Here are 5 medtech industry trends you need to know
Thursday, December 20, 2018
Money is tight, the largest medical device companies are merging and it’s hard to see where regulation is going – medtech insiders have heard about such trends for years. But at a hot topics panel sponsored by law firm Greenberg Traurigat DeviceTalks West this month, it became increasingly clear that such developments are producing unexpected effects.
Here are five new medtech industry trends that are changing the game in the industry:
1. More reliance on grants amid tight funding for young companies
Eric Geismar of EPG Consulting has spent time working with the trade association SoCalBio to advise young medtech companies, including on how to pitch to investors. “My experience has been that money’s very tight and maybe getting tighter,” Geismar said.
When it comes to winning investments from large, legacy medical device companies, the accounting laws have changed so that the investing companies have to write up or down the value of their equity investments at the end of every year, according to Geismar. Medtech companies used to make investments in startups just to make contact with them and get on their boards. “Now it’s tougher for them, and they really want to see results before they’ll put significant money in – mostly human results. Animal results might not even be enough.”
There are also simply fewer medical device companies to go to for money because the industry is consolidating so much amid mega deals running into the hundreds of millions of dollars.
So where do medical device startups go to bridge the gap before a Series A round or a corporate investment? One answer has been grants, including from the highly competitive Small Business Innovation Research (SBIR) program run out of the U.S. Small Business Administration. “They actually look good because you have third-party review to take a look at your science. … That gives you a little more of the, ‘Wow, there must be something here,’” said Richard Yoon, senior director of intellectual property at Terumo’s MicroVention.
2. More incubation out of academia
Early financing through academic research grants is also becoming increasingly common, the DeviceTalks West panelists agreed. It comes with a hitch, too, because companies need ties to academia to gain access to the research grants.
“The best research happens at the universities,” Yoon said. “Unfortunately, the development is a little behind, but some of the great ideas start there.”
Interestingly enough, Yoon has noticed that universities are increasingly evaluating tenure-seeking professors on how much technology they are getting licensed.
Such deals can prove lucrative for professors as well, according to Roman Fayerberg, a Greenberg Traurig patent attorney. “In a lot of these colleges, the agreements that they have at the technology transfer office, they get a certain royalty from licensing deals,” Fayerberg said.
3. Trouble with valuation amid an uncertain regulatory environment
Meanwhile, regulatory uncertainty on both sides of the Atlantic Ocean is making valuation increasingly tough when it comes to medical device companies and their technologies.
Media reports including the International Consortium of Investigative Journalists’ “Implant Files” articles and the Netflix documentary “Bleeding Edge” have increased public scrutiny of FDA’s 510(k) clearance process. There’s now a push at FDA to move away from using predicate devices over 10 years old, as well as creating a new alternative 510(k) pathway based on objective safety and performance criteria.
“There’s certainly been a lot of criticism in media and elsewhere about whether or not the 510(k) process indeed is a safety review as we understand it to be or just a substantial equivalence stamp as some have been arguing, and what does that mean. It has impact on what I do, litigation, but it has even more of an impact in terms of what companies are doing and how easy or challenging it is to get that clearance through a process that will continue to change as FDA considers the proposals for evolution of the 510(k) pathway,” said Ginger Pigott, a litigation attorney at Greenberg Traurig.
In Europe, scrutiny of medical devices is also increasing as the new Medical Device Regulation (MDR) goes into effect. “Previously, US based medical device company could get an approval and start selling products in Europe much faster than in US, which provided additional funding, but it’s going to take longer to get to the market in Europe as well” Fayerberg said.
The situation means that the cost is going up for medical device companies to achieve regulatory approval or clearance for a product.
“The conundrum is that the [regulatory] path is getting harder, but companies want to see an approval before they invest,” Geismar said.
4. More cooperation between medtech and high-tech consumer companies
Cooperation between medical device companies and consumer technology companies is increasing as more products roll out to monitor people’s health and catch problems early, according to Geismar.
“You see Google and Apple working with a lot of device companies now in trying to enhance their own products as well as develop new ones for device companies,” Geismar said.
The partnerships with consumer electronic companies could have medical device companies marketing products not only to doctors and health providers but the general public as well.
5. Keeping up with a rapidly changing intellectual property landscape
The move toward more connected medical devices has a major effect on one of the most important considerations for a medical device company: intellectual property.
Traditional medical devices constitute patentable subject matter, Fayerberg said. Patent attorneys have been working to protect IP for products such as catheters and stents for a long time; the strategy is to find out what’s different in a crowded market.
The situation, however, is changing now that there are more supplemental technologies such as connected functions, software, augmented reality and artificial intelligence.
“Because you’re dealing with software, it raises different questions than just dealing with the device itself,” Fayerberg said.
Expect more guidance from the U.S. Patent and Trademark Office about what a medical device company is able to patent or not patent in terms of such supplemental technologies, according to Fayerberg. “It’s very important to have that strategy: How do you protect your core product, and how do you build a fence around it?”