Medtech Mindset Software Development Rightley Mcconnell

EPISODE 12 – Med Device Software: Agility and Quality with Rightley McConnell

In this episode,Rightley McConnell, VP of Operations at Precision Systems, Inc., covers how to maintain quality and speed when developing medical device software.

Rightley and Dan discuss:

  • Challenges to device software development for complex systems
  • Use of AGILE methodology and how to remain flexible in a regulated environment
  • Applicable standards, including 21 CFR 820, ISO 13485, IEC 62304, & ISO 14971
  • How quality can and should remain central at each development phase
  • And more

If you have any questions, please feel free to contact us or connect with Rightley.

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Episode Transcript

Dan Henrich:                       Hey, Rightley, thanks very much for coming on MedTech Mindset.

Rightley McConnell:              Absolutely. Thanks for having me.

Dan:                       It’s great to have you here and have PSI involved. Just so our listeners get to know you a little bit, can you quickly introduce yourself and PSI, and tell us about the different types of projects that you guys work on in MedTech.

Rightley:              Sure. Starting with the company, we’re Precision Systems Incorporated. We’ve been in business since 1979, and we really focused on mission-critical, safety-critical systems that cannot fail. So we’re writing code that goes inside devices that are in operating rooms, in vitro diagnostics. They could also be a life sustaining type three types of devices, infusion pumps in the like. We’ll do consultation requirements, design, the software development, unit testing, final V&V, and anywhere, pretty much along the line, also post-market. Once something gets out, if a customer needs some changes, we can help them with controlling that and updating the code, getting it back out to the field. So I’m the Vice President of Operations here. I have been for about four years now. And I’m a recovering engineer. I started here as a software engineer. It was just my second job out of school, and so I’ve been here about 14 years.

Dan:                       Great, great. And how about the different areas you touch within the product development process? So you mentioned the types of devices you work on, but what are the main roles that you play as you interact with clients?

Rightley:              A lot of the roles that we play at the very early stages of product conception could be helping with getting requirements for even the product, in place. And then also working through, software requirements on down you might say. So helping those customers with understanding how to roll product requirements into software requirements, how to make sure that they have all the right planning in place, how to make sure that the software is properly designed first, then implemented well. And it’s really full stack from there on down. And then just of course, making sure that they’re following all of the right regulatory procedures and have all the right SOPs in place, so that when they get through and they submit to a 510(k) for instance, to the FDA, that all the documentation is there.

Dan:                       Okay. And we’re going to delve into our theme here shortly, which is, how to ensure speed-to-market, operating in an agile environment while maintaining high quality standards throughout the software development process. But can you just talk broadly a little bit about the main challenges that that folks developing software for critical medical devices face throughout the process?

Rightley:              Sure. There’s two main paths that the challenges come down. You have the human, the soft challenges, and it usually deals with education and making sure that folks understand when they go down this path, that the regulatory, the design, the documentation, everything that goes around the process that goes around the actual product development can be as much or more than the product development itself. So a lot of the challenges stem from that, and understanding and planning far enough out to make sure that they have realistic timelines and or able to get the right resources, the right stakeholders involved early enough, so that they have a product development that goes smoothly, as part of the overall development that has to be done in the company. So that’s one. And then of course there are always technical challenges.

Rightley:              Software is sometimes nothing but technical challenges on its rougher days. So a lot of the types of challenges come down the line with interfacing known hardware to unknown hardware. Interfacing different devices within a product suite. Anytime you have two different components or devices talking to one another, there’s opportunity for challenge. So usually, code within a system can be self-contained, and controlled, and the development is, I want to say free of surprise, but it has a certain level predictability to it. As soon as you start interfacing different systems together, and some are off the shelf, and some are custom, and some you’re developing as part of the product, that’s where technical challenge usually comes in.

Dan:                       Talking about this, maintaining high levels of quality through the development process, what are the applicable standards that come to play in your day-to-day?

Rightley:              So for medical devices, everything is really dictated and flows down from the FDA. And that’s 21 CFR part 820. And that really talks about overall medical device development and quality management. From that, we have gotten our quality management system because we focus on software, is really based around a standard called IEC 62304, which is a software development life cycle standard that is for medical devices. And so 820 flows down in points two 62304, as an appropriate set of standards to use for development of software.

Rightley:              So our quality management system here at PSI is built around that, and that quality management system is also appropriate and we have been able to be certified to ISO 13485. So that’s the medical device manufacturing standard. We’re manufacturing code. So our part of the system is just the software, so we are able to be certified to 13845 because we follow good manufacturing practice, which is 62304. So there’s a bit of a web of standards, but it really all flows down from 21 CFR 820, and that points to all the different standards that are appropriate for different aspects of product development.

Dan:                       Sure. And there’s one other that you didn’t mention that I just want to highlight, because I think it’ll come up which is ISO 14971, having to do with risk management. Can you talk a little how that plays into your process?

Rightley:              Yeah. Thank you. So a 14971 as you mentioned, talks about risk management. And it’s a risk-based approach to doing software development. So 62304, and 14971 really play together. So it’s all about identifying and mitigating risk, early in the product development process so that you can flow that down into your software development process, and make sure that you’re focusing on designing, developing and testing the right parts of the system, and really making sure that you’re maintaining that very high level of quality without testing everything needlessly to the same level that you might need to test the very most critical parts of the system.

Rightley:              That also helps you mitigate technical risk as well. When you’re doing that failure modes, and effects, criticality analysis, FMECA, which is prescribed by 14971, you’re going to identify technical risks in addition to patient risks. They’re just going to come out as part of the process. You set those aside, really, you focus on 14971 on the patient risk, but there’s technical risks also need to be examined. So in mitigating those risks early on, as part of a phase zero and doing that initial investigation into what the technical risks are, really can pay dividends down the line, and it really helps maintain schedule and keep your development on track, with fewer surprises down the road.

Dan:                       So let’s turn to the turn to the meat of our discussion, which is how to ensure speed-to-market, maintain an agile process, and maintain high quality standards throughout the software development process. I know every company who’s doing this type of work is going to follow somewhat of a phased approach, whether it’s Archimedic, PSI, or other players in the industry. But can you just walk us through your software development process by phase, and talk about the different types of activities that take place there, and how you operate to maintain quality, and move quickly?

Rightley:              We look at it as six phases. So our phase zero is investigation. Phase one is planning. Phase two is requirements realization. Phase three is V&V. Four, regulatory and product launch, and then five is post-market surveillance. So those are the six main phases that we go through. Phase zero, and the way that we really apply, we look back at that FMECA right away, and we start looking at what things do we need to focus on, and what risks do we need to mitigate from a technical aspect and also from a patient-risk aspect. And phase zero, really, the main goals for us in the software development aspects, are to come out of phase zero with a good software requirements spec, a good architecture, and usually that’s expressed in an architectural design chart, and good product requirements. So those are the main three things from the software aspect that we try to get out of phase zero.

Rightley:              Those are what really sets you up for success later on down the road. Requirements, we here at PSI, and I think most anybody that gets into any product development, know that requirements are the source of everything. It’s either the source of your problems or the source of your success. Having good product requirements means you could flow down to good hardware requirements, good software requirements, and that means that all the different parts of the system are being developed in harmony. So that’s really the goal of phase zero, is to walk out of it with all the stakeholders, pretty much understanding what the system needs to do in order to fulfill its goal and help the patient.

Rightley:              So phase one is planning. Planning, planning, planning. So it’s all about making sure that you can turn those requirements from a software perspective, into designs you can lay out. Sprint schedules, this is where the AGILE approach starts to come in, and where you can really plan out, now that you know what the product is really going to be, you can lay out how long it’s going to take to get there, and how you’re going to develop it. So the main thing to understand about planning is if you don’t have a plan, you can’t change it. So having a plan and a work breakdown structure that’s based on the requirements that flows down into sprints, and usually we set them up on about a monthly basis. Different companies find different things more useful. It could be six weeks, it could be two months. It depends on what the development cycle of the rest of the product is. But we find that setting up the sprints on a monthly basis right there in that planning phase is what really allows us to be agile and keep things moving throughout development.

Rightley:              There are always going to be roadblocks. There’s always going to be something that’s going to require you to wait on developing a certain aspect of the system. That’s why having the sprint plan is so great, because you move something from sprint three back to sprint one, and vice versa, and keep the whole project moving, even if one particular part of it is not really allowing you to progress. That’s a lot of the difference between the traditional V model, Waterfall model of software development, and applying some added agile methodologies within and overall SDLC or software development life cycle methodology.

Rightley:              So phase one really, the biggest thing there is to make sure that you have a plan. Break down the work, lay out a sprint schedule, and know that it’s going to change. So during that phase, it’s also a really good idea to understand how changes are going to be managed, how problems are going to be reported. All the SOPs, and all the standards that really are around product development, that’s the point where you make sure that those are in place, and all the stakeholders understand and agree those.

Rightley:              Because that, sometimes may seem a little bit just doing boring paperwork, but you wouldn’t believe how many times sitting down and getting all the stakeholders, software guys, hardware guys’ management, marketing, they all think a little bit differently, as you might imagine. And so having everybody sit around and agree to a plan about who’s responsible for what at what points, how changes get managed, when there’s a design freeze, laying that out all up front really helps get everybody on the same team. And good planning and a good start like that in that phase one is critical for letting all the different teams go and do their work and then come back together and make sure that everything plays together well.

Dan:                       Right. So phase zero, maybe you would say the big deliverables of that, or the hardcore requirements … Maybe I should say detailed requirements both from a-

Rightley:              Product requirements, software requirements, hardware requirements, electronics, those parts should all be really worked out as part of that first investigative phase.

Dan:                       And your Phase One deliverables will be a laid out schedule of sprints that everyone agrees to adhere to. And there is a plan for change management in place. Is that correct?

Rightley:              Absolutely. You must plan to change. And that’s also when the mechanical guys, the electronics, everybody makes sure that their schedules mesh together. It doesn’t mean that everybody gets started, runs off and begins doing work immediately as soon as that phase is closed out. It just means that everybody’s plan is laid out about when things have to be done so that nobody ends up being left behind on the critical path, and then playing catch up.

Dan:                       Right, right. Okay. So let’s move into phase two where I think is where the rubber really starts to meet the road with software, and all the quality standards that come to play, right?

Rightley:              Right. So this is where, as you said, the rubber meets the road with software development. Phase two, design realization, is, in software coding and parlance, this is implementation for us. So this is where we start executing on those sprints. We open every sprint at the beginning of the four weeks, let’s say, we have goals set out for what we’re going to achieve during that time and make sure that the sprint deliverables that we’ve set up are possible, because that’s a great time to stop and evaluate and figure out if we’re waiting on a piece of electronics to get there before we can write a little bit of code, or if we’re waiting on the marketing group to give some answer about a certain thing before it can progress, that’s where we’re trying to make sure for that sprint for that group of work, we’ve got the things that we need in order to actually execute.

Rightley:              So for that, let’s say four weeks, we’re writing code. So if you’re more so in the software world, you may have heard something called Test-Driven Development. There are some aspects of that in there, where essentially you’re writing automated code along with the software so that you know, as you write functions or groups of functions, that they do the operation that they’re supposed to, and then when you write additional functions to interface with them, you’re not breaking them. So it’s really, really important that during that sprint, while writing the code, write the automated unit tests along with it. It really helps to ensure quality. It helps getting your speed to market, and it also allows you to make other changes in other sprints elsewhere, without fear of breaking the code you already wrote. So it really sets you up for success in being able to apply those agile tenants, but not have to worry too much about what you’ve already done previously.

Rightley:              So throughout the sprint, we’re developing and then towards the end of the sprint, there’ll be a cut off. So it could be somewhere, usually in like week three of the four week, or it could be a little bit later, that’s where we’ll do any sort of integration, like a little bit higher-level testing, to make sure that everything that we’ve developed over the sprint functions properly. The idea, and what we found that our clients love is that they want a sprint-deliverable at the end of month, that is functional to a point, and everything in their works, because they want to be able to show progress. And this is great for an internal teams and external teams like us, alike, being able, for software, which is a mushy, amorphous thing that a lot of people think is a little bit of black magic, being able to show deliverables on a regular basis and be able to report about what is done and what’s functioning, and be able to say, “Yes, this works”, gives everybody else in the rest of the team a nice warm fuzzy when they can see that progress from month to month.

Rightley:              So really aim that at the end of the sprint you’re getting something that is well tested and works to the prescribed level, and then really that’s where we iterate through the phases. Just same process, opening the sprint, doing the work, closing the sprint and on and on and on. And throughout that at the beginning of each sprint, like I said, we’re making sure that everything that we have is available to us, that we can execute the sprint, and it allows us to be agile, move things from sprint to sprint, and try and keep the overall workload as flat as you can, because as you establish a team, you want to keep that team working on the project, you don’t want to scale up and scale down. Being a bit more agile allows you to do that most optimally, and most efficiently, and keep the fastest way to market is to keep a nice level workflow. So that’s what the sprints and being able to reorganize them as you go allows you to do.

