Sean Fenske, Editor08.04.16
In the first discussion with Foliage’s CEO, Tim Bowe, the relationship between the OEM and the CMO was reviewed. I’ve joined up with Bowe once again, but this time, we’re taking a look at the FDA and it’s influence on the medical device manufacturing environment, as well as innovation in medtech and the sources for it. I also asked Bowe about the very public Theranos debacle and how that might impact investment in the medical device industry. Finally, Bowe shares his thoughts on cybersecurity, connectivity, and medical device software.
Sean Fenske: Overall, do you think the FDA is moving in the right direction with regard to its oversight of the medical device industry?
Tim Bowe: Overall, yes. I see the FDA moving more quickly than before, but not necessarily in the right direction. It needs to address challenges raised by new technologies and approaches—but the rate of technological change is moving faster than the FDA is able to, putting it behind the curve. Medtech companies must deliver solutions that meet the expectations of users, increasingly shaped by the rise of consumerism and connectivity trends. These solutions are highly sophisticated devices with complex software that often connect to, and in some cases, are dependent on, other systems. The FDA will need to continue to fully understand the implications of these trends and challenges and provide meaningful guidance in a way that matches the rate of change.
Fenske: Recent reports have the FDA review times decreasing, which is great news. Others point to factors such as increasing tasks during pre-review that have overall review times not improving at all. What’s your perspective on this situation?
Bowe: The FDA has decreased the time to approve 510(k)s, though the preview time appears to be longer and it seems to be expanding the scope of reviews. This puts more of a burden on medtech companies to successfully navigate this changing review landscape and streamline processes to reduce time and effort while anticipating the review needs. As a trusted advisor to medtech companies, we see the FDA as more focused than ever before on software—and the number of recalls related to software has grown exponentially.
Fenske: Do you find the FDA has created an environment that impedes the pace of innovation for medical device advancements?
Bowe: The FDA is not directly impeding the pace of innovation, but for many medtech companies it may seem that way because of its relative inexperience with complex software and connected systems. With the intense interest from the FDA on software and system connectivity, medtech companies need to put much more focus on these aspects of development and all that it entails including concerns like cybersecurity. How are medtech companies preparing? How are they reshaping their organizations? Do they have software architecture/development as a core competency within their organizations? These are some of the questions we raise with clients.
Fenske: Speaking of innovation, we’re seeing significant advances from Silicon Valley leaders breaking into the medtech space (e.g., Google, IBM Watson, and Apple). What type of effect will this have on the industry? Will these companies be able to successfully adapt to the strict regulatory requirements of this industry?
Bowe: The Silicon Valley entrants into the medtech space are definitely shaking things up. Their singular focus is software systems and driving the sophistication of software systems quickly. From usability to connectivity to complexity, they have an innate knowledge about software that makes them a credible threat to traditional medtech companies. That said, they still have to abide by FDA regulations. The way I see it, this is the ultimate showdown—consumerization meets regulatory. They’re going to have to partner or stumble on their own. They may not know what they don’t know related to medical device development, governing standards, and FDA regulations.
Apple and Google seem to be taking different approaches to medtech. Google appears to be pursuing industry partners and entering into agreements that cater to particular clinical areas. For example, Google has partnered with Dexcom in the diabetes space to develop a dime-sized disposable patch designed to be the future of continuous glucose monitoring. They have an agreement to work with Alcon (Novartis) on a joint mission to monitor insulin levels through contact lenses and to develop an advanced lens that will correct for both nearsightedness and farsightedness using sensor technology embedded into the lens for real-time correction of either condition. Another Google partner is Johnson & Johnson. They have come together to create a joint venture company called Verb Surgical with the mission of revolutionizing robotic surgery.
Apple, on the other hand, seems to be attacking the digital space with a more organic approach. Through ResearchKit and CareKit, Apple is enabling the development of apps that are revolutionizing medical research, disease management, and health tracking. Also, Apple is clearly hiring top medtech talent with an eye toward the future. It decided not to put the iWatch through the FDA process because it does not want to slow innovation, but the device on the market has inactive features, such as a pulse oximeter that could be activated at a later date. If it decides to leverage this feature, then it will have to go down the traditional approval route of medtech companies.
