By Janet Vargo, YourEncore

One of the most exciting things I see happening today in the medical device industry is the strong startup scene. This is being fostered by a vibrant community of innovators finding novel ways to solve important health problems, as well as big, established med device companies looking for nimble partners or new products already partially de-risked by the inventors.

Historically, startups have never gone through the entire product development process. They’ve done the heavy lifting with innovation and engineering, but are at a loss when it comes to the intricacies of getting their “baby” through the obstacles of regulatory approval and figuring out how to successfully (and compliantly) commercialize it. The challenges are particularly difficult for novel products, where there is no trodden-down path with the regulatory authorities or for marketers.

This is where value can be lost. If a great idea can’t make it past FDA, lingers in the regulatory process because of costly mistakes, or has flaws in identifying and characterizing the potential market, value begins to erode, as do hopes of being acquired.

In my years of evaluating innovative medical device products — from small medtech companies through Johnson & Johnson — I have identified 10 mistakes startups frequently make. Avoiding these regulatory and commercialization traps will improve your speed to market, valuation, and interest from large medical device companies.

1. Poor or non-existent documentation and record-keeping — Proper documentation of product development processes and results is mandatory. Remember, if it isn’t properly documented, it didn’t happen. The earlier a startup understands what needs to be documented and how to document it, the greater the chances are that its development efforts will pay off when it comes to finding partners and overcoming regulatory obstacles. Thorough documentation procedures also will add discipline to development efforts and planning, which typically makes the startup more efficient. In addition, sometimes the startup has conducted testing on its product but does not realize the value of those test results. If it’s all documented, though, and questions come from potential partners that can easily be answered with prior testing records, it’s a win-win and your value just went up.

2. Design changes during development — If you substantially change a med device after data have been generated to verify and validate the product’s performance and critical characteristics, you likely will be required to regenerate most or all of those data on the newest version of the product. Not only will FDA demand it, potential partners will be wary that data generated on an older version of the product may not apply to a substantially changed, newer version. Data-generating “do-overs” are expensive and time-consuming, and they happen (to some extent) more than half of the time, in my experience. If you’re considering design changes, think through these changes early so you can avoid them once you are past the research stage and into development.  It may be better to focus on speed to market with your first generation while holding some improvements for generation 2. 

3. Poorly defined intended use or target patient population — It’s a good idea to have a medical doctor involved in defining the device’s intended use and the patient population likely to benefit from the device. Correctly defining the population and intended use will help you better understand the full commercial potential for the device, enabling you to realize full value, and making FDA approval easier. Conversely, lacking thorough, accurate medical input could lead to credibility issues with potential investors if you make bad assumptions on your product’s intended uses and intent-to-treat patient populations.  Proper due diligence on these aspects will help you realize your product’s full potential and build trust with potential investors. You need to show you are experts in your product’s medical space.  

4. Misjudging the population opportunity — Despite commercial teams having the best of plans, sometimes FDA has different ideas. For example, after a device developer identifies a target population, FDA may require that targeted patients first exhaust other care options, significantly narrowing the true population. Having the right expertise to carefully lay out the risk/benefit scenario for each possible patient population can avoid this misstep.

5. Inaccurate assumptions on regulatory path and timing — Development and commercial teams often are confused about the premarket submission process, with its various paths to FDA clearance or approval. Should the path be a PMA, a BLA, or a 510(k)? If you choose the 510(k) route, will you need clinical trials? Is the predicate appropriate? Will de novo be required? If reading this is making your head spin, secure expert help early to lay out realistic development paths, costs, and timelines. If you demonstrate to a potential buyer that you’ve underestimated what it takes to get to market, you’ll lose credibility in other areas, as well.

6. Underestimating clinical study timing and costs — Often, startups think they have value in an ongoing or a completed clinical study, only to discover they don’t. Many factors determine whether the study will be accepted by FDA: Is the patient population correct? Was the study done using good clinical practices (GCP)? Does the study adequately demonstrate safety and effectiveness of the device? Was the study done by someone other than an inventor clinician? Again, it’s important to get clinical advice early to get the most value out of expensive clinical studies.

7. Failure to recognize entrenched counterforces — Novel devices, by their nature, change the status quo. But, some companies fail to recognize that many stakeholders aren’t ready for change. Payers (insurers) may not have approved reimbursement codes available (which can take up to two years). Providers (physicians, hospitals, labs) may have business models dependent upon patients using existing products and methods. Companies need to do a thorough stakeholder analysis to anticipate these roadblocks and ensure key commercial assumptions are accurate.

8. Incomplete understanding of the near-future standard of care — Developing a novel med device is great, but if the standard of care changes, the device could be obsolete before it ever hits the market. It’s important to fully understand your product versus other care choices (including those in development), with at least some benefit/cost analysis for each, and to look at your device from the customer/provider’s current and future perspective.

9. Commercializing too broadly — When commercializing new devices, companies often see potential across all channels — from hospital to home care — and assume a multi-channel launch in their commercial and financial plans. What companies sometimes fail to recognize is the organization (and cost) needed to sell into every channel, each of which has its own needs, challenges, and risk profile. It’s best to map out your channels, identify the early adopters and the potential sales volume per channel, and then cross-reference them against your internal sales capability or those of potential buyers.

10. Off-label use — Device manufacturers who know that a product is likely to be used by physicians for a patient subpopulation or intended use that is not supported by the company’s expected labeling will need to plan up-front for these uses. FDA will assess the likely uses of the new product, and the Agency can demand data for different uses or subpopulations if they feel the product is likely to be used off-label. Depending upon the circumstances, FDA could delay any approval until those data are provided and reviewed, adding costs and time to development. If the expected market size includes off-label use, it’s likely overestimated, since the company can’t market for off-label use.

The success of even great novel medical devices can be derailed by many things. The goal is to control what you can during development to maximize your chances for success, increase your product’s value, and most importantly, increase the chances that your idea gets to market to improve patients’ lives.

About The Author

Janet M. Vargo, Ph.D., is a strategic advisor in the Medical Devices & Diagnostics Practice at YourEncore. She is the former board member and head of Clinical and Regulatory Affairs for Mentor, LLC, a J&J Company.