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Comparing Apples to Apples – Identification of Strategic Development Dollars

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At Rev.1 Engineering, we specialize in the design and commercial development of complex, minimally invasive, medical devices. Very often, these are First of Kind technologies, requiring as much invention as development. The road to market requires ample capitalization, at the right time and in the right sequence, and is fraught with risk. While you may not be able to trim the capital requirements all that much, you can manage your risk.

Outsourced development is a competitive arena. Honest competition helps keep development costs within reach. Unfortunately, the sophistication and capabilities of engineering firms can vary widely. The fact of the matter is, attempting to compare competing quotations, apples to apples, can be challenging. Yet, a keen eye can identify potential shortcomings well before dollars are expended.

In the back and forth that arises during the quotation process, I became curious as to how much of the total cost of development (with the endpoint being the achievement of 510(k) was fixed and how much was variable. Fixed costs are those activities prescribed by FDA or notifying bodies that are required in order to cross the finish line.

In reviewing our historical, Class II development projects, we determined that approximately 75% of the overall design and development budget was consumed by V&V. In other words, only a quarter of your expenditures with Rev.1 are expended in the service of creating valuable, patentable Intellectual Property and a robust device properly positioned to efficiently move through its regulatory gates and quickly gain market traction upon launch.

Not surprisingly, this is an industry-wide phenomenon. Data issued in 2017 by Brad J. Martinsen, Ph.D., for the Medical Device Epidemiology Network, identified the average cost to bring a low-to-moderate complexity, Class II device to market at $31 million. Of that, more than 77%, or $24 million, is spent on FDA-dependent activities. He further breaks down the cost of Concept Development and Proof of Concept at just under $4 million and the cost for Clinical Unit Development at ≈ $3 million. A mere 13% of the total development cost is consumed by the initial design & development phase. While proportionately minor in terms of overall expenditures, the quality of this phase will have a disproportionate impact on the success or failure of your device. These are truly strategic dollars.

Understanding these relatively standard cost allocations can help in the evaluation of competing quotations, revealing how and where your strategic dollars will be expended. Asking a couple of simple questions can unveil risk factors that may not be evident on the surface:

Is the quotation for V&V activities within industry standards? If not, why?

Does the allocation of expenditures short the initial design & development phase? Does the quote allow for adequate iterations to refine the device? At what point does Design Freeze initiate?

The fact of the matter is, most quotes from experienced engineering firms for a project will follow these allocations and likely be fairly similar in costs. If they’re not, you may want to ask, are they skimping on my development or are they cutting corners with my regulatory requirements? If so, you’re likely going to incur unnecessary risk.