Apple has also mentioned “adjacent” hardware that could be designed to take physiological measurements and then communicate with the iWatch. One such rumored device is a ring that would be designed just for that purpose.
One example of a medical device company taking advantage of the iWatch platform is Dexcom. In 2015, it released a continuous glucose monitoring device that comes with an app so that users can track their glucose levels on their iWatch.
Fenske: Another source of innovation has been from crowdfunding sites. What’s your opinion of this model for bringing medical technology to the market?
Bowe: Crowdfunding for medical technology development companies is a newer trend and for some, can be a source for seed money, but may not bloom into a reliable source over time. Crowdfunding typically can be divided into three categories: funding that is a donation with no expected return; funding that is “compensated” with early delivery of, or a discount on, the developed product or service; and finally, a comparatively small amount of funding that is in return for equity. The second form of crowdfunding, funding that is essentially early payment for a new device, is in a legal gray area related to sales of medical devices that have not received FDA approval.
Fenske: Will that gray area need to be addressed in order for crowdfunding of medical device development to become a more acceptable route?
Bowe: At this time, there has been no move by the FDA to regulate this process; its position is that all companies must abide by FDA regulations related to advertising, regardless of how they raise money. It is this FDA approval process that represents the biggest hurdle. Investors can only see a return on their investment when the company they invested in gets its product to market. Your readers are very aware that this process can be long and expensive. Crowdfund investors typically expect a quick return and, because of that expectation, I just don’t see this becoming the norm for the type of companies that are our clients. Developing the complex, software-intensive medical devices that today’s marketplace demands takes more than money—it also takes a significant amount of time. I don’t think crowdfunding communities are that patient. Medical device development requires patient money—the ability of the investor to exercise a significant degree of patience.
Fenske: So crowdfunding of medtech may never become a significant option for developers. Do you see any role it could play in the future?
Bowe: With the crowdfunding model, it is unlikely that a medtech startup will raise sufficient money needed to launch products, however, it is possible that this route might be used to raise seed money or for specific costs such as an FDA submittal, or possibly for the development of relatively simple devices. Once again, setting appropriate expectations with crowdfunding investors will be necessary.
Fenske: Speaking to more traditional investment routes, one company that had been getting significant interest was Theranos, which has faced a number of challenges in supporting its claims. Will this very public situation impact investment in the medical device sector?
Bowe: Any time a high profile situation like this implodes, there will be some short term impact on investment. Traditional VC and word of mouth accelerated interest and investment. Theranos was a cool concept that, at first glance, showed great promise to speed up innovation, but you still run into the brick wall—the traditional steps or process inherent in medical device development. Today, innovation is about so much more. Translating a good idea into a product, device, or solution is what so many medech companies are focused on, but those who innovate through every phase of the product lifecycle, including their own processes along the way, will be the ones who come out on top.
Fenske: Does the Theranos case reflect the need for more research to be done by investors who are unfamiliar with the clinical science behind claims being made by a company seeking investors?
Bowe: The Theranos case absolutely sends a message, “Know what you’re investing in and do the research.” Investments of this sort in the medtech space are what require patient money. The Theranos case emphasizes the need to know what you’re investing in and doing the essential due diligence on claims to get past the hype. Any time new science, or a new application of existing science, is the driving force behind an innovative medical device, peer-reviewed evidence of the claims should exist. Lacking that, there should be evidence from clinical trials that at least most of the feature claims have been successfully demonstrated under controlled conditions. In the Theranos case, it seems from published reports that only one test from a comprehensive menu of tests was demonstrated and approved.
Fenske: Anything else you’d like to share on these trends in the medical device sector?
