Medical-Device Investors Lukewarm On Initial FDA Changes

January 21, 2011 - VentureWire Lifescience

By Timothy Hay 1/21/2011 - San Francisco - Government

Top medical technology companies and industry associations are saying that a first round of changes made by the U.S. Food and Drug Administration to an approval process for many medical devices -- known as the 510(k) process -- is a great first step in reforming a system that many say is plagued with uncertainty and inefficiency.

But health-care investors -- who keep medical-device start-ups financially afloat during the FDA approval process -- are not ready to celebrate yet.

Several venture capitalists said the agency "punted" on the most pressing concerns about the 510(k) process, and that an FDA decision to grant the not-for-profit Institute of Medicine decision-making power for some issues will cut industry out of the loop.

"So far, the changes are benign," said Guy Nohra, managing director of life sciences firm Alta Partners. "I'm not going to start writing checks because of this." Responding to pressure from the medical industry, the FDA's Center for Devices and Radiological Health has pledged to streamline and clear up various uncertainties in its 510(k) process. The 510(k) process is considered a less rigorous path to regulatory approval than other avenues, as it concerns new devices that strongly resemble other devices that have already been deemed safe and are already on the market.

This week, Jeffrey Shuren, director of the FDA's CDRH office, said the agency had begun fixing problems, including publishing guidance on when device makers should produce clinical data, cultivating external experts to review new devices, establishing a public database of device information and other moves aimed at streamlining the process.

Medtronic Inc. and several industry groups praised the changes as a move toward more clarity and more transparency.

But venture investors were slightly less glowing. Important areas remain murky, several said.

"It's still hard to predict what the FDA will do," said Ryan Harris, a newly hired partner in Norwest Venture Partners' health-care team. "Companies are being surprised all the time, and having their timelines dragged out. It's hard to invest with surprises."

For VCs, time is money. With medical-device start-ups, the FDA approval process is extremely time-consuming. While a clinical trial costs about $2 million, supporting a young company for the year or so it takes to get through that trial can easily add up to $15 million, Harris said.

Among the main "surprises" that a device company might face is being told by the FDA that the technology needs human trials, when the company may have been told previously that these would not be necessary.

"We still need further definitions of which devices need human data," said Casper de Clercq, also of Norwest.

Investors are also calling for more information on how the FDA will decide whether or not a proposed device really is similar enough to an existing device to qualify for 510(k) -- another area that causes confusion and costly delays, the Norwest partners said.

Additionally, the agency needs to clear up its definitions of the intended use of a device versus the indicated use for a device, VCs said, as that distinction can also cause hurdles and delays.

FDA has been working closely with the Institute of Medicine on improving the 510(k) process, the FDA director said. The IOM is expected to release recommendations in June on the trouble spots that investors and other stakeholders have identified.

But some investors say the panel of IOM officials all come from academia, and that no industry professionals will be able to weigh in on the process.

Mark Wan of Three Arch Partners, another health-care investor, said industry should be brought closer into the discussion.

But Christine Stencel, an IOM spokeswoman, said the academics working on the issue have gotten extensive input from industry at a series of town-hall style meetings and in reports the IOM has commissioned. IOM committee members must be free from conflicts of interest, she said, explaining why most come from universities and research institutions.

While the FDA's move this week is generally seen as a positive step, VCs stressed that more needs to be done, and quickly, as uncertainties in the regulatory process have driven companies, venture funding and research to other countries.

"A lot of our colleagues are not investing, and a lot are looking overseas," said Harris of Norwest.