Dan:                       Let’s jump into phase three, which is I think where a lot of the requirements and documentation really come into play, of how to, how to ensure the speed-to-market while maintaining quality.

Rightley:              Right. So we talked a little bit about, in the previous phase, we’re doing automated unit testing, which is one kind of verification. But the vast majority of the V&V, verification validation goes on in phase three. So that’s where at the highest level you’re taking the requirements that you developed early on, along with the FMECA, and getting the-

Dan:                       Sorry. One second. Before we go on, just tell us briefly … You mentioned the FMECA at the beginning, but just real quickly run through what that is and how it comes to play.

Rightley:              Sure. So what that essentially is, you could think of it as almost as a table or a spreadsheet and it often is organized as such. And it’s a listing of every risk and harm that can happen to the patient. There are entire standards and podcasts that could probably be done about how to do an effective FMECA. But really what you’re concerned about is getting all of the patient risks listed out, then understanding what’s the likelihood of that risk happening? So is it a one in 10 chance, or one in a million chance? How likely is it to happen once something gets into the field is being used by the patient? And not to mention that other stakeholders as well, especially like in, perhaps in in vitro diagnostics, there could be handling of blood where you have to be concerned, not only about, could you get a wrong result for the patient, but there are operators who have to handle blood. So you need to be thinking about the other stakeholders that are involved in the process as well.

Rightley:              So what’s the likelihood of this harm happening to them? And then also, what’s the severity? And understanding if something happens and it’s a minor inconvenience, that’s something that you can test to a certain degree, and you have to understand, you may not want to spend a man-year of development, in testing something that might cause five minutes and then inconvenience to somebody every 100 operating hours of the system. But things that could happen perhaps very rarely, but are very serious, you need to spend some time mitigating.

Rightley:              So the whole idea is that once you understand the criticality and the effects and the likelihood of something happening is how do you move those risks and mitigate those risks? What actions do you take throughout the rest of the development process? And especially in phase three when you’re doing a verification validation, to understand that those risks have indeed been mitigated and you’re not going to hurt somebody when this thing gets into the market. So that’s the main goal in FMECA.

Dan:                       Great. Okay. So back to what you’re saying about bringing the requirements in the FMECA into play here at phase three, let’s jump back into that.

Rightley:              Sure. So a really, at the highest level, that the FDA generally prescribes three levels of testing for software. There’s unit testing, there’s integration testing, and then there’s system-level testing. Unit testing we talked about, and that’s at the lowest level. We prescribe automated unit testing that is executed, it’s built alongside the code. That happens in phase two. Then some integration testing, where this is where you’re basically integrating components of the system. It could be software to hardware, it could be multiple software components together, you’re checking that they inter-operate correctly. So you’re making sure that during that phase, the software all plays together nicely with the other components of the system and itself. That can be done in an automated fashion, perhaps. It can also be done in a manual fashion. It can be done at the sprint level, but usually it happens more so long in phase three at the V&V phase. And then of course, there’s system-level tests. And system-level verification is the one that I think, the vast majority of what people understand verification to be, that’s where that happens.

Rightley:              So that’s where you’re looping back, looking at the software requirements that you developed early on in the system. And you may have modified and updated a bit through the design realization, but making sure that the system hits all of those requirements. And that by nature of hitting those requirements, it’s fulfilling the product requirements, and fulfilling the intended use to the customer, to the patient. So that’s where the vast majority of V&V activities come into play. That’s writing and executing those step-by-step tests.

Rightley:              You can write a lot of your system-level verification very early in the process, in the planning stage, and it’s highly recommended to do that. But quite often you’ll have to update those as you go through design realization, and you get to that final place where you’re going to start doing dry runs of your system-level verification, and then doing the official run of your system-level verification on the software.

Rightley:              The FMECA really comes into play there because you need to make sure that you’re not only testing that mitigation that you came up with via the steps, but you’re also making sure that you’re focusing in the right areas of the system. You may write many test plans that are, let’s say for instance, I’m talking about an in vitro diagnostic device. Just theoretically, you’re looking for some type of cell in a blood sample for instance. That’s the whole purpose of the device. Just as a theoretical, for instance. Your FMECA and therefore your testing is going to dictate that you spend a lot of time verifying, and later on validating that the software indeed is able to find with high levels of specificity and sensitivity, the particular type of blood cell that you’re looking for. That’s very important, and a lot of your tests should be written around that of course, when you think.

Rightley:              But on the same hand, you need to verify that you can quickly and easily flow through all of the screens in the workflow without having any problems with clicking and navigating from screen to screen. So it could cause a little bit of confusion or if there were some problem where you couldn’t navigate from screen to screen, that can be a real inconvenience. Especially if it’s one of those things that it might happen one time out of 100. It’s an annoyance. But worst case scenario, you run the test again.

Dan:                       It’s not the same as having a false negative for HIV blood test or something like that.

Rightley:              Yeah. A false positive or worse, a false negative. Right?

Dan:                       Right.

Rightley:              So that’s where you need to focus in that V&V stage when you’re writing those verification and then later on for the overall product validation, where you’re really focusing on the items that are really high-criticality and likelihood to occur from the FMECA. There’s another good point to point out too, that the quality of your software requirements really dictate how much trouble you’re going to have when you get to this stage. I think of it as there are “four Cs” for a good software requirement. And these will be; complete, correct, concise and you need to be able to confirm it.

Rightley:              So complete, as in, each requirement in your software requirements needs to express a complete thought. It might mean that there is a button on the screen that does this. There is the ability to handle the intake of a patient sample. There are workflows that hit the patient data input, and the screen outputs. Those all might be different requirements, but each requirement should be a complete statement or thought. Just like we learned back in grammar school that each sentence should be a complete thought, so should each requirement.

Rightley:              It needs to be correct. That seems obvious, but it needs to be reviewed that it’s correct and it doesn’t conflict with other requirements that are in the document. You wouldn’t believe how many software requirements documents that we’ve looked at or that we’ve seen, where you can pick out two or three in the same section that all conflict with one another. It’ really helpful to get people that are not even necessarily deep into the software development process, to give those a look through and make sure that it makes sense to them. Good software requirements should make sense to pretty much anybody that reads them.

Rightley:              So they should be concise. One of the biggest places that we see software requirements problems are in big long narrative requirements, when it really should be broken up into maybe 10 or 12 different requirements, instead of a paragraph. Testing a paragraph in phase three with software, with concise followable steps that can be repeated, trying to test that the requirement has been met when it’s 15, 16 sentences long is really, really difficult. And it leaves a lot of openness to interpretation. So it’s really important that your requirements be concise.

Rightley:              And finally, they need to be confirmable. So having good requirements that are testable, that don’t say things like the system must run indefinitely. You can’t test assist them indefinitely. So how would you ever know if you met that requirement? It shall be easy to use. How is it easy to use? That needs to flow down into very specific requirements, because you can’t test, is the system easy to use? It’s great to have those goals of being easy to use and being 100% uptime, but you need to have a confined confirmable requirement that you can test. If you follow those four Cs at the beginning in phase zero, it makes phase three way easier. So that’s big tips for verification, validation software.

Dan:                       Great. Okay. So phase four where we get into the regulatory submission, maybe not a particularly time-consuming part of the process, but it’s where you find out if you have done phases zero through three correctly, right?

Rightley:              Yeah.

Dan:                       So tell us a little bit about how the standards come into play. And obviously, if this phase doesn’t go well, then your time-to-market is going to be set back considerably.

Rightley:              Considerably. Yeah. So this is where all the previous phases really pay off, where you find out what you didn’t do right, as you said. So most of the software team’s role as we found, when it comes to this, is helping to put together the submission for the 510(k). So that means going back through making sure that your traceability from requirements through design, through implementation, through test is all complete. Making sure that you have all the prescribed documentation. The FDA is great in that the regulations are out there. You can find what needs to be submitted for a 510(k), just by going to the FDA website. And they list off all the documents and everything from a software perspective that you need to have. Even list off the types of testing that we were talking about.

Rightley:              That stuff is all there and when you’re trying to put together the 510(k), that’s when you find out whether or not the software team did their part. So that’s where you can either find that we’re going to have a nice 90 day window, where the FDA is reviewing our submission, or we’re going to be sent back to the drawing board several times to, hopefully not recreate, but find in our documentation package, in the code, where we tested this, where we explain that, and how we did everything.

Dan:                       So let’s talk about…you get sent back to the drawing board, which from time to time may happen even with the best laid plans. Where does the AGILE methodology come into play, and how do you go about relaying out, getting a tourniquet on this time-suck, to ensure that you’re addressing those things as quickly as possible and that it’s going to go through the second time.

Rightley:              Sure. There’s nothing saying that you can’t apply these AGILE methodologies to the requirements and the documentation and the design phases as well. So it’s like setting up a new sprint. When something gets identified and you can’t just go back and point to in the document where that item is discussed, if you need to do additional mitigation, you need to do additional documentation, you need to have some additional processes set up or some SOPs put into place, that’s like another sprint in the AGILE methodology. So if you do it very much the same way. As I mentioned before, it’s all about taking the sprint inputs, figuring out, “Do we have everything that we need? Who are the stakeholders that we need to pull in? How do we get consensus around the work that needs to be executed?”

Rightley:              You plan that sprint’s work. And that could be documentation work, it could be design work, it could be development, it could be retesting or testing further something, making sure that a risk has been mitigated, and then you execute on the sprint. So you’re really following that same opening, working, closing the sprint methodology that you would during the whole development phase. So it’s all about planning your work, executing the work, and making sure that the work that you did is well tested and integrates well into the rest of the system. And it could be software, it could be documentation, it could be anything.

Dan:                       So phase five then is the post-market phase, right? During which time you’re required to conduct post-market surveillance for your device. Right? Monitor what type of adverse events might be occurring, analyze their severity. Talk to us a little bit about the software maintenance and monitoring and retirement phase.

Rightley:              So the planning for how this is handled is actually is back in phase one. So how you’re going to handle change control, how you’re going to handle a configuration management of the software, how you’re going to handle when something comes in from the field, evaluating and going back through, perhaps adding to the FMECA based on information you get from the field, and then flowing that back through the process. So again, I don’t mean to sound like a broken record, but you’re really going to, again, apply that methodology, that AGILE methodology again, of evaluating what the information that comes in from the software perspective. Do we have to then flowing back through the requirements? Does it mean we need to change a requirement? Do we need to test a requirement differently? How does this affect the requirements? How does this affect the design? Where, if anywhere, do we need to make a change in the code? How does all of this get tested? And then how do we rerelease this back out into the field?

Rightley:              So it starts back at that FMECA, and it flows back through the whole process, but you set it up like a sprint. So what are your inputs for the sprint? What’s the work you need to do and what’s the output? How do you close the sprint out? So it’s all about change control and having those SOPs and having those standards in place, before you ever get to that point. You don’t want to be scrambling to figure out how are we going to handle this customer complaint, and this adverse effect reported from the field, because you don’t have an SOP in place. A worst case scenario, somebody hears something like that or a complaint comes in, and it just gets dropped or it’s not handled, or the software is never looked at because there’s no SOP. There’s nothing in place for how to handle something like that.

Dan:                       So let’s talk a little bit about what MedTech Innovation teams ought to have in place when they approach a software development partner. We’re talking starting in phase zero here. What do you expect them to have in hand, besides the funding? What do you expect them to have in hand when they come to you and say, “Rightley, I need your team to develop this system for me”?

Rightley:              Sure. Well, there’s usually difference between what we would like to have and what we expect that they have when they come. But we tend to help and get involved with anything from product requirements on down. Ideally, somebody comes to us and we’ve seen this a lot with startups, especially with serial entrepreneurs, and non-first time founders. They’ve been through this before. They understand what the outputs of a good phase zero, or it might be called a phase one in what they’re used to. But with the outputs of that are, and they come to us with software requirements that follow the four Cs. Or maybe they just need a little bit of a review and some questions to answer and they’re tweaked and we’re good to go. That’s ideal. And we’ve had some great customers that are startups. And again, usually it’s maybe not the founder’s first startup, but they come to us with those requirements.

Rightley:              What we oftentimes will get, is a long form narrative set of product requirements, and usually an explanation that goes along with it, and a fair amount of data and science behind it that says, “Here’s the medical problem that we’re tackling.” We get a lot of that. So a very often we will help them in forming those long-form narrative type of product requirements that are based in science and medicine, and starting to flow those down into short, testable product requirements, and then software requirements and on down.

Dan:                       Let me ask you a question that I’m sure a lot of your clients face, a lot of our early stage company clients encounter it at Archimedic, an early struggle is assembling enough funding to hire a vendor like PSI, like Archimedic, to help them develop their product. And they want to make sure that they are in the best position they can be, during all that time when they’re raising funds to be ready to start. What should a team be doing to get ready to launch into this process, with a software vendor?