Bowe: The American healthcare system continues to evolve at a blinding pace. This is an era of unprecedented change in healthcare and opportunities for medtech companies are incredible, but the environment is incredibly challenging. M&A is changing the competitive landscape in medtech unlike no other time in memory. Competition and customers from emerging economies are fundamentally changing the cost expectations of the market. And, of course, the rise of consumerism is changing how the industry must evolve their products.
The move toward greater connectivity among systems and data sources, and creating new communication channels between providers and patients is creating a new reality for companies in the medtech space. Product differentiation and value creation is moving more to how the device is used from what the device does. All of this is driving the criticality of product design and software implementation—neither of which have historically been core competencies of most companies in the industry.
The complexity and connectivity of the software, both in and around medical devices, continues to explode. This is driving up development time and costs, as well as creating an increasing number of post-launch risks for the industry. Software-related product recalls continue to grow rapidly.
And now there is another very real challenge. The reality of these software-intensive, connected products highlights the need for much more emphasis on cybersecurity as a core element of any healthcare solution. Unfortunately, this is another area that is not a core competency of most medtech companies. The healthcare ecosystem is becoming increasingly integrated with a larger dependence on extremely sophisticated software systems that are expanding the network perimeter and making security incredibly challenging. Security concerns are so integral to software systems today that they cannot be considered an afterthought or a separate component. Trying to retrofit cybersecurity is an extremely difficult and expensive endeavor—one that is generally not very successful. In addition to the financial liability issues related to data security breaches, recent FDA guidelines on cybersecurity have put the industry on notice that this element of product design is now fully on its radar.
The reality that today’s healthcare ecosystem is a large-scale complex distributed system made up of devices, software systems, various users, and a wide range of suppliers is changing the business environment almost as much as technology is. We see consistently growing pressure on our clients to rethink elements of their business model. Moving to subscriptions, transaction-based payments, and ultimately, outcome-based models, requires rethinking product strategies and product development strategies.
These strategies will require new products, thought through from the perspective of how they will fit into the evolving ecosystems—and how they will adapt as the ecosystems continue to change. The technical challenges of architecting these products are increasing at a time when the market windows are shrinking. All of this will continue to increase pressure on companies in the industry. The external industry pressures on clients will only increase over time. Medtech companies will need to adopt new approaches to differentiate in this new environment, disrupting their own business models before the emerging competition does it for them.
Sean Fenske: Overall, do you think the FDA is moving in the right direction with regard to its oversight of the medical device industry?
Tim Bowe: Overall, yes. I see the FDA moving more quickly than before, but not necessarily in the right direction. It needs to address challenges raised by new technologies and approaches—but the rate of technological change is moving faster than the FDA is able to, putting it behind the curve. Medtech companies must deliver solutions that meet the expectations of users, increasingly shaped by the rise of consumerism and connectivity trends. These solutions are highly sophisticated devices with complex software that often connect to, and in some cases, are dependent on, other systems. The FDA will need to continue to fully understand the implications of these trends and challenges and provide meaningful guidance in a way that matches the rate of change.
Fenske: Recent reports have the FDA review times decreasing, which is great news. Others point to factors such as increasing tasks during pre-review that have overall review times not improving at all. What’s your perspective on this situation?
Bowe: The FDA has decreased the time to approve 510(k)s, though the preview time appears to be longer and it seems to be expanding the scope of reviews. This puts more of a burden on medtech companies to successfully navigate this changing review landscape and streamline processes to reduce time and effort while anticipating the review needs. As a trusted advisor to medtech companies, we see the FDA as more focused than ever before on software—and the number of recalls related to software has grown exponentially.
Fenske: Do you find the FDA has created an environment that impedes the pace of innovation for medical device advancements?
Bowe: The FDA is not directly impeding the pace of innovation, but for many medtech companies it may seem that way because of its relative inexperience with complex software and connected systems. With the intense interest from the FDA on software and system connectivity, medtech companies need to put much more focus on these aspects of development and all that it entails including concerns like cybersecurity. How are medtech companies preparing? How are they reshaping their organizations? Do they have software architecture/development as a core competency within their organizations? These are some of the questions we raise with clients.
