Life science investors are familiar with the arduous path new drugs take to market. But what about medical devices? As 2016 proved, these therapeutic products can be equally hazardous to patient health—and that’s something the FDA takes seriously. Indeed, effective regulation of medical devices is a hot topic at the moment, with various agencies attempting to streamline the process.
But what does that process look like each step of the way? For example, do you know what it means when your shareholder letter says a 510(k) was filed?
Don’t worry, this isn’t a test. It’s not easy to understand the intricacies of the FDA’s approval process—and that’s why we’re offering a closer look.
Below, we examine how the FDA classifies, regulates and approves medical devices. This process determines how everything from pacemakers to dental floss gets on American shelves. It’s critical to understand this system, since sending a product to market is key for company profits … and therefore your returns.
Classifying medical devices
The FDA divides medical devices into three categories, based on their perceived potential to do harm.
Class I medical devices are designated low risk. These are things that don’t seem all that dangerous—think dental floss or band-aids.
As such, they are subject to the least restrictive regulatory controls. Most, for example, do not require a Premarket Notification 510(k)—that is, the manufacturers do not need to prove that their device is “substantially equivalent” to one already on the market.
Class II medical devices, by contrast, usually do require a Premarket Notification 510(k). That’s because they’re potentially more harmful than Class I products. This division includes things like condoms or contact lens solution.
Then there are Class III devices, or those products deemed the highest risk. Generally speaking, you need a whole lot more than a 510(k) to get these to market.
Replacement heart valves, denture adhesives, aspirators: these products, and others like them, all require Premarket Approval—that is, a more comprehensive and thorough review of the device.
The 510(k) process
In filing a Premarket Notification 510(k), manufacturers have to prove that their product is as safe and effective as a ‘predicate’—that is, a similar device that’s already been commercialized.
The predicate and its substantially equivalent product must have the same intended use. If the latter uses different technology, additional information needs to be submitted, showing that no safety concerns appear with the new device.
According to the FDA’s website, it takes approximately 90 days to determine substantial equivalency. Only then can a company bring its product to market. Still, three months isn’t long to wait—especially when compared to the drug approval process!
Recall that only lower risk products can be approved in this manner. Even so, the 510(k) process is how most medical devices get to market.
But if a company wants to bring something brand spanking new to consumers, they’re looking at a lengthier approval process.
Class III medical devices, as well as those not found to be substantially equivalent in the 510(k) process, must receive a Premarket Approval. In this instance, companies need to submit clinical data for the FDA to evaluate—and of course, it takes time to first acquire those findings!
In order to collect clinical data, companies need to submit still another application to the FDA. An Investigational Device Exemption allows medical device manufacturers to use their product candidates in clinical trials.
Once the studies have been completed and the Premarket Approval application filed, the review process takes a minimum of 180 days. The decision is then posted publicly on the FDA’s website and anyone can petition the agency to ask them to reconsider their approval or rejection. This public review window lasts 30 days.
Clearly, this is a lengthier timeline. But as we all know, innovation doesn’t appear overnight!
Meghan Alonso, CEO of Imua Services, a resource center for medical device companies looking to grow in the market, explained how more often than not innovation in the sector comes from the smallest companies: entrepreneurships.
Many of these companies want to be acquired by larger players like Johnson & Johnson (NYSE:JNJ), the larger companies are actively looking to expand their product and technology, but can’t spend a lot of money or time for innovation. Instead, the smaller companies with interesting tech pop up and seek to make a splash that will get them an offer.
“What [Johnson & Johnson have] done to feed this system of innovation and make it easy at to grab anything that they want to – they’ve built infrastructure [in several cities in the US] where they have an incubator, and they have space available for these small start-up companies to have their office, and they share lab space,” Alonso said.
As mentioned, the FDA is looking at how it might streamline this process. And while the overall shape of the review may not change greatly, the data that goes into making the final decision could soon look a lot different. The FDA has called for a wider data set to be used in decision-making, including things like electronic health records and peer-reviewed publications. Expect to hear more about this issue in the months ahead!
This is an updated version of an article first published on Biotech Investing News on February 2, 2017.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.