Crowdfunding has without a doubt been a positive disruptor across a wide array of industries: from entertainment and retail, to technology, to non-profits. It is a funding model that allows anyone to share a business idea, in hopes of attracting enough investment via small contributions from a large pool of investors (i.e., the “crowd”) and bringing a vision to fruition.
Crowdfunding—much like a fairy godmother—provides people, who previously did not have the means necessary, with a way to share and support ideas across geographic and financial boundaries. Donation-based crowdfunding, in fact, now serves as a business model for startups, providing faster and alternative options to traditional financing methods.
Democratizing fundraising efforts for all, this cultural phenomenon has enabled some of the most innovative companies to bring revolutionary technologies, like the Oculus Rift virtualreality headset and the Pebble E-Paper Watch, one of the very first smartwatches ever created, to market.
Thus, it would make perfect sense that crowdfunding would be used to open new, unimaginable doors for healthcare and medical devices. What many investors don’t realize, however, is that they are donating money for and “purchasing” simply an idea or a concept, with the expectation that one day soon there will be a tangible product in their hands. It is essentially an interestfree IOU! But, the harsh reality is that the medical device landscape is one littered with products that failed to clear or stay compliant with the U.S. Food and Drug Administration (FDA) requirements. Any highly regulated industry makes a poor candidate for a “Hail Mary” pass-style investment, and none more so than medical devices. (See Figure 1)
Launching a medical device crowdfunding campaign before receiving clearance is a risky move in and of itself, as the FDA forbids marketing directly to consumers for unapproved medical products. The entrepreneurs using crowdfunding to kick off medical device start-ups, instead, are finding creative loopholes to stay within the law, carefully wording advertisements or labeling customers as “research subjects” in the fine print. Following the recent consumer technology trend, there is also temptation to mislabel the devices simply as “wearables,” but that provides little hope that they won’t be classified as medical devices and pulled into the FDA’s jurisdiction.
The biggest liability, though, falls on manufacturers themselves. Section 510(k) of the Federal Food, Drug, and Cosmetic Act requires device manufacturers to notify the FDA of their intent to market a product at least 90 days in advance. The FDA then determines, based on calculated risk level, whether or not the product is equivalent to a device already cleared into one of three classification categories, and is as safe and effective as a legally marketed device that is not subject to premarket approval (PMA). More specifically, medical device manufacturers are required to submit a premarket notification if they intend to introduce a device into commercial distribution for the first time.
The Medical Device Amendments of 1976 to the Federal Food, Drug, and Cosmetic Act established three regulatory classes (Class I, II, or III) for medical devices based on the degree of control necessary to assure that the various types of devices are safe and effective. Under Section 515 of the act, all devices placed into Class III—the most regulated and highest risk category—are subject to PMA requirements.
The complete process of device development and FDA approval can span anywhere from 4 to 10 years, costing upwards of $300 million depending on the complexity of the device in review, according to the medical consulting group Emergo. Additionally, a study conducted earlier this year by the group, which analyzed public data on medical devices cleared between January 1, 2010, and December 31, 2014, found that a company submitting a 510(k) in 2015 has a 22 percent chance of having FDA clearance within 3 months and a 61 percent chance within 6 months.
Long Road Ahead
Even if a device receives approval or clearance, medical manufacturers must remain consistently compliant with FDA regulations, and many products that initially pass pre-market approval are shut down after failing an FDA audit.
In the event of a product safety or functional failure or complaint, a Corrective and Preventive Action (CAPA) system can help medical device companies to identify trends and what has happened in the past, as well as determine a path of remediation. These systems can help manufacturers to be sure they do not repeat the same problems across multiple areas and transfer lessons learned between product families.