Fenske: Speaking of innovation, we’re seeing significant advances from Silicon Valley leaders breaking into the medtech space (e.g., Google, IBM Watson, and Apple). What type of effect will this have on the industry? Will these companies be able to successfully adapt to the strict regulatory requirements of this industry?
Bowe: The Silicon Valley entrants into the medtech space are definitely shaking things up. Their singular focus is software systems and driving the sophistication of software systems quickly. From usability to connectivity to complexity, they have an innate knowledge about software that makes them a credible threat to traditional medtech companies. That said, they still have to abide by FDA regulations. The way I see it, this is the ultimate showdown—consumerization meets regulatory. They’re going to have to partner or stumble on their own. They may not know what they don’t know related to medical device development, governing standards, and FDA regulations.
Apple and Google seem to be taking different approaches to medtech. Google appears to be pursuing industry partners and entering into agreements that cater to particular clinical areas. For example, Google has partnered with Dexcom in the diabetes space to develop a dime-sized disposable patch designed to be the future of continuous glucose monitoring. They have an agreement to work with Alcon (Novartis) on a joint mission to monitor insulin levels through contact lenses and to develop an advanced lens that will correct for both nearsightedness and farsightedness using sensor technology embedded into the lens for real-time correction of either condition. Another Google partner is Johnson & Johnson. They have come together to create a joint venture company called Verb Surgical with the mission of revolutionizing robotic surgery.
Apple, on the other hand, seems to be attacking the digital space with a more organic approach. Through ResearchKit and CareKit, Apple is enabling the development of apps that are revolutionizing medical research, disease management, and health tracking. Also, Apple is clearly hiring top medtech talent with an eye toward the future. It decided not to put the iWatch through the FDA process because it does not want to slow innovation, but the device on the market has inactive features, such as a pulse oximeter that could be activated at a later date. If it decides to leverage this feature, then it will have to go down the traditional approval route of medtech companies.
Apple has also mentioned “adjacent” hardware that could be designed to take physiological measurements and then communicate with the iWatch. One such rumored device is a ring that would be designed just for that purpose.
One example of a medical device company taking advantage of the iWatch platform is Dexcom. In 2015, it released a continuous glucose monitoring device that comes with an app so that users can track their glucose levels on their iWatch.
Fenske: Another source of innovation has been from crowdfunding sites. What’s your opinion of this model for bringing medical technology to the market?
Bowe: Crowdfunding for medical technology development companies is a newer trend and for some, can be a source for seed money, but may not bloom into a reliable source over time. Crowdfunding typically can be divided into three categories: funding that is a donation with no expected return; funding that is “compensated” with early delivery of, or a discount on, the developed product or service; and finally, a comparatively small amount of funding that is in return for equity. The second form of crowdfunding, funding that is essentially early payment for a new device, is in a legal gray area related to sales of medical devices that have not received FDA approval.
Fenske: Will that gray area need to be addressed in order for crowdfunding of medical device development to become a more acceptable route?
Bowe: At this time, there has been no move by the FDA to regulate this process; its position is that all companies must abide by FDA regulations related to advertising, regardless of how they raise money. It is this FDA approval process that represents the biggest hurdle. Investors can only see a return on their investment when the company they invested in gets its product to market. Your readers are very aware that this process can be long and expensive. Crowdfund investors typically expect a quick return and, because of that expectation, I just don’t see this becoming the norm for the type of companies that are our clients. Developing the complex, software-intensive medical devices that today’s marketplace demands takes more than money—it also takes a significant amount of time. I don’t think crowdfunding communities are that patient. Medical device development requires patient money—the ability of the investor to exercise a significant degree of patience.
Fenske: So crowdfunding of medtech may never become a significant option for developers. Do you see any role it could play in the future?
Bowe: With the crowdfunding model, it is unlikely that a medtech startup will raise sufficient money needed to launch products, however, it is possible that this route might be used to raise seed money or for specific costs such as an FDA submittal, or possibly for the development of relatively simple devices. Once again, setting appropriate expectations with crowdfunding investors will be necessary.
