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The Complex Ecosystem of a Medical Device Startup

Written by Mark Carol, MD
Published:

This is the first in a series of blogs addressing the processes, trials, and tribulations involved in bringing a new medical technology to market. 

Introduction: The Complex Ecosystem of a Medical Device Startup
Intensity modulated radiation therapy (IMRT) technology was pioneered in the early 1990s by a small startup, NOMOS, founded by a neurosurgeon and staffed by engineers with no background in the field of radiation oncology. The regulatory application process for the NOMOS Peacock product began a short three years after initial testing of the system. This was possible in part because IMRT was built on a stable, already authorized radiation therapy platform with easily identifiable predicate devices.

The first documented use of a robot-assisted surgical procedure occurred in 1985, when the PUMA 560 robotic surgical arm was used for a neurosurgical biopsy. This surgery led to the first robotic laparoscopic procedure, a cholecystectomy, in 1987. The following year, the same PUMA system was used to perform a robotic surgery transurethral resection. In 1992, several US governmental organizations helped fund the development of Computer Motion’s Automated Endoscopic System for Optimal Positioning (AESOP) system, which was cleared by the US Food and Drug Administration (FDA) in 1994. Computer Motion and a second company, Intuitive Surgical, proceeded to develop articulating, seven-degree-of-freedom technology that mimicked the movement of the human wrist, with regulatory approval for their respective technologies being sought in the late 1990s.

Manufacturers began developing high-intensity focused ultrasound technology (HIFU) for the transrectal ablation of prostate tissue in the late 1980s. Initially used to treat benign prostatic hypertrophy (BPH) in the 1990s, HIFU was first used to treat prostate cancer patients in 1994 in Vienna. It was used for years under regulatory authorization in Europe and Japan for cancer and BPH respectively, as well as in concierge medicine programs operating in offshore locations that provided HIFU ablation treatments for US patients. Seventeen years after development had started, two companies applied separately in the late 2000s for FDA multicenter IDEs for the treatment of prostate cancer as the first step toward product commercialization in the US.

The Myriad Challenges of a Startup
Taking a new medical startup from conception to commercialization is a long and arduous process that involves many steps, corporate functions, and people. When starting a new company, many entrepreneurs fail to appreciate the complexity of the processes that will be faced along the way and fail to realize the interconnections that exist between those steps and the people involved in them. They may lack an understanding of how decisions made early in the process may drastically alter the achieved end and may, in fact, be the difference between commercial success or failure. 

Any new technology faces essentially the same set of required steps, hurdles, obstacles, and political issues along its path to becoming a standard of care. An idea leads to a device that must be developed to the point where it can be tested, safety determined, and efficacy ascertained. Revisions are made based on market feedback and growth of competing technologies occurring during the time it takes to develop the technology. Regulatory approval and insurance coverage must be achieved before widespread adoption of the technology can occur. Physicians need to want to use it, hospitals need to be able to make an economic case for its purchase, and patients need to find something that is better about it than the existing state-of-the-art alternatives that have lengthy track records of success. All of this takes money and time, buy-in from many third parties, and, frankly, a lot of good fortune and fortuitous timing.

Figure 1: The complete integrated pathway and timeline for a new medical device, from conception through to commercial rollout, including relative level of financing required.

Startling Statistics: Cost, Failure Rates, and Time
Given the complexity of the process involved in bringing a new device to market, it is no surprise that doing so is expensive. The average cost to bring a 510(k) product from concept to market is in excess of $31 million, with greater than 77 percent of the cost – approximately $24 million— spent on regulatory and FDA-related activities. The cost of an FDA premarket approval (PMA) averages $94 million, with $75 million spent on FDA-linked stages—nearly 80 percent of the total amount. (https://www.massdevice.com/exploring-fda-approval-pathways-for-medical-devices/).

The failure rate for medical startups should not come as a surprise either. As of 2019, startup failure rates were around 90%; 21.5% of startups fail in the first year, 30% in the second year, 50% in the fifth year, and 70% by Year 10. One article states that 75% of US-based medical device start-ups fail, and 98% of digital health startups fail. Seventy-five percent of venture-backed companies never return cash to their investors, and in 30% to 40% of cases, investors lose their entire initial investment (https://www.embroker.com/blog/startup-statistics/).

