Identifying areas of greatest weakness is an important sanity check that will pay off while raising funds, clearing regulatory approval, and accessing the market for a new medical device. The eight areas described below can make or break your medical device success.
Intellectual Property (IP)
When attempting to raise equity funding, unique IP is essential. It prevents competitors from copying what you seek to do with your medical device.
While seeking funding, make sure a Confidentiality agreement is in place. Even then, only disclose details of your invention after the patent application has been filed with the relevant patent authorities.
Review the available materials – Google Patents, US patent office and Espacenet are your main patent search databases. Try all keyword variations of your invention, and you will gradually build and understand the patent landscape for your invention.
Whatever the stage, a professional opinion on patentability (which is whether the idea or invention is novel, has industrial applicability and contains a non-obvious inventive step) is wise and often necessary before funds can be raised. Sometimes a fully drafted patent needs a second opinion, sometimes an invention description needs modification to become an effective patent i.e. one that ‘blocks’ others, and sometimes only an ‘idea’ exists.
Most investors require recurring revenue through consumables or disposables. This is known as the razor blade model or the print cartridge model. The main ‘device’ is sold for a low, zero or even negative profit. In order to use the device, consumables are required. This model benefits healthcare facilities as they do not need invest large amounts on upfront capital costs, and can spend on a ‘per use’ model.
It is important to understand all aspects of the proposal:
- Review the consumable for workarounds and decide what level you may wish to allow. Some hospitals reprocess single use disposables such as catheters and there are well-known medical device businesses which reprocess and resell used disposables as a separate product line.
- Obtain end user feedback – If a user perceives a consumable as overly expensive or purely a reason to claw extra revenue, this may be counted as a negative against your device. Striking the right balance of functionality, design and technology for the task at hand is the key to user acceptance.
- Consumables tend to be heavily protected – make sure you have freedom to operate and your consumable is patented if possible.
Value Chain and Margin
The costs of IP maintenance, product realization, transfer to manufacture and actual manufacturing, and operations like quality systems, seriously erode profitability.
For example, it is unrealistic to expect that an entrepreneur, as inventor and designer, will visit hospitals and Doctor’s Offices to sell the finished device. Unfortunately, most large medical device distributors require 50% (or more) of any margin, as they must support their various local sales offices.
A useful article by Scott Phillips explains this in more detail; essentially you should perform a sanity check to ensure the business plan is viable and that the right amount of funds are being raised, with the right commercialization pathway.
Like regulatory compliance, reimbursement can be impervious for those without direct experience. Fortunately, management consultants can help. To secure investment in your device, it is not usually enough to show you can distribute your device and make a profit – you must also demonstrate that people will be able to pay for your device.
Procedures are reimbursed, not devices. Review the Medicare and Medicaid databases to determine which Healthcare Common Procedure Coding systems could apply to your device.
Warning: just because a code is applicable, it does not mean it is covered under insurance schemes. Some procedures are considered experimental. Even if it is covered, the guidance for the deployment of a procedure can be restrictive, and many claims are denied each year for correctly performed procedures deemed unnecessary; a common denial being the procedure is considered part of the general inpatient or doctor’s office health check. Have an expert review the Medicare data and provide supporting materials to your business plan.
Like reimbursement, Regulatory can be daunting to those new to medical devices. Useful Regulatory checklists are available which touch on the main considerations.
Of critical importance are the Intended Use, which is a key statement that describes to a regulatory body what the device does, and the Indications for Use, which describes under what conditions the device would be used; both are vitally important in defining a product’s regulatory pathway.
For example, under Health Canada guidance, an Oximeter intended for spot checking home use is Class II, but if it is intended for continuous monitoring in a recovery room it is Class III. An intra-cardiac Oximeter is Class IV. Three Oximeters, yet each has a different classification based on indications for use.
Human Factors and Workflow
The FDA and CE marking require human factors to be considered as part of the design process. Entrepreneurs from a focused engineering or scientific background sometimes underestimate the value of Human Factor Engineering and Industrial Design.
Developing use-cases and evaluating possible solutions with clinician focus groups (the people who would actually use the device) will provide human factors input. For example, Frequently Used functions should be identified in conjunction with a focus group, and prioritized to ensure they are easily accessible and well designed. Paper-based screen layouts can be evaluated as a low-cost, rapid way of confirming a user interface, before committing to detailed graphic design and software coding.
Entrepreneurs may have a medical device ‘Product Prototype’ which they want to start manufacturing. A Design History File (DHF) is required by the FDA. Often the entrepreneur only has a circuit diagram and poorly commented software source code. This is insufficient rigor for a medical device, and will not receive regulatory clearance.
Following a Design Control process that complies with the FDA and ISO requirements is not trivial, but a Technology Assessment allows you to highlight the gaps. It is often useful to have experts review, characterize and develop an improved proof-of-concept prototype, following recognized medical device design processes:
The Product Specification should be agnostic to the technical solution, and usually contains the User-requirements. A formal Risk Analysis would drive detailed design, potentially creating specifications required to mitigate risk of harm to a patient or operator. Software modules or components critical for safety or performance would also be clearly identified.
Design for Manufacture
Most entrepreneurs will need a staged approach to manufacture – it is unlikely you will be selling 1 million products in your first year – a sigmoid is a much better sales approximation. Review the business plan and strategize the optimum manufacturing techniques for each phase of the product. Establish the break-even points for design optimization with a clear pathway for volume ramping and allocating cost optimization budgets.
For example, an initial handful of advanced prototypes may be required for clinical study. Then, a few hundred regulatory cleared products may be required for a careful product launch to friendly establishments. In these cases, going to mass manufacture subcontractors would be premature. Specialized low volume/pilot manufacturing facilities are more appropriate—especially if they have been involved in the design of the device. Transfer to manufacturing will be required to ensure specification of the final product are the same as the prototype.
Once the volumes hit the thousands, it may be more efficient to transition to larger, dedicated manufacturers. These may be in the US (thousands of units), Puerto Rico or Mexico (tens of thousands of units) or south-east Asia for hundreds of thousands to millions of units. At each transition, design optimizations can be made which overall parts and manufacturing costs as the design moves away from standard, off the shelf parts to custom parts with custom tooling.
Several of these 8 areas may conflict. The Design for Manufacture staged rollout example is in conflict to a mass product launch. F Scott Fitzgerald once said “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time”. By addressing these areas in the concept development phase, you will greatly increase clarity and success for your medical device.
Vincent Crabtree, PhD is a Regulatory Advisor & Project Manager at StarFish medical, and would be delighted to hear comments and anecdotes from your experiences and processes for Medical Device Success.