Fenske: Speaking to more traditional investment routes, one company that had been getting significant interest was Theranos, which has faced a number of challenges in supporting its claims. Will this very public situation impact investment in the medical device sector?
Bowe: Any time a high profile situation like this implodes, there will be some short term impact on investment. Traditional VC and word of mouth accelerated interest and investment. Theranos was a cool concept that, at first glance, showed great promise to speed up innovation, but you still run into the brick wall—the traditional steps or process inherent in medical device development. Today, innovation is about so much more. Translating a good idea into a product, device, or solution is what so many medech companies are focused on, but those who innovate through every phase of the product lifecycle, including their own processes along the way, will be the ones who come out on top.
Fenske: Does the Theranos case reflect the need for more research to be done by investors who are unfamiliar with the clinical science behind claims being made by a company seeking investors?
Bowe: The Theranos case absolutely sends a message, “Know what you’re investing in and do the research.” Investments of this sort in the medtech space are what require patient money. The Theranos case emphasizes the need to know what you’re investing in and doing the essential due diligence on claims to get past the hype. Any time new science, or a new application of existing science, is the driving force behind an innovative medical device, peer-reviewed evidence of the claims should exist. Lacking that, there should be evidence from clinical trials that at least most of the feature claims have been successfully demonstrated under controlled conditions. In the Theranos case, it seems from published reports that only one test from a comprehensive menu of tests was demonstrated and approved.
Fenske: Anything else you’d like to share on these trends in the medical device sector?
Bowe: The American healthcare system continues to evolve at a blinding pace. This is an era of unprecedented change in healthcare and opportunities for medtech companies are incredible, but the environment is incredibly challenging. M&A is changing the competitive landscape in medtech unlike no other time in memory. Competition and customers from emerging economies are fundamentally changing the cost expectations of the market. And, of course, the rise of consumerism is changing how the industry must evolve their products.
The move toward greater connectivity among systems and data sources, and creating new communication channels between providers and patients is creating a new reality for companies in the medtech space. Product differentiation and value creation is moving more to how the device is used from what the device does. All of this is driving the criticality of product design and software implementation—neither of which have historically been core competencies of most companies in the industry.
The complexity and connectivity of the software, both in and around medical devices, continues to explode. This is driving up development time and costs, as well as creating an increasing number of post-launch risks for the industry. Software-related product recalls continue to grow rapidly.
And now there is another very real challenge. The reality of these software-intensive, connected products highlights the need for much more emphasis on cybersecurity as a core element of any healthcare solution. Unfortunately, this is another area that is not a core competency of most medtech companies. The healthcare ecosystem is becoming increasingly integrated with a larger dependence on extremely sophisticated software systems that are expanding the network perimeter and making security incredibly challenging. Security concerns are so integral to software systems today that they cannot be considered an afterthought or a separate component. Trying to retrofit cybersecurity is an extremely difficult and expensive endeavor—one that is generally not very successful. In addition to the financial liability issues related to data security breaches, recent FDA guidelines on cybersecurity have put the industry on notice that this element of product design is now fully on its radar.
The reality that today’s healthcare ecosystem is a large-scale complex distributed system made up of devices, software systems, various users, and a wide range of suppliers is changing the business environment almost as much as technology is. We see consistently growing pressure on our clients to rethink elements of their business model. Moving to subscriptions, transaction-based payments, and ultimately, outcome-based models, requires rethinking product strategies and product development strategies.
These strategies will require new products, thought through from the perspective of how they will fit into the evolving ecosystems—and how they will adapt as the ecosystems continue to change. The technical challenges of architecting these products are increasing at a time when the market windows are shrinking. All of this will continue to increase pressure on companies in the industry. The external industry pressures on clients will only increase over time. Medtech companies will need to adopt new approaches to differentiate in this new environment, disrupting their own business models before the emerging competition does it for them.