The time it takes to bring a new medical device to market averages three to seven years or more. This does not include the time required to realize insurance coverage, which can double the timeline. Drug approval can take even longer, averaging 12 years.

Figure 2: Relative Timeline to Payment for Various Device and Drug Scenarios

Charting New Paths Takes Time
On the low side of this estimate sit medical devices that represent successive iterations of previous devices. As such, these device companies can secure 510(k) regulatory authorization and co-opt existing CPT codes and payment schedules.

Development of an entirely new device takes much longer with many more interim steps. Receiving a patent takes on average two years, according to the United States Patent and Trademark Office (USPTO), not including the time it takes to prepare the application. Developing a prototype, then proceeding through bench testing, animal testing, and perhaps early preclinical/nonanimal evaluation can take two to three years. Regulatory authorization typically follows, requiring a couple of years to a decade or more to achieve depending on the path chosen. Depending on the path chosen, it is expensive. While 510(k) application fees are reasonable, in the sub-$10,000 range, PMA fees themselves exceed two hundred thousand dollars.

Once approved, technology introduction into the community, through device sales and clinical education and investigations, takes place by certain individuals within the company while others are manufacturing the technology for placement and still others are addressing reimbursement-related issues. These activities collectively lead ideally to coverage from insurance payors for a technology that doctors desire, hospitals will purchase, and patients will select for their treatment, all paid for through public and commercial insurance payors, thereby ensuring financial viability of the company. Depending on the status and type of clinical data that exist and support the use of the technology, achieving these all-important favorable coverage decisions, required for commercial success, can take as little as months or as long as a decade. It is this step, perhaps above all others, that determines the level of success and longevity of a new technology, has the greatest number of unknowns, and is the most convoluted.

A Web of Stakeholders
As is most likely apparent, there are a large number of stakeholders involved, each with a different agenda and goal. Inventors, founders, and early investors are personally invested in seeing the technology make it to market and impact the lives of patients. Late-stage investors may merely be looking for return on investment with little (if any) emotional attachment to the technology. Early physician and hospital adopters of the technology become engaged because they either believe in the inherent merits of the technology or believe they can get a leg up on the competition by being the first in the local market. Late-stage adopters may be scrambling to protect a dwindling market share.

Patients want the latest and greatest treatment available, but only if it is as safe as or safer than existing alternatives and if their out-of-pocket expenses are less. Advocacy groups and medical advisory boards want to see the technology used as soon as possible but have a charter to remain as impartial as possible in making their decisions regarding clinical appropriateness. Investigational review boards, and to a large degree the FDA, being all about patient safety, may cause timelines to extend beyond those expected by the founders and funded by investors. The Centers for Medicare and Medicaid Services (CMS) want to meet the needs of their covered lives, but CMS is often hamstrung by regulations from achieving their goal. Commercial insurance payors often are more about maintaining the status quo than offering the latest and greatest to their covered lives, while professional societies and technology assessment organizations have a responsibility to be impartial, a duty that sometimes is difficult to realize given the potential market and career disruptions a new technology can engender.

Future Discussion
Each of the blogs in this series will explore the steps, functions, and people that, when combined, should begin to bring clarity as to why it takes so long and costs so much to bring a new medical device to market, and how to do so in the most cost and time efficient manner possible. While not comprehensive, it highlights many of the more common issues faced during this arduous journey, some of the interconnectedness that may exist between these issues, highlights ways to avoid or minimize the impact of these issues and identifies potential obstacles that may be encountered and how to avoid them. Some of the sections are introduced by a case example drawn from the authors own experience, as is the case with this first blog.

Depending on where a company is in its development, some topics may be relevant. That said, it may be prudent to read each post in order and in its entirety, as one of the take home messages of this blog is that knowing what you do not know early rather than late, as well as considering the implications of all facets of the process together from the start, are of utmost importance when trying to minimize the time and cost to market for a new venture.

Mark Carol, MD, is a senior consultant at the Focused Ultrasound Foundation.