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The 510(k) Fallacy

clinical strategy market driven innovation product development regulatory strategy Mar 10, 2024
510(k) versus de novo pma

Quick 510(k) = Quick exit 

Right?

Not quite.

 

Here's some interesting data: 

SVB: 2019 Trends in Healthcare Investments and Exits

 

Ok, the data is a bit dated. But the push for the quick 510(k) happens just as much today as it did back when the data was collected in 2013-2018. And I don't think the outcomes are much different..

 

Let's dig into median time to exit:

  • 510(k): 8.9 years

  • De Novo: 8.8 years

  • PMA: 6.1 years

 

Wait a sec..

 

Shouldn't 510(k) be the faster time to exit?

 

Nope. 

 

Here's why:

 

>> The quick 510(k) may get you into the market quickly, but you'll need to spend years to gain market adoption before M&A becomes an option.

 

Most startups push for the 510(k) route to avoid pre-market clinicals.

 

But they're really just kicking the can. They'll still need compelling post-market clinical evidence to gain adoption. Not to mention.. peer reviewed journal pubs, KOL support, distributor pick-ups, marketing, sales, etc. 

 

These activities not only run the clock, they also drain the funds. 

 

On the money side, let's look at median invested: 

  • 510(k) $46M
  • De Novo: $46M
  • PMA: $39M

 

Yep, there it is. 

 

Less investment was needed for most PMAs than 510(k)s to get to exit.

 

Why? 

 

PMAs are targeting big medical problems. They are taking an evidence driven approach. They aren't kicking the can. And as a result, the get market traction earlier.

 

>> Acquisitions are driven by market traction. Not market clearance.

 

And if that's not enough data for you, here's the real kick in the pants:

 

Median Total Deal Multiple:

  • 510(k): 3.6x
  • De Novo: 6.1x
  • PMA: 6.6x

 

So, those investors that are pushing for the quick 510(k) because they think it's going to be a big valuation bump followed by the quick exit...

 

May not be the best investors.

 

Their push for the quick win is doing the opposite. Hurting their own ROI and yours. 

 

The punchline?

 

>> Market clearance ≠ Market adoption

 

Before jumping to the quick 510(k)..

 

Start by identifying the key drivers that will lead to adoption.

  • Who's writing the check?
  • What is the high priority clinical outcome that matters to them?
  • What are their economic motivators?

 

Then, use that information to define your regulatory strategy. Your labeling requirements. Your clinical strategy. Your product development strategy. 

 

In that order.

 

Start with the evidence that will drive adoption. Work backwards from there.

 

Oh, I almost forgot..

 

The original report from SVB.

 

HERE's a link.

 

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