Rightley:              In preparation for being able to bring a software vendor on board, or even if they’re choosing to hire software folks and bring them in house and have them as FTEs, be prepared by having at least identified somebody that’s in the regulatory realm, that understands the regulation that’s around their device. And maybe they haven’t actually engaged them yet, but have them on tap and know that you’ve got somebody that understands what regulation, and how it is going to apply, and that of course will flow down into software. Because we understand software very, very well, inside and out, but we don’t always understand the overall medicine behind it, and how the risks of software can actually flow upward to patient risks, and how the FDA is going to look at those.

Rightley:              So that person is really, really important, whether they’re in house or somebody else, you need to identify them. Having a good understanding of the addressable market and the product requirements, what the product needs to do is often oftentimes overlooked. And they could be long-form narrative requirements. But have something that at least, your internal stakeholders all understand and agree, because I can’t tell you how many different times we’ve been into what was supposed to be a software kickoff meeting, and some of the very basics about system operation and what the device must do, are still being hashed out around the table. So having all the stakeholders internally agreeing about what market they’re addressing, how the product’s going to be developed, what the product’s going to do, very important.

Rightley:              And then also before coming and looking for software vendors, review those standards that we talked about. You don’t have to be an expert. You don’t have to know 62304 inside now. But it’s written in fairly plain English. And you don’t have to read and understand every aspect of it, but the standards are all out there. Evaluation copies can often be obtained of like 62304, and some of the paid standards, just for educational purposes. But reviewing the 21 CFR 820, reviewing 62304, or at least understanding the overall software development life cycle, and reviewing ISO 14971, and what goes into risk management are a huge leg up in the understanding what’s about to come, what’s going to be in this process and understanding the overall effort that’s going to have to be applied around not just the product development itself, but everything that goes around it.

Dan:                      So one thing that we haven’t talked about but I’m sure is on a lot of listeners minds, talking about ensuring quality through the software development process, is cybersecurity, right? More and more devices are Internet connected. And there’s risks of malicious or unintentional interference with software that may be critical to a patient’s health or data security. Talk a little bit about how does that tie into your quality processes.

Rightley:              Sure. So no matter when you’re listening to this, there’s always going to be a recent data breach that keeps this fresh in people’s minds. And we get this question all the time. And it could be a podcast or an episode all into itself-

Dan:                       And I think it will be.

Rightley:              But from a software perspective … And there are a lot of facet to data security, cybersecurity. It’s not just software. There are hardware aspects. There are a lot of different … There’s a lot of network and infrastructure aspects that go along with it. But where it really comes into a lot of the software development that we do is it’s … It’s good best practices really are your best protection. You can go way into the weeds and there’s a lot of things that can be done, and security that can be added on top of a system, or built around a system, or in the network infrastructure where the system is connected. But a lot of it is just best practices. And unfortunately, a lot of the things that we hear about of cybersecurity problems with devices in the field, is where best practices just weren’t followed.

Rightley:              So those are things like, again, I hate to harp on requirements, but understanding back even at their requirements phase, who needs what access to what data when? And how is it tracked, if any of that access is made, or if data is changed? And how is that data protected? So is it encrypted when it’s sitting on the chip inside a device, or on a server or in a hard drive in a PC? Is it encrypted when it’s being transmitted across the network? Even a local network, is it an encrypted then? Is the appropriate level of access and password protection, and changing of passwords and everything, is that all built into the software from the beginning? So really, those are all best practices that that should be followed throughout the requirements, the design, and then of course in implementation. And then of course when you get into V&V, test them. Make sure that you’re doing a bit of penetration testing, make sure that you’re doing a bit of that button pushing, and trying to find those unintended consequential effects which may allow somebody access into a system.

Rightley:              It’s really hard to test everything of course, but really following good practices and shrinking your attack vectors is your best insurance. You can never be 100% sure that you’re invulnerable. It just doesn’t happen. There’s always vulnerability. The main thing is to make sure the devices and the things that you’re working on, have the smallest attack vectors possible. And that’s really your best insurance. It all comes from just following good practices, good requirements, good design, and using good off the shelf technologies and components that are well supported by the industry, and they’re being tested and proven everyday in use.

Rightley:              You’re right. You’re trying to eliminate surprises. That’s the whole point. So the whole point of applying this AGILE methodology throughout, and while maintaining the quality around the requirements is to eliminate surprises. You’re trying to mitigate those risks as many as you can figure out upfront, and you’re trying to make sure that each sprint you deliver has increasing levels of functionality and that they’re really no surprises from the previous one. So that’s how you’re really ensuring the speed-to-market. You can only make development go so fast. But you can try and eliminate as many surprises as you can, and try and make sure that you’re getting to market when you think you are, even if it’s not as fast as you had initially hoped.

Dan:                       So the term AGILE comes up a lot. I think people throw it around very casually and I think it’s leaked out of software into other disciplines. And there’s AGILE everything. What do you mean when you say AGILE methodology and why is it so critical to integrate it into the development of a Med device software system?

Rightley:              Sure. I think AGILE has gotten somewhat of a bad name over the years in the software development community because I think quite often, AGILE, and as I’ve heard it put, is not spelled A-D H-O-C. It’s not just an ad hoc methodology that allows us to develop a ‘fly by the seat of their pants’ and figure out today what they’re going to develop today. That’s not what AGILE is or supposed to be. There are a lot of flavors of it. And there’s a lot of different ways you can practice it, but they all have a lot of similarity in that it still means getting all of the stakeholders together, getting them to agree on what’s being developed, but being flexible in the way that you develop it. And I think that’s what we’ve really tried to implement here at PSI.

Rightley:              I’ve heard somebody called it that it’s the [wagile 01:20:41] methodology, a little bit what we practice because Waterfall methodology, if you’ve heard of that in software development, and that comes from electronics actually. So you add the Waterfall with requirements and design, you put that together with a sprint-wise development during the implementation phase, and you have [wagile 01:20:58], I’ve heard it called. So the way that, I think, like I said, it just gets a bit of a bad rep. And I think that it can be applied in a lot of different disciplines effectively. You could speak more to electromechanical than me for sure. But it needs to be built and deployed within a framework of good stakeholder agreement, and requirements, and knowing how you’re going to test it on the backend to make sure that that thing that you developed agilely actually does what it’s supposed to do.

Dan:                       I think we’re nearing the end of the time you’ve promised me. So I really appreciate Rightley, taking the time to come on and talk with me. If it’s all right, we’ll put your contact information in the blog post when we post this episode, and folks can get in touch with you if they want to if they want to pick your brain a little bit more.

Rightley:              We’re always happy to help. Getting somebody off to start the right way, it benefits everyone. So we’re always happy to take a phone call and help someone out.

Dan:                       Great. Hey, well thanks very much Rightley.

Rightley:              Thanks for having me.

Dan:                       Take care.

Written by Daniel Henrich

Written by Daniel Henrich

Director of Marketing at Archimedic

MedTech Mindset Podcast: Data Flow with Seth Goldenberg

EPISODE 11 – Data Flow & Medtech Innovation

In this episode, Seth Goldenberg, VP of Vault Medical Device & Diagnostics at Veeva Systems, covers data flow throughout the product lifecycle and how advanced data management can speed devices along the path to market.

Seth and Dan discuss:

  • How data management and accessibility impact the product lifecycle
  • What the device industry can learn from pharma’s data practices
  • How EU MDR is changing the data landscape
  • When in a device company’s growth does a cloud system start to make sense?
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Episode Transcript

Dan:                       Hey, Seth. Thanks so much for joining us today. It’s nice to have you on MedTech Mindset.

Seth:                     Yeah, no, happy to be here and look forward to the conversation.

Dan:                       Great. I’ve just introduced you obviously to our listeners, or at least I will have when we air this podcast. Your career, it seems to me anyway, has followed a pretty interesting, though maybe unexpected, path. At least when we heard that you had had taken your current position at Veeva, we thought, “well that’s a little out of step with where we would have maybe expected you to go next.” But I’m sure you have a good reason for it. Let me just ask you, I think you studied biomedical engineering and then did a PhD in structural biology and pharmacology. You’ve worked as a regulatory chemist at the FDA and then were at NAMSA in both regulatory and product development roles. That’s quite a variety of experiences. Then that led you to your position now as a VP at an enterprise software provider. Can you explain to us how you followed that path and what led you to your current role?

Seth:                     No, those are good questions and yeah, while the positions and the companies have changed the way that I’ve looked at my career has really been around trying to solve some problems, right? So, early in my career is really these hard science problems around basic mechanism of actions, structure function at the molecular level, looking at the pharmacology of doing x-ray crystallography and building crystal structures of large protein complexes to dive into how our cells are working, or these core problems. Then from there I went into drug discovery in the same field.

Seth:                     It’s continuing that same problem set. How do we now use this information to develop new therapies? So as a senior scientist at a drug startup, I learned a lot about that, started to get exposed to regulatory questions, the regulatory challenges that are in front of any product or drug that wants to come to the marketplace, and started to get interested in the regulatory side. I spent the first 10 years of my, let’s say career, as a student and then as a scientist in the field. Then I started to look at regulatory problems. So to answer that, I figured I should go to the place that makes the regulations, right, and is there to protect and promote public health.

Seth:                     I took a position at the FDA, began to learn more about that, understand the regulatory side. From that space too, I also learned about some of the challenges from the regulatory side at a global scale and started a consulting company in China. Again, still answering these regulatory questions. So, while the positions changed, I look at it as science, then regulatory, and that’s how I went into NAMSA continuing to answer those regulatory questions. Local Regulatory, which is what my role was at NAMSA.

Seth:                     Once I got to know NAMSA a little bit more though, the breadth and depth of services that they had from quality regulatory consulting, clinical trials, lab testing, back compatibility testing, there seemed to be a gap in the marketplace for expertise that was linked not only to these individual silos, let’s call them, these individual functions, when and how to use these different functions in product life cycle.

Seth:                     From there, that’s where I started the product development group at NAMSA. That was kind of the shift from the regulatory part of my career into how do I use this science background, this regulatory background ,to improve how products are brought to market, product life cycle. That’s how I got to know Veeva at the time too. Veeva was the ETMF provider that NAMSA used and still uses. They were one of our first device customers that Veeva had. As I continued to understand all the challenges that a company has in bringing a product to market, one of them in my experiences there, was really around data, and how do we share this information across these different processes.

Seth:                     So the groups that I put together at NAMSA, these teams of regulatory experts, quality expert, product engineers, reimbursement consultants, clinical trial experts, physicians, bringing all those people together, it very quickly became a problem to share information across these groups. I would actually have two people who all they did was just makes sure everyone knew what everyone else was doing and the timelines were being met. It just seemed very inefficient.

Seth:                     When the opportunity came up to work at Veeva and work on that technology side of the product, to me, while it might seem from the outside a little bit like jumping around, to me it was still that core problem about product life cycle. How do we manage that processes? What are the technologies that we can bring to bear to improve it and really help companies run and manage their businesses better?

Seth:                     I’ve been at a bunch of different places, but when I look at my career, I would say it’s been answering three problems. First it was hard science, then it was kind of figuring out some regulatory problems, and now, for the last part of my career and until what I’m currently doing, it’s that product life cycle management, bringing products to market and ways to do that differently so companies can worry less about their infrastructure and have a lot of meetings to just keep people up to speed when they could really be using technology in different ways to drive their products into the marketplace and get products to patients faster.

Dan:                       Obviously you then have had quite a bit of experience both with drugs and devices or devices and diagnostics. Being that you’ve been inside the FDA, outside the FDA, in consulting and in the industry, what are the broad trends that you see across how devices and drugs are maybe regulated and how similar and different are those trends, in terms of the regulatory environment and what impact they may have on product life cycles?

Seth:                     The regulatory environment, at the end of the day it’s all about, safety and effectiveness, right? Those are the core questions of any global regulator. The challenges or differences start showing up really fast though between drugs and devices, and that product life cycle’s a key part of that. When you bring a drug to market, you’re bringing that drug to market seven to 10 years. You also are then going to have a series of exclusivity and that drug is not going to change. The drug is the drug. It might go from a syringe into an auto injector to improve compliance, do some of these changes, change the dosage, but usually that’s it.

Seth:                     Whereas the device life cycle, even if you do a PMA, let’s say, you might be innovating on that PMA pretty quickly. You might be making changes a year, two years from now through the supplement process. Or a 501(k), obviously it’s every two years you have a new product on the market. The regulatory environments to address those questions just needs to be different because the life cycle is so different.

Seth:                     Some of the trends though that I’m seeing, of course, also, taking the regulations a step farther, the the shift to value on the payment side and on the market access side, is ones where I think they’re starting to converge again. It used to be that devices were much more transactional in nature around the procedures, and drugs have started that value discussion, it’s kind of the world in which they lived a little bit more.

