Those readers that are familiar with this blog know we often look back in order to discern where we’re going in the future. As we emerge from two years of global upheaval, a disruption that touched our industry like no other shock or event has over the course of our lifetimes, can we anticipate a return to normal?
While our industry was convulsing in various degrees, depending on each company’s exposure to “elective procedures”; technology, and the complexity of interactive platforms, continued to advance.
Before we attempt to divine the future, let’s look back into the past. How did we get to where we are today?
The Medical Device Amendment of 1976
This amendment to the Food, Drug and Cosmetic Act, laid the foundation for the regulatory, and business landscape we are familiar with today. The key provisions that changed the trajectory of medical device development were:
The Act created a three-class, risk-based classification system for all medical devices.
The Act established the regulatory pathways for new medical devices (devices that were not on the market prior to May 28, 1976, or had been significantly modified) to get to market: Premarket Approval (PMA) and premarket notification (510(k)).
The introduction of this new 510(k) pathway, one that leverages predicate, substantially equivalent devices in order to bypass (in most instances) the need for costly, time consuming clinical studies (or at the very least, significantly curtailed the scope of the studies), was a game changer. This critical change to the regulatory landscape unleashed more than forty years of private equity-driven development in medical device. With the new regs, it was now cheaper, faster and somewhat less risky to bring certain medical technologies to market. That, combined with the historical margins in our industry, attracted a lot of cash.
Inputs and Inefficiencies
The startup model that emerged in the 1970s hasn’t changed all that much. Startups are still a continuous wellspring of innovation, however, their cost of capital is obscene and what determines their success or failure isn’t usually the clinic. The shepherding of innovation to the marketplace, by way of investor-driven startups, is woefully inefficient, fails to properly serve patients, payers and clinicians, and screams out for innovation itself.
Historically, only around one out of ten startups is a home run. Another two may find their way to a limited exit (breakeven?), a couple may even survive as zombie companies (the walking dead, simply limping along with no exit in sight) and the remaining five will be outright failures.
The successful commercialization of a medical device requires four elements: Innovation, Capital, Market Insight, and Market Access. Let’s walk through the list. Startups are innovative, much more so then corporations, which is why multinationals shop for innovation by acquiring startups (the one out of ten that truly “make it”). Startups have a very high cost of capital, whereas corporations have very reasonable costs of capital. Startups may, or may not, have keen market insights…a multinational should. Lastly, startups stretch for market access while corporations have fully developed, highly efficient, global distribution networks.
So, can we create an efficient, innovation & development model that draws from the best of both worlds? While ensuring effective, clinically significant technologies efficiently find their way to the marketplace?
It’s already happening! We’ll fully explore this model over a series of blogs, over the coming weeks.
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