Things every Medical Device Startup needs to know

atdc-theclubhouseMy visit to TheClubhou.se (more on the space soon) coincided with an ATDC talk on how to get a medical devices startup going. There’s an ongoing gold rush in the industry that has been tempered by harsh realities, and the overall effect of the Affordable Care Act, if anything, is a rush toward cheaper, then better.

It’s not easy for startups these days. The FDA, which used to look over clinical data and rubberstamp new devices for free, now has hefty filing fees – a new device from a major company pays over a quarter-million dollars just for initial approval, a process that takes up to three years. The small business “discount” lowers this to $65k.

Good luck raising money for a new idea. Probably the best way is with economic development or research grants, which are available from the public and private sector if you can keep your ear to the ground. If you can’t get a grant, try selling the concept directly to doctors, who will provide a ready market for your device. VCs and Angel Investors will take a cut of the company, without giving much in return. Loans are worse, if you feel bad about going bankrupt (which you will, because faceless banks aren’t going to make a startup loan).

Of course, there’s the nothing-new option: If you can make a convincing case that what you make is just a modern version of something that was in the market in 1976, of all years, then your product can receive an approval at the lightning speed of 6 months from now! Just pay $1600 a year for your federal registration.

Generally, to get FDA approval, you need clinical data. But to get clinical data, your device needs to see broad enough use somewhere. If you have something brand new, you aren’t going to be able to afford a private research study for your device in a broad context. So where are device manufacturers getting their launch data from? Europe, of all places. CE Rating is an easier, faster process, and Europe has a well-developed distribution network for medical devices. After a few years of sales abroad, you’ll get the track record you need to press forward in the States.

And then you’re really on your own! Once you’ve got your Rolodex out and accepted the fact that you’re a glorified telemarker now, you’ve got to convince hospitals and private practices to buy your device. And here, you’ve got three or four separate battles. Are insurers going to pay for your treatment? If you can convince them to file it under an existing treatment code, rather than make a new one, you’ll be fine.

There’s the issue of having separate markets in each state, often with unique licence requirements, and differing accounting standards. Among the worst for sales? New York and New Jersey, whose hospitals notoriously pay bills 6 months after the fact, when they actually pay them. Better states: Michigan, Florida, California. The device market tracks heavily with the number of older people in a state, go figure.

Can you get your thingamabob into a standard kit for the treatment you’re enhancing? This is where you really start thinking about selling out – every needle and scalpel in those things might very well be from a vertically integrated conglomerate.

Say you’re a tech entrepreneur aiming to make a million dollars. The exact words the lecturer used was “plan your exit” – the idea that, as soon as someone else has a major equity interest in your company, you basically aren’t going to run it forever anyway, so you may as well sell out, move on to the next idea. How to get there? Well, pharmaceutical patents are a headline item, those are still worth something. A device patent? Big companies have been known to buy others just for patents, kind of an external R&D thing, but they’re way more likely to buy out one with a working business model.

As someone who has mainly viewed the device industry as an endless march of ever-pricier doodads threatening to crush the national budget with nonogenarian cyborgs, it’s heartening to hear that the Affordable Care Act is finally getting more patients to feel the sticker shock. Instead of just going for “the best,” as doctors always recommended when money was no object – people are starting to settle for “good enough.” The real growth in the industry might just be finding ways to perform the same old treatments for less. It’s not the glitzy cutting edge engineers often want to live on, but inventing a cheaper wheel is not all dull retread work, either.

Leave a Reply

Your email address will not be published. Required fields are marked *