Seth:                     But with the Affordable Care Act, the devices started to come back in to that value discussion. I think that’s actually good for devices, because instead of when you look at how payers, especially in the US used to look at the reimbursement scheme, it’d be “Am I going to get paid back in three years?” And if it was going take them longer to get reimbursed for the cost of a device procedure, they might not have gone after it. Neuromodulation is a great example, where they might have preferred to just keep on paying for pain medication as opposed to paying more for a neurostimulator that can then reduce that pain, but it’s also a lot more expensive procedure. Some of those shifts that are happening now in the device world and drug world are kind of coming back together in that market access space.

Seth:                     It’s a similar story that you’re starting to see globally for that, and it’s one that does have an impact on regulations. “What are my claims going to be? What’s my strategy going to be? What clinical data do I need to show, not only to the regulators but to the payers to show the value that I have in my product?”

Seth:                     It’s an interesting time, right? Especially with all the device regulations that are going on. In Europe IBDs are coming next from the European side and MDR 2020. IBD are 2022. Then the FDA is even making all these changes. They just completely restructured the whole device side of the business to align more, excuse me, the whole device part of the FDA is now aligned with therapeutic areas from approval through oversight, and there’s talk of how do we change the 510(k) process.

Seth:                     So the dynamic nature of the device world I don’t think is going to go away. I think the drug world is a lot more stable right now from the regulatory side, than the device world is. It’s going to be important to keep abreast of all those regulatory changes and think about how those regulations impact your product life cycle and your business.

Dan:                       Sure. Do you see trends in sort of growing public scrutiny where big Pharma kind of used to be the bad guy and it seems like maybe now med device is getting a little bit of that scrutiny, as well. Do you do see that and what do you think is driving that?

Seth:                     Yeah, and I think a lot of that is driven around of some of the… Any spaces always going to have bad actors that can that come up, but at the same time there are changes that probably needed to be done to improve the safety of devices, especially around the ongoing monitoring and the ability to see these safety trends. A single company might say, “Okay, well only one out of a hundred of my products is having an issue and we can manage that and we report that.” But when all of a sudden in that same device class goes to the FDA and all that information is put together, that then might present a different picture of a particular type of product.

Seth:                     The way that the safety set up was before in Europe, especially with the all the different notified bodies, lack of centralized reporting, the way that the FDA’s reporting and disclosures and the pace of which that had to happen, was letting some of those trends slip through or go unnoticed. I don’t think anyone is in the device world, again in general, there’s always bad actors out there, was having products with issues on the market, but just the way that the safety, the trending and the reporting was set up, really wasn’t set up until you would… it would take a long time for these to be noticed. I think some of the trends that are going on now on the safety side, are so you can see these things right away. You’re going to have adverse events in Europe. Now everything has to go into Eudamed right away. Really fast timeline, and you can see these trends and it’s across the all of Europe, not just a single notified body.

Seth:                     So I think it’s the reason that they’re getting that attention is because some of these systems need to be changed the way the products were marketed… so many products being brought to market quickly, right? I mean, there’s 2000 510(k)’s every year, relative to 50 drug approvals. It’s a big difference in terms of volume, so they need different environments, and I think the regulatory agencies are making the changes and trying out these new models to ensure that they work.

Seth:                     And it’s important to ensure that these products are still being… you don’t want to limit access to a new product or a new therapy that can help someone. You need to make sure that whole ecosystem is in place that still allows innovation and still allows patient access, but still has safety in a way that patients are protected.

Dan:                       Is that why Veeva is turning its attention to the device world, because of the increased expectation that you will collect and manage and analyze your data as part of your product development life cycle?

Seth:                     Well, I think part of it is just where Veeva is as a company. Veeva’s only 12 years old. We’re still a startup in a lot of ways and focus really does pay off, so focusing on the Pharma business and really establishing themselves in that space was the right calls. They could learn the product, really get deep into an industry, and support it. Now I think the time for beginning to focus on devices made sense. There’s a lot of maturity that Veeva has in the Pharma world. We’re the leading eTMF provider now in the clinical space for example, still a lot more work to do, a lot more innovation to be done.

Seth:                     So I think that’s one. Right? Just where Veeva was as a company. In addition, the MDR changes that were going on has awoken a lot of device professionals and a lot of device companies in how they need to look at managing their business and bringing their products to market. For example, the pace of innovation at device companies was so high they really just focused on on that. If there’s a regulatory change, they’ll just hire more regulatory people to keep on doing things the same way. “I have this two year launch window, I can’t deal with a whole business transformation. I’m just going to keep doing what I’m doing already. That’s my focus.”

Seth:                     MDR has really, I think brought to light in particular, as well as other other changes, but MDR in particular has brought to light to a lot of companies that the old way of doing things doesn’t work and they need to think differently about how they’re bringing their products to market, how they’re managing the life cycle, how they run their business and what they’re doing with their data.

Dan:                       Can you maybe expound a little bit? I think you’ve kind of alluded to that one of the reasons you were excited by joining the Veeva team and by Veeva’s expansion into device world is because you see ways in which it can shorten the product development life cycle and really help spur innovation at device development companies. Can you expound on that a little bit for our audience who maybe have had fewer conversations in the past year- [crosstalk 00:15:08]

Seth:                     [crosstalk 00:15:08] That’s a good question.

Dan:                       [crosstalk 00:15:09] than Eric or I have?

Seth:                     I think that the first one or the easiest one is really understanding the visibility to what’s going on across your company and the ability to collaborate across these different historically silos. As I was explaining it when I was at NAMSA, a lot of where I started to get interested was how do we break down these traditional barriers of being quality, regulatory, clinical and market access.

Seth:                     You know and can understand in one room, you don’t need to run multiple clinical trials to address all these different stakeholders. How do I design one study so the patients can understand the benefits to them, the payers understand the value, the regulators understand the safety and efficacy? But to do that you need to have a lot of visibility in the collaboration across your organization and having a cloud based system that everyone can have access to anywhere in the world and see what they need to see at the right time. While it sounds simple, it is very complicated and is also extremely powerful for an organization.

Seth:                     It allows them to unify a lot of their processes across whether it’s in a specific therapeutic area. Device companies therapeutic areas have a lot of differences in how the product life cycle, so that might be the level at which unification makes sense. Or it might be at the corporate level or could be you know, ordinance or something in between and mix of the two. The other big piece, and this comes and talks to an MDR in particular is really about am I audit ready? What’s my audit trail for my whole business process, not only on regulated documents that I’m going to submit as part of my review for my device, but just how I’m running my business, my sales and marketing material, all those changes. How can I be audited at any time and show that value? You show that trail to an auditor, right? You’re seeing changes not only from the FDA, the now notify bodies are doing it, surprise inspections, just like the FDA used to or still does.

Seth:                     The requirements to really be audit ready at all times as opposed to kind of catching up right when an audit starts is, is hugely beneficial.

Seth:                     So again, these are some of just the key things that folks, that companies are starting to think about on the device world or all the reasons we’ve talked about that. Again, Veeva the really fits nicely into, it’s what we’re focused on. Even three years ago, I don’t think device companies were quite ready for this, or ready to look at their businesses like this, and were just more focused on the current paradigms. It’s a good time to be regulatory professionals, there’s not enough of them, so you can’t find them. There’s not enough regulatory folks, their salaries are going up, you’re a big company, you can’t hire enough regulatory people with all these changes going on, so you need to look a little bit differently and what we’re doing and you really just don’t. And at the end of the day, you don’t want innovation to suffer because your business process to seize or the technology you’re using aren’t up to the task.

Dan:                       Right. Okay. So let me ask you, we have folks from companies of all different sizes listen to this podcast. Traditionally I’ve thought of Veeva as kind of a solution for only for the big kids, but in the med tech world, a lot of innovation as you know, happens at startups, small, mid sized companies and with the goal of de-risking it to the point where one of the big players is going to purchase them,

Dan:                       Is it too small minded for those companies to be thinking, “well, we’re gonna worry about managing all this data in the cloud later.” Are there ways that smaller companies could benefit from Veeva or a cloud based way of managing their data?

Seth:                     It’s a great question. So Veeva is a multi tenant cloud provider, so what that means, the analogy I like to use it as you think of the Veeva skyscraper, right? It has the same building, it’s the same plumbing, right? It has this same roof, but every company has their own apartments that has their own data. But what that means for a small company is, whether you have, 20 users, 50 users or 50,000 users, like some of our customers do, you’re getting this same technology. It’s extremely powerful for small companies, and in a lot of ways there’s probably more, yup. There’s a lot of benefit for small companies. I don’t want necessarily say more than big. It’s just different. The benefit that they get is is they’re making their staff, if they can’t go out and hire 20 new regulatory people, if there’s a regulatory change.

Seth:                     They need to do what they can with the staff they have, manage their burn rate, make sure that they’re collaborating and [inaudible 00:19:52] their company because they really can’t make mistakes. These big companies can absorb, if something doesn’t quite hit a timeline, they can absorb some of that. A small company, a couple months might be all you have in cashflow.

Dan:                       Right, sure.

Seth:                     Looking at and thinking about data flow at a small company, definitely mid size companies, is something that I think everyone should be doing. How am I bringing my [inaudible 00:20:16] It really answers that core question, how am I bringing my product to market? How am I managing that life cycle? How am I sharing information with all the key people that need to do it? In addition, one of the other advantages too for small companies is they’re probably having a lot of external partners but this makes sure they control their data and it’s not sitting on one CROS here, a product development company here or regulatory consultant over there.

Seth:                     They know where all their data is at one time and although all the data and documents are still together in one place, it’s unified and they can still connect with all those different partners. Veeva is a big company. We worked a lot of big Pharma. We work with a lot of small medical device companies too. We have over 80 customers in the device world today.

Seth:                     A lot of them are not very big, they have 25 employees, 50 employees, they’re not all the Medtronics of the world. I don’t even know how many that have 70,000 employees around the world. It’s something that I think anyone should be thinking about no matter where they are in their path to market.

Dan:                       Okay. Okay.

Dan:                       When would you say is, while you just kinda said no matter where they are, when would you say is time to get serious about moving from a paper-based to an electronic or to a cloud based like quality system for instance-

Seth:                     Yeah, I think that- [crosstalk 00:21:40]

Dan:                       [crosstalk 00:21:40] who should be the first actors at a device startup or pre-revenue device company to be doing that?

Seth:                     Well it probably depends on the product and what the barriers are. For example, if you’re going to be building a pretty complex device essentially a lot of different suppliers need to manage that flow, those SOPs, a lot of different contract manufacturers, that might make a lot of sense, even if you don’t necessarily have to do clinical trials. If you’re a really innovative product, first in human, first in man, you’re expecting a lot of clinical data to be coming in, it’s usually using CROs around the world that clinical might be your first step. So it’s probably one of those two. It’s probably gonna be-

Dan:                       [crosstalk 00:22:30] situational, right?

Seth:                     It’s probably gonna a quality opportunity or an opportunity for a company to go in and even just document management, even before QMS, where am I just managing my documents?

Seth:                     It might just be a document management perspective, not even a full QMS functionality yet and/or a clinical opportunity. This is my first in human and maybe I can get through with my first 10 patients on paper with this small CRO, but now I know that I’m going to be going to Europe for this study, I’m going to be running this study in the US and [inaudible 00:23:04] I want to control my data, I want to know where it is, I want to be audit ready. Those are also things you might be looking to internalize over time, so you don’t want to have to go and figure out where is all this information and I’m pulling it back from a [inaudible 00:23:18] and I’m building out my own clinical staff. I would say it’s typically probably one of one of those two, depending on the situation.

Dan:                       Let me shift the conversation a little bit and ask you about something that I’ve seen you kind of be very active in talking about on Linkedin and other places, and that’s, I always struggle with this, real world evidence.

Dan:                       Are there ways in which managing your data in a cloud system can inform that initiative, if the industry moves in that direction? What is it that’s got you specifically talking about, I’m just going to call it RWE because I’ll stumble again, and what excites you about it and how does it kind of tie into what you do in there on a day to day?

Seth:                     Yeah, real world evidence is something that’s really interesting, because the regulatory changes are requiring a collection of a lot more clinical data by companies, for safety and/or for showing the value as part of your market access, can show payers the value that your product has in the real world.

Seth:                     But it’s easy to say, right, [inaudible 00:24:39] sometimes easy to say real world evidence, but the challenge of how do I collect this data in a way that’s auditable? How do I collect this data in a way that I can clean it up, share it with regulatory authorities, potentially expand my regulatory claims, which is, if you look at the FDA guidance on real world evidence, is one of the things that they talked about, becomes very problematic. Right?

Seth:                     It’s one of those things that’s great in theory, but in practice it becomes very complicated. It’s something that cloud systems in particular are just really good at collecting data from all these different sources, organizing it and then disseminating it back out to the folks that need it. It’s something that one, is something that right now is looked at as a little bit as a cost center in device companies a lot.