From an FDA perspective, it is mandatory that medical device manufacturers have a CAPA system in place, as per the Quality System Requirements. When conducting regular audits of medical device manufacturers, the FDA must be sure that companies have the right controls in place as part of their process. In such audits, the FDA will also want to be made aware of any events that have occurred within the past 12 months and see that the manufacturer can demonstrate both how its CAPA system works and how it is closed. (See Figure 2)
From a basic auditing standpoint, it’s crucial to find a manufacturer who can provide evidence that they have adhered to accepted procedures. Medical device manufacturers need to verify that all phases are covered under the system procurement prior to going live. The ideal scenario is, with a CAPA system in place, medical device companies can leverage it to help pass FDA audits by being able to readily answer hard questions. But, for entrepreneurs or start-ups on a shoestring budget, such a robust system is not feasible.
Root of the Problem
According to an FDA Enforcement statistics report, non-conforming materials account for 42 percent of all medical device recalls in the past five years. Much of this stems from external suppliers and/or partners in the supply chain. If the correct individuals are not trained to abide by these conformances, it can pose a problem to the entire process. However, determining the root cause can be more of an art than a science.
When dealing with external stakeholders, medical device manufacturers only have so much control over external practices. These outside stakeholders must become a part of the supplier verification and onboarding process in order to be sure that they are on the same page as far as expectations and accountability for the final product are concerned.
It’s not trivial to assume that external suppliers may be able to connect to a medical device manufacturer’s internal system. They may have different security permissions and firewalls within their own four walls that create a technological barrier. Assuming there are no technical hindrances, it is important that these manufacturers break down barriers and give all external stakeholders in the supply chain greater visibility into this system.
Discovering an internal problem and connecting it to an external cause may also be a part of the problem. To be sure the root cause is truly eliminated or targeted for remediation, it’s important to validate the information that’s been received and decide if it is acceptable and makes sense with regard to the problem at hand. For instance, if a manufacturer narrows the root cause to a cable on a portion of a medical device, they may decide to reinforce the connection or make the soldered connection stronger.
How often quality managers should communicate with suppliers varies depending upon the type of supplier. A commoditized material supplier does not require nearly as much communication as one that supplies a critical component to a medical device. A breakdown in communications can result in failure of a critical process, which, in turn, may mean failure for a business.
Putting together all these pieces of the puzzle is no easy feat for a well-established company, let alone a start-up with shoestring resources and zero revenues, which are already tied up in the early stages of product development. However, in order to succeed, it is of the utmost importance to adhere to strict protocols. Even a company like Apple took great pains in following through the FDA requirements to obtain classification as a medical device for its new product, Apple Watch, in hopes that in the future the new software can unleash health- and medical-related functions.
Having reliable quality processes, systems, and reporting infrastructures in place will facilitate effective and timely complaint management, especially as new legislation is created to better track and report adverse events. Effective August 14, 2015, manufacturers are required to electronically submit Medical Device Reporting (MDR) to the FDA.
Medical device manufacturers must record, track, and trend customer complaints according to the Quality System Regulation (QSR) defined in 21 CFR Part 820. In addition, FDA Part 803 regulations require firms that have received complaints of device malfunctions, serious injuries, or deaths associated with medical devices to notify the FDA of the incident. As a result, manufacturers must establish best-of-breed complaint handling systems that enable them to implement enterprise complaint management coupled with medical device complaint reporting processes.
Chaos Outweighs Innovation
Needless to say, when changes to FDA requirements occur at any point, there is an extreme level of complexity in ensuring every aspect of the manufacturing process is compliant. In a rapidly growing and highly competitive landscape, medical device manufacturers face countless industry challenges, including shorter product lifecycles, increased legal and regulatory scrutiny, and the need to manage strategic partnerships across the value chain.
Such strict regulatory reviews and evolving compliance requirements do not allow for the speed and agility that most crowdfunded projects needs to thrive—and only possibly for low-risk classified (Class I) items like wearables, or other health monitoring devices, as opposed to medical devices.
Ultimately, instead of disruptive innovation, crowdfunding medical devices is likely to prove a counterproductive shortcut that will leave enthusiastic but inexperienced investors sorely disappointed.
This article was written by Mohan Ponnudurai, Industry Solutions Director – Product Management, Sparta Systems, Inc., Hamilton, NJ. For more information, Click Here .