Seth:                     Right now I have to do more trials, I have to collect more data, but in reality also has a lot of value. Bringing this together and figuring out the solution to this, how do I take this something that is costing me money to do it, if it’s cost to the system. How do I collect that in a way to help me with my regulatory story, help me with my payments [inaudible 00:25:43] is one that a lot of companies need to think about. The answer isn’t out there yet.

Seth:                     I actually have a panel at the Med Tech conference this year on this topic with Owen Farris, who was one of the leaders of this guidance and is the Director of Clinical Trials at the FDA, MDIC, who’s a consortium on this, is also going to be on the panel as well as industry. We’ll be talking about some of this because it’s had a lot of discussion in the last couple of years. Companies are starting to do it, start to generate that data, but there’s still a lot of unanswered questions, and it’s a good problem. I like being part of the dialogue and trying and help figure this out and look into the details of what it really needs to be and what the solution should be for the industry.

Dan:                       Yeah, absolutely. Thanks for bringing that up. I meant to plug that session. If any of our listeners are going to be there in Boston at the AdvaMed MedTech conference, end of September, Seth will be there leading a session, and Archimedic will be there too, so come by and meet us. We’d love to talk to you there about this and other related things.

Dan:                       Seth, I may be the last thing standing between you and your weekend and time for your family, so I appreciate you spending the time here. Got one more question for you before I let you go.

Dan:                       Just about MDR and, and its impact. You’ve touched upon it a couple times here, but people are really struggling to prepare for MDR by these upcoming deadlines. I see a lot of chatter about it in LinkedIn groups and I hear some anxiety from people in the industry. How do you see it impacting Med tech innovators? And if we’re talking about a pre-revenue stage company who maybe thinks our beachhead is in the US and Europe is the next step, what do they need to be thinking about when it comes to MDR?

Seth:                     I’ll talk about MDR in general, and then I’ll dive into what it means for big companies as well as startups.

Seth:                     So MDR is part of that change in safety, part of that changes and improvements that I think needs to be done coming out in 2020. There’s a lot of shifts going on, obviously, if people are talking about the notified bodies and how many notified bodies are there going to be. These are real issues.

Seth:                     You look at it, so I won’t repeat all that, that’s all out there. When you look at it, what does it mean to impact and how does it impact your business? It really comes down to auditability of my data and can I track all of the data that I’ve used to run my business.

Seth:                     That’s really what it is at the core. Again, very simple to say in one word, but in reality, how do I actually do that? And it’s one that we’re focusing on a lot here at Veeva and one that I think we’re poised to really help because you’re talking about how do I take this, my regulatory data, as clinical data, whether it’s for a clinical trial or post-market data that I get in the field. How do I integrate that into my clinical evaluation reports that now need to be updated more frequently?

Seth:                     It’s really the whole business, right? And that’s why I think people are really kind of starting to panic because I think a lot of folks were focusing just on one piece of the quality and then they realized they really need to think about how they’re managing their quality differently because now quality has expanded from my manufacturing space and now I need to take those core principles, that documentation and auditability and expand them across my business. That is some of the impetus and stimulus that has caused a lot of device companies to start looking at solutions such as Veeva.

Seth:                     It’s also, as I mentioned, a big part of why I think now for people to start entering this space next, [inaudible 00:29:30] we’ve been here for a while. We have 80 customers already that expand our presence in this space and put more focus on the products and solutions for device companies. Just makes a lot of sense, because unless you’re really thinking about a transformation and really changing about the way you run your whole business, you’re at risk, right? You’re a risk from data audits right here, which would then cost a ton of money. You’re at risk of being non noncompliant. Those are things that you, again, don’t want to be doing. You want to be focusing on innovation and bringing products to your patients. I think also a lot of people thought MDR might not happen, or it’s going to get delayed, but it’s happening and you’re not pushing it back.

Seth:                     It’s not getting delayed. Everyone’s keeps on saying this, but the mission is pretty clear, it’s happening. I think that’s also leading to a little bit of the panic. Everyone’s like, oh yeah, we have more time. You know, we’re not ready [inaudible 00:30:23] and it’s happening. All that together is why I think being MDR Ready or thinking about MDR has had such a big impact. It impacts all of your documentation, all of your product development processes. You have to document all of your distribution channels with UDI compliance, what am I doing around the world? Can I track my product? All my sales and marketing material, everything is impacted by MDR. When you look at the impact of small businesses versus large businesses, large businesses are definitely impacted more because of the number of products they have on the marketplace.

Seth:                     A lot of it is actually sales and marketing requirements and distribution are the big challenges for the big companies. The small companies are less impacted today, I would say in general, because they don’t have that, the distribution and the sales and marketing piece to worry about. The product development process is more similar in the back of mutation or on product development and the needs for MDR. While there are more to bring your products to market or you may have to have more clinical data, your CRs have to be more in depth, those are, I would say incremental as on the preapproval process. Whereas the sales and marketing, the distribution tracking is exponential increase of over what had to be done before. Big companies are definitely impacted more than a small startup, a small start-up or a small innovator, they need to be aware of those things.

Seth:                     The bigger challenge actually for the small company, while they might have a similar regulatory path or the regulatory requirements might be the same, again, maybe a little more clinical data, a better CR, the bigger issue for them is going to be, is there a notified body that that will take me on as a client? I think that’s actually gonna drive a lot of folks look more US, because the notified body bandwidth for small companies is really going to be tight.

Dan:                       Yeah. I understand a lot of notified bodies are kind of pulling back based on based on MDR requirements.

Seth:                     Correct. Yeah. There’s a couple who have decided not to be in that business anymore. I think we’ll get up into 10, 20, I think there’s a lot of folks that are notified bodies who have their applications in review.

Seth:                     We have two approved already, but at the same time that also might be an indicator of the quality of that notify body potentially. Were their systems already prepared for something like this to support that additional approach or documentation?

Seth:                     The big companies I think might’ve had probably had more, again, I’m just hypothesizing here, had more aggressive infrastructure and those things in place, so this transition, it was essentially not, not that it was easy, but a little bit easier. At least the costs to get compliant was, I think, very expensive for the notified bodies too. They had to absorb a lot of costs, train their staff, look at additional staff that they needed to hire to do these reviews. There’s a lot of work for the notified bodies as well, it wasn’t just filling out paperwork. They really had to transform what they were doing and managing their businesses too.

Dan:                       Sure. Cool. All right. Well thank you so much for making time for us on a a Friday afternoon in the summer. I think a lot of our colleagues are out on vacation and enjoying time at the beach. Thanks for making time to talk to us.

Seth:                     My pleasure, hopefully they can listen to the podcast on the beach somewhere, give them something to think about when they get back in the office.

Dan:                       I’m sure that’s everyone’s top priority.

Seth:                     Exactly. But this was fun, I appreciate your time. That was good discussion and hope we can do it again some time.

Written by Daniel Henrich

Written by Daniel Henrich

Director of Marketing at Archimedic

Medtech Mindset Podcast Funding Adam Dakin, Part II

EPISODE 10 – Securing Funding, Part II

In Part II of this two-part episode, Adam Dakin, Managing Director of Dreamit Health, covers funding trends in medtech and how to pitch to institutional investors. (Part I available here!)

Adam and Dan discuss:

  • Medtech funding trends and how they’ve changed in recent years
  • Investor perspectives on medtech vs. digital health
  • How to be build value to make your startup attractive
  • Tips for success at the pitch table

During this episode, Adam references some great resources available from Dreamit for startups preparing to pitch.

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Episode Transcript

Adam Dakin:   Yeah, I mean, so the reality of where we are today in the funding cycles, in the med tech spaces, the vast majority of investors want to see their money going toward commercialization. So while you might not necessarily be on the eve of commercialization, you haven’t hired sales guys, the manufacturing plants not chugging away for spitting out products and in creating inventory for three shifts a day. You might not be at that point, but investors want line of sight to that. They want to believe that my money is going to get you to that point and at least you will be funded for an initial market entry. So that varies widely, right? If you have a very simple widget, with a very straight forward regulatory pathway, it doesn’t cost a lot to manufacturer. Then that kind of accompany may very well be interesting. Whereas another company, it’s still going to take a lot more money to get to the commercialization point even though it might have it in really compelling market opportunity.

Dan Henrich:       Like this kind of an example we started out with. That that has a lot of moving parts, right?

Adam:   Right. And market adoption, especially if it has a big digital health component is a big risk, right? Showing that early product market fit in an incredibly competitive environment. That’s the other thing we didn’t really talk about, but digital health is ridiculously crowded. Because the barriers to entry are so low. Two guys and a laptop can open up a digital health company tomorrow. Can’t really do that on the med tech side. There’s a certain amount of capital that’s required to build stuff, test it, right? That’s why the digital health space is just ridiculously crowded with look alike products. And as an investor it’s very hard to differentiate what’s real and what’s not. So as a digital health investor, we almost have to have at least some reference. You have to have some referenceable customers to even be considered by a professional investor. On the digital health side, you actually need real revenue.

Adam:   You need one to two million dollars of annual revenue as a general rule to be seriously considered by any professional investor. Whereas the good news on the Med tech side, you can get funded a lot earlier than that. You don’t need that one to two million dollars revenue, but you need some compelling clinical data that this works in the hands of real users. So got to offer a little bit of a tangent there, but I think it’s an important point.

Dan:       Well, speaking of one and two million dollars of revenue, you know, so this last milestone that we have laid out in our outline here is your first commercial sales, right? Who’s investing then? Is that where you really start to attract a lot of competition, institutional investors because your acquisition potential is much higher or?

Adam:   Yeah. Well that’s the time at which … I mean once you have that line of sight to commercialization, and as an investor, that’s where I want my money to go. I understand some of my money will always go to continued product development, more clinical data, product line expansion. That’s all good. But I want to be in the market as fast as possible. So I want to believe that in most cases, not always, but in most cases that at least some of that funding will get you to the point of commercialization. Will get you, because that’s what the acquirers want, right? They’re not going to take a lot of market risk.

Adam:   That doesn’t mean you have to have a lot of customers. Those could be your clinical trial sites that convert from doing trials to actually being paying customers. Hopefully they like the product, they’ve already had a good experience with you. Sure. And you’ve already anticipated taking them through that purchasing process so they become your first customer and your first users. That’s a good strategy to use, but that’s what acquirers want to see.

Adam:   Somebody’s got to use it. Somebody’s got to be willing to pay for it. We haven’t really talked much about the reimbursement piece, but clearly depending on your product, if it’s not well reimbursed under an existing code or payment scheme, you might have to get new codes.

Dan:       Right, and that’s a long arduous proposition.

Adam:   That’s right. I mean, that is, in our broken, fragmented healthcare system, that is a long slog. Getting any kind of universal coverage for something is no matter how good your technology or platform may be, investors are going to be very … investors have been burned a lot on great technologies with really compelling clinical data that had a real patient benefit, but took years-

Dan:       For [inaudible 00:36:07].

Adam:   … to get universal coverage, including CMS. And no matter how good it is, people won’t use something if it’s not paid for it.

Dan:       Okay. All right. Wow. That’s a lot to think about, I think for our listeners, for sure. But maybe we can get into the nitty gritty a little bit more … like I said, you’ve been on both sides of the pitch table a bunch of times. And in fact, I think you’ve written some pretty good articles on what are the do’s and don’ts when you’re making … If you get to the point where you’re pitching to institutional investors, what are the common mistakes that med tech founders and entrepreneurs make in those pitches?

Adam:   Because there’s blocking and tackling, right? You need the right content, right? Can’t tell you how many companies pitch us. It’s like, “Where’s your competition slide? Oh that’s not here. Left that out. Oh wait, the market size, no slide there either. oh wait, clinical development plan, that’s not there either.” Those, while not sort of, you know, we call the record scratches, right? Those may not be mortal mistakes. They show that the team is unsophisticated.

Adam:   If you haven’t thought about these things and put them into your plan, what else haven’t you thought about? So it’s a little bit of a red flag. That’s basic stuff. Have the right content, make sure it’s defendable, have references to the sources in your deck. We’re going to challenge you aggressively on all your critical assumptions, right? You better have data to back up whatever assumptions you’re making, you better have data and sources to back it up. Again, very common mistake.

Adam:   A lot of entrepreneurs walk in, we call it the hand wave at Dreamit. The market is this big hands waving, right? Every doctor’s going to want one hands waving, and then that comes with a subtle … I can see the bubble above the entrepreneur’s head when we start challenging that says, “If you don’t see how big this market is, you’re an idiot.” Why don’t you see the vision that I see and believe what I’m telling you?” Because you’re not backing it up with data, right?

Adam:   If you’re going to say every doctor is going gonna want one, how many doctors did you talk to? How many doctors have actually used it? How many healthcare systems are actually purchasing it? Are you in contracting with a bunch of healthcare systems that convinces us that someone’s actually going to want it and buy it. If you don’t have any of that, you’re just making assumptions with nothing to back those assumptions up and we don’t bet on assumptions. Right. So that’s a very common mistake I think. I mean it’s all the classic stuff, right? I mean, some of this stuff is ad nauseum. Yeah, show us a big market, show us you have intellectual property, show us you’re a great team that knows how to execute. Those are all table stakes, right?

Adam:   If you don’t have those boxes checked, don’t bother showing up. Okay. That, that’s kind of fundamentals of what every venture investor will tell you. You gotta be a great team, right? Ad Nausea, management, we bet on management. We bet on the jockey, not the horse, all true, although all very cliche, right? At the end of the day though, we form impressions, first impressions, and I will tell you, I’ve asked multiple venture capitalists this question. They decide within the first 60 seconds, most of the time if you are a venture backable team. So you got one chance, they make that first impression and that’s why a thoughtful, cohesive pitch deck and done in the right way where right up front, right at the very beginning you are really making it clear what your value proposition is and how you’re differentiated from the hundreds of other deals most investors are looking at is critical.

Adam:   Because if you don’t do that, I guarantee you they will be reaching for their smart phones within the first two or three minutes and you’ve been put into the no bucket very quickly. One way to stay out of that no bucket is also make sure you’re super well prepared. Again, surprise. It’s like go into an interview. Would you go to an interview where you knew nothing about the company or the people who were interviewing you? Well, some people do and they probably don’t [crosstalk 00:41:09]. A lot of people do and they don’t get the job, I’m guessing, right? I mean, when a company is coming to a venture fund, it is very common at the very beginning for the fund to say, “So tell us what you know about our fund.”

Adam:   You should be able to say, “I know what deals you’ve done. I know what stage you invest in, I know what your profile is. There are these other companies in your portfolio that I think are very synergistic.” Yeah, we want you as an investor because you have expertise in this space. Oh, I know that two of your partners were on the board of another company that was very successful. We think we can really learn and benefit from folks who have that expertise, right? One, it has the virtue of all being true. And two, it shows that you did your homework before you showed up because a lot of companies answer that with really a morphous, “Oh, we know you’re Andreessen Horowitz and you’re such a great firm and we would just love to have such a brand.” That’s a very weak response.

Adam:   It shows you’re not well prepared. So walk into the fund, do your homework. Know who the partners are, know their backgrounds, know their other investments. Like everything in life, it’s all about preparation and then have that pitch tight rehearsing on other people, solicit critical feedback. You don’t go to Broadway with your first play, right? Go off Broadway. Pitch friends, family, then take it to investor, you know won’t invest. Let them throw tomatoes at you for a while. They’re probably not going to invest any way or just call in favors. “Hey, I know you’re not going to invest, but would you mind just giving me some critical feedback, point out the holes in our story and our pitch.”

Adam:   Once you’ve rehearsed it a bunch of times, and you feel like it’s tight and it’s game ready, then you want to get in front of the high potential targets who might actually invest in your company.

Dan:       All right. So I want to go back to something you said earlier about the importance of being capital efficient early in the process. That’s something that we run to a lot when we’re talking to early stage med tech entrepreneurs. They want to know that they can get as far as they can on that initial money that might be theirs and their friends and families and that sort of thing. But it seems like sometimes they want to be so capital efficient that they’re willing to sacrifice things like speed to market and they want to do an MVP, which is not the same in the med tech world as it is in the digital health world perhaps. How do you view that as an investor, that relationship between when somebody is emphasizing capital efficiency against other factors?

Adam:   Yeah. So I think you’re highlighting the point that these companies can often be penny wise and pound foolish, right? So capital efficiency is table stakes, but most startups by necessity are reasonably capital fisher, right? They’re not paying themselves market salaries, right? They’re not renting an expensive office space. They don’t have super nice office furniture. If you have those things, that’s a red flag. We do. We see companies where the management team is paying themselves ridiculous salaries. And like, okay, that’s a red flag. That is probably not a team that we’re going to be excited about investing in. Those really are more the exceptions than the rules because most founding teams realize that that capital needs to be used to develop the product, not for other perks. If you’re at a startup, you hopefully understand that you’re going to be making some financial sacrifices in hopes of a longer term gain.

Adam:   But that said, yeah, there are places to spend the money and those places include developing, well, let’s even roll it back further. The first step is actually understanding the problem you’re solving, right? And it is amazing to me, and I’m sure you guys see this at Smith wise, where a doctor or an adventure shows up with their widget and they’re like, “This is going to save the world. This is a problem that I face each and every day and man, I’m just so excited about this.” Well that’s not necessarily a market, right? Solving one problem for one doctor.

Dan:       Great data point. Where’s the trend?

Adam:   It takes three points to make a trend. I mean, you have to talk to a lot of customers and that may not just be the person who’s actually using the device in their hand. That probably includes who’s gonna pay for it, right? So the customer and that constellation of stakeholders that will touch your device. You need to talk to lots and lots of those people before you run off. Expend intellectual capital first to understand the problem that you’re actually solving and who you’re solving it for. Amazing. Like that sort of deep discovery phase. How many companies just kind of skip past that with the assumption that if we build it, they will come. That every doctor will want one. Trust me.

Adam:   I think that’s … you can not spend too much time understanding and really coming up with a great problem statement. Great companies generally have great problem statements because I will tell you in any healthcare system, if you’re not solving a big, and urgent problem that’s on the very short list of problems that somebody high up in the organization, once the south, you’re not going to get purchased. You might start the purchasing process, but you won’t survive it. It’s such a slog. You need so many champions to get you through that process, you will never survive it. So first it starts with really understanding the problem that you’re trying to solve …

Adam:   It doesn’t cost much to talk to people and really come up with a good problem statement, which of course will also define, well, help inform the features and specifications of the product or platform that you’re ultimately going to develop. Now, let’s say you’ve gotten past that and now you are ready to spend some real money on product development. And you’re right, the MVP concept, which I think is almost a bad way to describe it. I mean, we tend to think of it … I like to think of it more as a minimal viable experience as opposed to a minimal viable product because the bar is higher in healthcare. What you might call a minimal viable product into a healthcare system, but if they don’t like it, you’re done. And you’d be like, “But functionally it’s doing everything it’s supposed to be doing.”

Adam:   Yeah, but it took me 24 clicks and it took me 10 minutes to set up your device before I could use it. It’s not fitting my workflow. I really don’t care if you call it a minimal viable product, it’s a bad experience and I’m not using it. I think that concept sends, you know, people have a perception of what a minimal viable product is. That doesn’t mean it’s ready to put in the hands of potential customers, right. That’s a little bit of a divergence, but when you look at the other pieces of the business that are going to be critical. Intellectual property is always critical with medical devices, right? No one’s going to fund you if you’re not building something that a, they think you’ll be able to protect and keep as yours and b, you won’t infringe somebody’s else’s patents. Freedom to operate.

Adam:   So, yeah, that’s a place that’s worth spending money. Expensive lawyers. Yeah. You wanna, you wanna hire lawyers that have experience in your space. If you’re an ultrasound device, hire lawyers that have worked on an ultrasound devices. Just makes sense. Regulatory, same thing, right? If you’re a ultrasound device, hire regulatory experts that know that space, right? Not only do they have that pattern recognition from all the experience, but they also probably have relationships in the FDA within those people that assess ultrasound technology that’s going to facilitate the process for you. Those people are expensive. There’s no way of getting around it.

Adam:   Entrepreneurs cringe as I. When I hear the hourly rates that some of these consultants get, but at the end of the day, they’re actually worth it. So always tell entrepreneurs. Hire the expensive lawyers, hire the expensive regulatory consultants, hire the good product developers who know what they’re doing. I mean, there are a lot of product development firms out there that don’t really understand the medical side. They’re happy to knock out a widget for you, right? But does it meet all the standards? Will it pass electrical testing at the hospital? Will it meet the FDA standards when you finally are ready to put that 510K in? If the answer to those are no, you’re not working with the right firm.

Adam:   And that’s why firms like Smith wise are the places you want to go because you guys understand what those requirements are and yeah, guess what that costs more to develop then going to some generic product design firm that’s going to knock out a prototype that’s not gonna sort of … that effort won’t be translatable as you continue your development pathway.

Dan:       Right. Thanks for saying that, I’ll buy you dinner later.

Adam:   No, it’s really true. Look, I’ve done a lot of projects with you guys. This is not a paid advertisement. I’ve seen the difference with firms that do product development with companies that don’t have that depth of experience and it’s very shortsighted. It is less expensive in the short term. There’s an expression, right? There’s never time to do it right, but there’s always time to do it over. And it’s a lot of entrepreneurs who make that sort of mistake.

Dan:       Great. Great. And then we’re coming up on the end of the time we have set aside for this, but I do you have a question about leadership teams. Because I know that investors look very closely at the team that’s going to be guidance thing to market. Often I think we see in this space there’s a change in the leadership team as a product approaches commercialization. How do you view that and what are investors, excuse me, what an investor look for at different stages in terms of the skill sets that they expect to be part of the team that’s going to be able to bring this product to the next milestone?

Adam:   So the vast majority of startups have technical founders, right? That’s an engineer, that could be a doctor who brings the clinical expertise. But the commercialization expertise for the most part is not resident within the company during the early days of product development. And as investors, that’s perfectly fine. That’s what we expect to see. But again, back to the prior conversation that we are all about commercialization. What’s it gonna take to get there? What’s the go to market strategy when this thing gets to market? Who understands that? Who’s going to build that out and execute? We sort of see two scenarios. One is attractive and one is not. The one scenario is, “Hey, we’re, the founders, we’re the inventors, we’re super smart.” They probably are. “And we can take this thing, the distance. We’ll build it, we’ll sell it, we’ll do the marketing, we’ll figure out the go to market.”

Adam:   Maybe that’s true, but for the most part, those teams don’t have that skill set. Okay. So then one of two scenarios plays out. The company makes great progress. That’s awesome. It starts to have line of sight to commercialization. Great. And that team wants to hold on and do the execution and the investors say, “Hold up. You’re just not the right team.” And that can be a difficult conversation to have because at that point, the investors want to bring in outside expertise or senior level management team, even a new CEO of the company to say, “Okay, at this point the focus has shifted. We’re focusing away from the development, still very important, but we are all about getting this thing to the market.” The better scenario …

Dan:       And so should the technical founders be, right?

Adam:   Absolutely. They’re exactly right. Their vested interest is in seeing this seat succeed commercially. The better way to position this is for the technical founder to say, “We get that. We’re all onboard. We cannot wait for an awesome team that gets … but we get to that point where we have line of sight to commercialization. We realize we’re probably not the team to do that, so we will fully support engage with getting that management team in or those experts on board that can take the company to that next step. Like that’s music to an investor [crosstalk 00:55:33] when it’s sincere.

Dan:       That shows maturity and understanding of the industry.

Adam:   Exactly. Because every investor has countless war stories of a CTO or a founder who didn’t want to give up the reigns. And it becomes hugely problematic for the company in ways that some are obvious, but some are less obvious, right? It’s extremely difficult to raise capital for a company where there’s tension between the board of directors and the founders over this issue of bringing in the commercialization team because that’s going to become apparent to investors as they go through the due diligence process. And if it becomes apparent that that’s an actual diligence issue, it just gives us a reason to walk away very quickly. Like, we don’t want to peel back the onion and figure out who’s upset? why are they upset?

Adam:   We call it founder drama. It happens all the time. They’re not getting along. The founder’s vision for how this thing gets commercialized is totally different than the CEO’s vision or the board’s vision. We don’t want to figure out who’s right and wrong. We don’t have the time. We’re just going to walk away. So that alignment between, “Okay, we have this awesome technical team, they’ve really built an amazing product, but now we need to really think about the next step of the company is really important, and you’ve the board, the founders, the future CEO, they all have to be extremely well aligned.

Dan:       Yeah. Great. Well, I think we could continue this for a while, but you have some products to commercialize. So Adam, I really want to thank you for your time and I think this will be really, really good background perspective for our listeners to hear.

Adam:   Thanks, Dan. No, it’s a pleasure. I’m happy to do it.

Dan:       All right. Thanks.

Written by Daniel Henrich

Written by Daniel Henrich

Director of Marketing at Archimedic

The Challenge and Promise of Pediatric Device Innovation

This article originally appeared on Med Device Online.

By Matthew R. Maltese, The Pennsylvania Pediatric Medical Device Consortium, and Daniel Henrich, Archimedic

As a society, we seem to regard the lives of children as more innocent, precious, and worthy of protection than those of adults. This superior valuation of child well-being is not limited to people with children of their own, or those in attendance at pediatric device conferences: in an ongoing MIT study of human perspectives on how autonomous vehicles should behave in the event of an unavoidable collision, respondents regularly indicate the vehicle should be programmed to spare child passengers or pedestrians over adults.[i]

However, the medical device marketplace for children does not reflect these values. There are far fewer pediatric devices than adult devices on the market, meaning one of the most vulnerable patient populations also is one of the most underserved.

In many instances, this reality forces pediatric specialists to find alternative uses for adult devices to treat their patients. One example is a pediatric cardiologist using an adult biliary stent off-label to treat a four-year-old patient with congenital heart disease.[ii] A device designed specifically for that application would, of course, be preferable, but pediatric specialists have to make do, even if the available devices were approved by the FDA to treat a different condition in an adult population.

While devices designed for adults often are repurposed and adapted to treat children out of necessity, this off-label model comes with significant disadvantages. Adult devices often are ill-fitting in pediatric applications and, while physicians follow best practices, consult available literature, and take precautions to protect their patients, the safety and efficacy of devices used off-label has not been established through normal regulatory processes. Innovation or even design iteration of off-label devices is limited, as convincing investors to support a novel device with no regulatory or reimbursement pathway is challenging, to say the least.

Obstacles to Development, Testing, Regulatory Approval, And Reimbursement

The challenges of developing devices specifically for children are primarily market-driven. Objectively, we may believe children deserve access to the best and latest healthcare technologies, but the patient population of children with a particular condition (i.e., the market size) is comparatively small. This is not to say that viable business models do not exist for small medical intervention markets; certainly, compelling value propositions have been developed and come to fruition in orphan drugs.[iii] How to stimulate such an innovation and discovery storm in small medical device markets is an ongoing debate.[iv]

In addition to market challenges, some pediatric device concepts present unique technical challenges that can slow the development, testing, and approval process. A child may depend on a device to perform for a much longer time than an adult patient, and under different — often more active — conditions. A child’s growth also may pose a problem for the device’s function over time, especially an implantable device. Materials may be required that can stretch or be absorbed by the body, but this may not always be possible. Once implanted, a device’s performance may need to be monitored for years before its long-term safety and efficacy can be documented.

These challenges can make it difficult to offset the costs of developing, testing, obtaining regulatory approval for, manufacturing, marketing, and distributing new pediatric devices. Devices for larger adult patient populations typically are more appealing — especially to an institutional investor with a fiduciary duty to its clients — since they offer lower risk and promise higher return due to market size and time-to-market factors.

The good news is that a number of trends are emerging, and initiatives are underway within the industry and at FDA, that focus on enabling pediatric device innovation and smoothing some of the bumps in the road to market.

Pediatric Device Consortia

To help spur innovation in the pediatric device space, the FDA started the Pediatric Device Consortia Grants Program in 2009, with several pediatric device consortia spawned around the United States. In Fiscal Year 2018, the program funded five nonprofit consortia around the U.S. with grants of $6 million (up from $3.6 million in FY2013).

The consortia function in unique ways suited to the approach and capabilities of each member, but also share common characteristics. The first is a common mission to bring new pediatric devices to market to address unmet clinical need. The method to achieve that mission varies by consortium but, in general, each consortium a) oversees disbursement of seed funds to device innovators through an open competition, and b) provides expert advisement and in-kind services to assist innovators along the commercialization pathway.

Such advisement and services include assistance with clinical trials, regulatory strategy, value proposition validation, grant-writing, prototyping, and testing.  Each consortium is made up of industry and medical experts, who evaluate the merits of individual proposed projects and assist with decisions and commercialization.

Real-World Evidence (RWE)

As we collect, store, and analyze more data through the healthcare chain, the use of real-world evidence —“information on health care that is derived from multiple sources outside typical clinical research settings, including electronic health records…and data gathered through personal devices and health applications.”[v] — is gaining momentum throughout the device industry, which could pave the way for additional, faster approvals of devices intended for pediatric populations and indications, as well as inform innovators designing new pediatric devices and device trials.

Both the FDA and industry players see the promise of these initiatives. In the past three years, FDA has issued two guidance documents on RWE[vi] and its applications to pediatric devices.[vii] RWE also was the theme of the 2018 Pediatric Device Innovation Symposium, hosted by the Children’s National Sheikh Zayed Institute for Pediatric Surgical Innovation.

Though the use of RWE comes with its own challenges (e.g., conformance to data quality, reliability, and privacy standards), the RWE initiative holds promise for pediatric device and drug developers as we explore more ways to collect and use healthcare data to inform clinical and regulatory practices.

Humanitarian Device Exemption

Similar in many ways to the FDA Orphan Drug program, the Humanitarian Device Exemption (HDE) provides a shorter regulatory pathway for devices intended to treat rare diseases or conditions (8,000 or fewer cases per year in the U.S.). This program exempts devices from certain effectiveness (but not safety) evidence requirements of the FD&C Act.

While there exist limitations to this program, HDE still provides a way to bring devices to market for very small (often pediatric) patient populations that would otherwise be commercially unviable.

Additive Manufacturing / 3D Printing

Additive manufacturing (AM), more commonly known as 3D printing, is changing the way medical devices are produced within and beyond the pediatric sector. Rather than maintaining an inventory of devices in every possible permutation of size and shape, manufacturers and hospitals can invest in on-demand manufacturing.[viii]

Using 3D printers, devices can be produced in a growing number of materials, at comparatively low cost, and in very small quantities. Devices even can be customized to a particular patient (i.e., “patient-matched devices”), which can be especially helpful in applications like prostheses, where needs vary greatly between patients and change rapidly as a child grows.

According to FDA guidance issued in late 2017, “AM has the advantage of facilitating the creation of anatomically-matched devices,” as well as facilitating the creation of device structures “that would not be easily possible using traditional (non-additive) manufacturing approaches.”

That said, the newness of AM-produced devices, and their lack of clinical history, introduce certain unknowns into the highly controlled process of device manufacturing. Specifically, the FDA’s 2017 guidance notes that the “innovative potential of AM may introduce variability into the manufacturing process that would not be present when using other manufacturing techniques.”[ix]

Conclusions

Though advances are being made, many of the initiatives above are in their infancies, with much more progress needed before we can declare them successful. Solving the problems of pediatric device commercialization will take more great ideas and initiatives than those discussed above. We need clinicians, engineers, entrepreneurs, impact investors, regulators, and legislators working in concert to build on our progress in this area. All of these players, and others, must come together to develop creative solutions to overcome the market challenges that derail so many promising pediatric device projects in today’s environment.

This article is based on a Archimedic podcast interview between Matthew Maltese and Daniel Henrich about pediatric device innovation; you can listen to the conversation here.

About the Authors

Matthew R. Maltese is the Founding Executive Director of the Pennsylvania Pediatric Medical Device Consortium, where he works to support early stage pediatric device teams as they progress towards commercialization. He is also Chief Innovation Officer at X-Biomedical, a medtech startup.

Daniel Henrich is Director of Marketing at Archimedic (formerly Smithwise), where he works to educate industry members about medical product development and how Archimedic can help their organizations advance healthcare through breakthrough medical technologies.

About The Pennsylvania Pediatric Medical Device Consortium

The Pennsylvania (formerly Philadelphia) Pediatric Medical Device Consortium connects Children’s Hospital of Philadelphia (CHOP) with the McGowan Institute for Regenerative Medicine and sciVelo, both based at the University of Pittsburgh. This new partnership comes on the heels of a five-year, $5 million grant renewal from the Consortium’s sponsor, the U.S. Food and Drug Administration. The mission of the PPDC is to support the development and commercialization of promising medical devices that address unmet clinical needs in children.

Written by Daniel Henrich

Written by Daniel Henrich

Director of Marketing at Archimedic

MedTech Mindset Podcast: Securing Funding with Adam Dakin, Part I

EPISODE 9 – Securing Funding, Part I

In this episode, Adam Dakin, Managing Director of Dreamit Health, covers funding trends in medtech and how to pitch to institutional investors. (Part II available here.)

Adam and Dan discuss:

  • Medtech funding trends and how they’ve changed in recent years
  • Investor perspectives on medtech vs. digital health
  • How to be build value to make your startup attractive
  • Tips for success at the pitch table

During this episode, Adam references some great resources available from Dreamit for startups preparing to pitch.

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Episode Transcript

Dan Henrich:     Hey Adam, how are you today?

Adam Dakin:      Doing great, thanks.

Dan:       Hey, thanks so much for joining us. Funding is a topic that we wanted to cover early on in this series, almost every one of the med tech entrepreneurs we talk to is struggling to raise funding to get their project off the ground but before we get into it, maybe can you tell us a little bit about Dreamit and your role there?

Adam:   Sure. So real briefly, my background and thanks so much for this opportunity. It’s [inaudible 00:06:10] to chat with you. My background, I’ve been doing early stage health tech companies really almost since I got out of school. So 25 plus years started out in sales. But since then, I’ve co-founded five health tech companies, served as the CEO of three of those, raised a lot of venture capital across those five companies. Some of those companies went well, some of them did not. So I have both perspectives. Then, about a year and a half ago, I moved really from a career as an operator to the investment side. I joined Dreamit Ventures, which is a venture fund located in Philadelphia.

Adam:   Our focus is digital health and med tech. We’ve been around for over 10 years. We’ve worked with over 130 companies in the health tech space. Our model is a little bit different than traditional venture in that we run what you might loosely describe as an accelerator alongside of our venture fund. That accelerator exists for the sole purpose of generating deal flow into our venture fund. We only invest in companies that go through that program. We are super selective. We take 3% of companies in that apply to that program. So in the health tech [vertical 00:07:25], we work with about 15 to 20 companies a year. We have urban tech and secure tech verticals as well.

Adam:   Model is exactly the same in those verticals, but what is unique about us compared to other programs or accelerators is we don’t take a big chunk of equity up front. There’s no co-location involved. I prefer to describe us more as a sleeves up venture fund because we work very intimately with those select companies that come into the program and we are all about helping them acquire customers. We have an incredible stakeholder network of over 30 enterprise healthcare partners, payers, large multinationals, big Pharma partners who know how well vetted and well prepared our companies are. So they’re willing to engage very closely with those companies.

Adam:   We’re getting access to decision makers for them to accelerate commercial relationships. Then our second big value add is access to capital. We reach out to over a thousand venture funds each cycle. Again, those funds, no, we’re only bringing them the best of the best. So they look very closely at each cohort and then they decide which companies within that cohort they want to get face to face with. Most of our teams will get 15 to 25 face to face meetings with venture funds across a two week period that we call investors sprints.

Adam:   Our track record’s pretty good. Over half of our companies will close around within six months of getting through the Dreamit program and then we will call, invest in the vast majority of those programs. That’s pretty important for us because if we don’t co-invest, we don’t get paid. You’ve kind of gone through the program for free. If we never write a check that aligns interests very nicely between us and the founders of the company.

Dan:       Great. Great. So one of the reasons we thought you’d be such a great guest for this episode, it is just that fact that you’ve been on both sides of the pitch table a bunch of times. And so we want to just give people an idea of realistic expectations. What it’s like to be pitching your medtech company and how you have to think about the investor’s perspective as you go through that process. But maybe before we jump into the nitty gritty of what to do and what to expect in fundraising. Can we just talk about kind of trend of current funding and med tech and digital health and how has that changed if at all in recent years?

Adam:   Sure. The reality is it’s gotten tough for early stage med tech companies to raise capital. There are a number of headwinds that the space has faced in the last few years. There are fewer acquirers now than there used to be. When I started out 25 years ago, if you were orthopedics or you were cardiovascular company, there was a hit list of 20, 25 companies that would acquire you and they would acquire you relatively early. You could have just a limited amount of human data and maybe a little bit of IP around your concept, and the big guys were willing to come in and go, “We get it. You proved at least at works. We’ll take it from here. Here’s a nice check.”

Adam:   Yeah. You may not have raised all that much capital at that point. So exits in the 50 or a hundred million dollar range were still very pretty nice exits for your investors. They were still getting a nice multiple on their invested capital. So what changed? Well, a few things. First, there’s been so much consolidation in the med tech space that now if you’re orthopedics, cardiovascular or other spaces, there might be five buyers for you. Well, the real value creation comes from creating an auction. You get something far enough along that you can get several acquirers interested in buying you, and that’s what obviously bids up the price.

Adam:   So fewer buyers supply and demand. It’s just tougher to get the valuations and the exits that we used to be able to get. The other force is that these companies are waiting to buy things at much later stages, so they’re not willing to take a lot of that early risk. They want things de-risked much further than they used to. They’re willing to pay a bigger price for it, but they don’t want to take clinical regulatory market risk the way that they used to. That’s because they got burned. There were so many bad acquisitions of early stage med tech companies over the last 20 years that if you’re somebody in business development at a big company like Medtronic, do you want to take career risk on something that’s not really proven? Probably not. You don’t want to underpay for something that doesn’t work.

Adam:   You’d much rather overpay for something that does. So the mindset has really shifted. What are the implications of that? As investors, we know we’re going to be in it for the long haul, right? We’re not likely to get a quick exit. We’re going to … it’s going to be a much more capital intensive process to get that company to the milestones where it becomes, an attractive acquisition. So that’s one of the reasons why it’s gotten really tough for early stage investors, right? Assuming you’re not going to get an early exit. And that’s a very dangerous assumption that a lot of entrepreneurs make. We’re going to need a lot more capital along the way.

Adam:   So if you come in early, you are at risk for heavy dilution and it only takes one ugly financing along the way, to essentially wipe out or greatly diminish the equity stake for the early investors. As an early investor, you take clinical risk, you take product risk, regulatory risk, but you’re also taking huge financing risk because if that company has trouble raising capital in the next round, I mean worst case, they don’t raise capital, your investment gets wiped out or they raise capital, but they do it on what might be perceived as very harsh terms. You’re going to get heavily diluted, right? And your equity stake we’ll get either wiped out or dramatically reduced.

Adam:   So unfortunately those are some of the factors that have really made it less interesting. The other big factor is that large sucking sound you hear is the money moving over to digital health. Why is that? So digital health requires … It’s a lot less capital intensive. We just talked about med tech is capital intensive, right? If most medical devices, if I’m going to take them all the way from development, through clinical trial, through regulatory approval, through market launch, right? Those are expensive. There’s a lot of money to be spent before I even know if my product actually works. So I don’t even get to turn the first card over in terms of does it work and is their product market fit until I’ve spent significant amount of money probably over several years.

Adam:   That’s very different from software, right? A couple of guys who are smart with a couple of laptops can build an MVP type product pretty quickly. And you can assess that. So it’s been alluring for investors to go into a space where they think, “Oh, the time to market short, it’s a lot less capital intensive. These guys will be selling a few million dollars of capital there in the market. While that’s true, there’s a flip side to that, which I think a lot of investors who are health tech investors but maybe not experience digital health investors don’t understand because you give that back on the sales side, the sales cycles are very long in digital health. I mean it is not [crosstalk 00:15:25]

Dan:       This is only in the hospital systems and …

Adam:   It’s an enterprise … It’s a system sale, right? Medical devices generally have a relatively small universe of decision makers and it’s a very reasonably well defined process in terms of what the hospital has to do, which committees they have to go through, what budget you have to get approved in. So it’s not fast, but at least it’s reasonably well defined. Selling software to an enterprise healthcare system, we say when you’ve sold a one enterprise healthcare system, you sold the one enterprise healthcare system. The problem is it’s not a scalable sales cycle. It’s a constellation of so many different stakeholders that touch you because it’s software, right? So it might be the patient, it might be the family, it might be the head chair, the clinicians in the department. But it almost inevitably includes the IT department.

Dan:       Where things go to die.

Adam:   Exactly right. We call that the wood chipper in digital health, right? Because you see that long line down the hallway, that’s the line of companies waiting for their product to get integrated into the EHR. I was just talking to one CIO. I was asking him what’s the timeline look like? He said at a large Philadelphia based enterprise healthcare system, 12 to 18 months, if you need a full integration. Now that can be accelerated. If somebody high up once to move you to the top of the pile, it can be done more quickly. But if you just walk into the IT department and say, “We need this integrated.” And they say, “Great, we’ll put you on the list. We’ll talk to you in a year.” Because almost every healthcare system is doing some sort of large scale, Epic, Cerner, large EHR integration, and that’s where their focus, so helping a small company or a startup integrate, not on their priority list.

Adam:   I think that’s frustrating for a lot of investors who go in thinking, “Oh, this is software, this is a SAS type business model. Great margins. We’ll just run out to the market because this solution is so clever and innovative and solves a real problem.” Which it very well may. But the process of adoption is very slow because so many stakeholders have to weigh in. One of our companies in their CRM had 30 different decision makers that they were managing every single day to get through the sales cycle at that hospital. That’s a pretty heavy lift. And by the way, of those 30, five had veto power.

Adam:   So at any moment through that sales cycle, if one person raised their hand and said, “I’m out.” The sale was over. That’s like walking through raindrops. I mean, that’s a difficult sales process, which unfortunately a lot of investors don’t appreciate and ultimately that actually creates some tension between the investors and the management team, which may be a conversation for another day. But it suggests that entrepreneurs should be thoughtful about who they bring in as investors and who they have on their board.

Dan:       Yeah. So do you think there’ll be a pendulum swing back towards the middle or back towards med tech?

Adam:   I’m very optimistic actually because med tech solves [inaudible 00:18:37] there’s generally a clearly defined clinical problem. You’re targeting that. So yeah, I think …

Dan:       And once you show that your product can actually improve patient outcomes, it’s pretty straightforward type of business case to make.

Adam:   That’s right. I mean it’s easier to define the impact on outcomes. One of the things we talk about, not so much in Med tech is ROI, right? Return on investment. You talked to a digital health company, you cannot get 10 minutes in without saying what’s the ROI and what’s the impact on work flow? How does it fit the system? And how can you quantify if the healthcare system sends a dollar on you, they’ll get five back. We don’t really have those discussions in med tech so much because it’s really much more about the clinical outcome. And if there’s a really compelling dramatic patient benefit or provider benefit, they sort of stipulate that there’s an economic benefit.

Adam:   Now that said, there’s still a burden on companies to prove that medical economic benefit, but it’s generally a little bit more straight forward. So yeah, I think right now actually because of the forces we talked about, the reality is med tech company valuations have gotten very depressed. If I put my investor hat on, that creates an opportunity to invest in companies at what feels like relatively low valuations. The exact opposite is happening on the digital health side. The valuations have gotten, in my opinion, ridiculously inflated. Pre-revenue companies that we talk to have a swagger and an attitude around what they think their valuation should be before they sold one dime of product to anybody. And they are raising money at those valuations, which is great for them, for the founders, not so great for us as disciplined investors.

Dan:       Yeah. Okay. I think that’s a great way to frame this discussion. Can we talk maybe about ballpark valuations for a young med tech company. Before they reached their various milestones of de-risking their device and the way to market. Often when we talk with med tech entrepreneurs, they’ve really put their heart and soul into a particular project perhaps for for years but that gives them a very different and perhaps inflated perspective on the value of their idea versus how investors in the outside world are going to see the value of their idea and their project.

Dan:       Say we have a device, it’s going to come to market through a 510K pathway, but it’s connected. It’s got sort of maybe a digital health element to it. It’s fairly complex and it’s going to be say, used to remotely monitor a chronic disease. So it’s not a simple path to market. This is a pretty complex development process. You have that idea and you’re filing for your provisional patent. What’s that idea worth to an investor at that point?

Adam:   Right. So look, as investors, we get the fact that entrepreneurs are passionate, they’re all in. It’s a very emotional connection to the intellectual property or the idea that they’ve developed and they have a vision and hopefully that vision goes beyond the financial returns. It really is a commitment. I mean, we’re in health because we want to help people, right? That’s why most people come. That’s why most inventors dedicate themselves to these types of inventions. The reality is an idea and even a patent, and frankly, even in an early prototype, doesn’t have a whole lot of value from an investor’s perspective. That doesn’t mean it doesn’t have value. It has a lot of value, but investors are looking at things through a purely financial lens. At the end of the day, we’re going to put capital in and we’re going to take capital out and we want a significant multiple on that capital, right?

Adam:   So we want things de-risked pretty much all directionally pointing towards market adoption, right? What’s the process to … How much is it going to cost and how much time is going to take to get it into the market, and then what’s it going to prove that the market will buy it and use it? And the reality is an idea, even a patent and even a prototype doesn’t really help us de-risk that. What we need to understand is how much time? How long is it going to take? What is the process? What’s the regulatory risk? What’s the clinical risk? And then at end of the day, we’re really trying to figure out, well, you know, what’s the market adoption going to look like? So lots of factors come into that. How big is the market? What’s the potential profit margins on your particular product? What’s the sales cycle look like? Et cetera.

Adam:   Are there cost effective distribution channels for this stuff? That all comes into play. We see a lot of med tech stuff that’s really interesting, but it has no economic distribution channel, no way to get to the market cost effectively. That’s a problem, right? That’s particularly true for low cost accessory type items that have potentially a lot of value, but you can’t justify direct sales force to sell those products, which means you’re forced to find a channel partner on day one.

Adam:   Well, if you’re finding a channel partner, they’re going to take a big chunk of the margin, and they may or not be committed to effectively selling and marketing your products. So there’s a lot of distribution risk for those types of companies. There’s a lot of de-risking to be done. The idea, the prototype, the IP, that is the very beginning of a long journey of de-risking the technology.

Dan:       Sure. So it sounds like a VC firm obviously is not going to typically get involved at at this point in investing. So where’s that money coming from at that stage?

Adam:   When you’re at that stage, that’s founder money, that’s friends and family money who are generally investing in you. They believe in the team. Yes, they probably buy into the market opportunity and your vision, but at that point, as I said, there’s little of substantive value from a professional and investor’s standpoint. It’s really friends and family at that point. Once you get a little bit further and at least you have, let’s say, some bench data, then you can start thinking about grant funding. But again, you’re probably …

Dan:       So we’ll call that milestone two, maybe you have a working prototype proving out technical feasibility and you’ve got some bench data to maybe show that it meets the standards for the predicate device maybe.

Adam:   Right. Exactly. So that brings you to the STTR/SBIR potential, for funding to get it to that next level. Then where do you go from there? I mean, at the end of the day, most professional investors want some evidence that the product actually works and somebody’s actually going to buy it, right? In Med tech universe, that’s generally, not always, but that’s generally at minimum some compelling animal data. Really, it’s first in human data, right? That is usually the big trigger and by the way, concurrent with that first in human data, hopefully there are some clinicians who are nodding their heads going, “I used it and I really like it and it seems like it works.” That’s a huge de-risking milestone and we talked to a lot of companies who I don’t think they understand that they need to be laser focused on getting there on his little capital as possible because they’re thinking, “Oh, we got to get the 510K, we got to get regulatory approval, we got to do all these things.” And of course the 510K or the PMA is a very important milestone.

Adam:   This matter if it doesn’t work, like spend your focus and your limited dollars building a product that works and people love, right? You need to understand what the regulatory pathway is. Absolutely. If you’re not an expert in regulatory or there isn’t a really clearly defined pathway, you need to work with people who are experienced and understand how to build a regulatory strategy. But in the beginning, you have to be laser focused on building something that actually works and creating at least a small body of data to support its efficacy and safety.

Dan:       Yeah. I guess another important thing to point out there then is that if you have regulatory approval, that’s the FDA giving you your stamp saying this works to some level, right? You can treat a condition with this, but that doesn’t mean it works better than the standard of care. That doesn’t mean that that it works for an investor or for a clinician to the level that there’s market demand for it, right?

Adam:   Yeah, exactly right? So there’s two crucial [crosstalk 00:28:44].

Dan:       Let’s call that milestone three. You have regulatory approval but …

Adam:   The reality is it does not prove that it works. You can get a lot of 510Ks, with no clinical data whatsoever. I showed it was from a bench top standpoint, it’s equivalent to a predicate device. That doesn’t mean it works.

Dan:       I guess what I mean is that the standard right from FDA is if you get regulatory approval, that means the FDA said you’ve shown to our satisfaction that this is safe and effective, but that’s not … their standard of effective is not the same as what you’re saying that this device works.

Adam:   If you get a PMA, you are correct. You have shown to the FDA satisfaction that your device is safe and effective. If you get a 510K, you’ve shown that you are substantially equivalent to a predicate device. That predicate device may or may not safe and effective, but it was cleared by the FDA before 1976, you know, a strange set of laws, right? Kinda bizarre how this whole 510K system works and it’s all based on predicate devices. But I think your a bigger point is the important one, which is getting regulatory approval does not provide validation of market acceptance [crosstalk 00:30:03]. It doesn’t prove that people will want to use it. It also doesn’t prove at all that you’ll get paid for it. It’s a prerequisite. People won’t use it and you won’t get paid for it if you don’t have regulatory clearance. But the converse is not true. Just because you have that doesn’t mean people will use it. And that’s really the biggest de-risking component that institutional investors are focused on. That’s what they want to see.

Dan:       Okay. So say we’ve cleared milestone three, which is, we have regulatory approval and therefore we’re able to conduct post-market clinical data collection. Then is that the point at which institutional investors may really become involved and what do you call that from a serious perspective?

Adam:   Yeah, I mean, so the reality of where we are today in the funding cycles, in the med tech spaces, the vast majority of investors want to see their money going toward commercialization. So while you might not necessarily be on the eve of commercialization, you haven’t hired sales guys, the manufacturing plants not chugging away for spitting out products and in creating inventory for three shifts a day. You might not be at that point, but investors want line of sight to that. They want to believe that my money is going to get you to that point and at least you will be funded for an initial market entry. So that varies widely, right? If you have a very simple widget, with a very straight forward regulatory pathway, it doesn’t cost a lot to manufacturer. Then that kind of accompany may very well be interesting. Whereas another company, it’s still going to take a lot more money to get to the commercialization point even though it might have it in really compelling market opportunity.

Written by Daniel Henrich

Written by Daniel Henrich

Director of Marketing at Archimedic