How To Kill A Unicorn: The cautionary tale of Theranos

A unicorn in startup jargon is an early stage tech company with a $1 billion+ valuation. Theranos is (was?) a Silicon Valley startup and a unicorn, focused on disrupting the enormous market of diagnostic blood testing.

Valuations are funny things. They are critically important to startup CEOs and investors but ultimately, they are subjective shared opinions based on complex models of present and future events. Startup CEOs and venture capital investors try very hard to keep their company’s’ valuations ever-increasing. Negative news or events can start a cascading cycle resulting in the dreaded “down round” of investment and even ejection from the unicorn club.

Theranos was a unicon, but no longer
Killing the unicorn, British Library

Background

CEO Elizabeth Holmes founded Theranos in 2004. As a 19-year old college student, Holmes pitched an idea to her Stanford professor and was advised to start a company. Through family and personal connections, venture capital money poured in, Holmes dropped out of Stanford and Theranos began its mission to change health care.

Theranos CEO Elizabeth Holmes
Theranos CEO Elizabeth Holmes – Inc. cover photo Oct. 2015

“…it doesn’t work…”

Alas, “mistakes were made” and the company and its executive team found itself in hot water with the FDA and the subject of a number of unflattering stories in The Wall Street Journal and elsewhere. The Theranos head of R&D committed suicide and left a note saying “it [the technology] doesn’t work.” Also, the company president recently resigned and CEO Holmes is banned from owning or operating a lab for two years. In addition, Theranos’s commercial partners, Safeway and Walgreen’s, terminated their agreements with the company.

That’s about as bleak a series of events as you can imagine, right? Well as the infomercial goes, wait, there’s more…

Negative reactions continued over the year since the WSJ story broke. In May 2016, Theranos announced that it had voided two years of results from its Edison device. Patients filed a class action lawsuit alleging they were adversely affected by Theranos’s business practices (specifically, faulty blood tests). Recently, the company announced layoffs of 40% of its labor force and closure of testing labs around the country. In October, 2016 Holmes announced that Theranos would shift its strategy toward development and manufacture of small, robotic diagnostic test equipment – a very crowded market.

In June, 2016, Forbes assessed the valuation of Theranos as $800 million and revised the estimated net worth of CEO Holmes from $4.5 billion at the company’s peak valuation (she has a 50% stake in Theranos but it’s all common stock) to zero.

Theranos valuation history
Theranos valuation history (based on public estimates)

What killed the unicorn? There are a number of bad decisions made by Theranos management and its Board of Directors. Here are 10 of the worst that I identified.

Bad Decisions

  1. Stack the Board of Directors with old, politically connected white guys (Henry Kissinger, George Shultz, Bill Frist, Sam Nunn) with little or no startup, technology, or diagnostics savvy.
  2. Create a cult of personality around the CEO. Make sure she appears on popular magazine covers and is interviewed frequently on TV shows.
  3. Create a not-so-subtle emphasis on the similarities between your attractive, young CEO and Steve Jobs: both are college dropouts, both wear a uniform of black turtlenecks, both are “visionary” leaders, both are/were young billionaires (only on paper in the case of Elizabeth Holmes)..
  4. Keep the founder as CEO, no matter if she has zero prior business or medical industry experience. Do not bring in a strong executive team with relevant industry experience to complement the CEO’s energy, vision, and talent.
  5. Hype your technology but shroud its technical details in secrecy. Worse, secretly use competitor’s technology for the vast majority of the tests performed.
  6. Do not conduct randomized clinical studies to demonstrate efficacy vs. industry “gold standard” technologies. Definitely  do not publish in peer-reviewed journals.
  7. Sign agreements with major commercial partners (Walgreens, Safeway) and conduct major PR campaigns announcing the deals before the technology is mature and proven.
  8. Pay no attention to FDA, CLIA, and GLP requirements. Refuse to learn from what happened to other startups that defied or ignored the FDA (see 23andme).
  9. Aggressively promote your muddled, multi-pronged, “disruptive” business model.
  10. Deny and deflect all bad news. Accuse The Wall Street Journal of conducting a witch hunt.

Takeaways

  1. The medical device/diagnostics industry is not the technology industry. Patients’ health and lives are affected by poor management, decisions, and/or business practices. Consequently, medical technology companies are heavily regulated and conservative regarding innovation. 
  2. If you must have an inexperienced person at the helm of the startup, compensate with a seasoned, accomplished Board of Directors with relevant experience and networks.
  3. Aim to solve one problem at a time. Prioritize. Theranos touted its “Nanotainer” finger stick technology, Edison diagnostic technology, and plans to disrupt healthcare by bringing diagnostic testing directly to patients through grocery and drug stores. That’s a lot of moving parts.
  4. Expect swift and deadly reactions from entrenched competitors (including complaints to the FDA and leaks to the media). Your disruptive business model is their existential threat.
  5. As the saying goes, sunlight is a powerful disinfectant. The first step to success in the medical technology industry is a strong intellectual property portfolio and properly maintained trade secrets that create solutions to real healthcare problems. But that strategy must coexist with a culture of regulatory compliance, stringent adherence to quality standards, and sponsorship/disclosure of peer reviewed randomized clinical studies. It’s a business model that has worked for many successful companies in the industry.

Will Theranos pull out of its nose dive, emerge as a disruptive company in the ultra-competitive medical diagnostics market, and regain its unicorn status? Maybe, but given its track record and penchant for acting more like a Silicon Valley tech startup than a medical technology company, I would not bet on it.

Postscript 12.15.16 The shareholder lawsuits have begun.

References

  1. From $4.5 Billion To Nothing: Forbes Revises Estimated Net Worth Of Theranos Founder Elizabeth Holmes [Forbes]
  2. The wildly hyped $9 billion blood test company that no one really understands [The Washington Post]
  3. An Open Letter From Elizabeth Holmes [Theranos company website]
  4. Theranos Attacks Wall Street Journal (Again) in a Rebuttal You’ll Need a Medical Degree to Understand [recode]
  5. Expecting Data From Theranos, Lab Experts Get New Product [Bloomberg]
  6. At Theranos, Many Strategies and Snags [The Wall Street Journal]
  7. Why the Next Steve Jobs Will Be a Woman [Inc.]
  8. Theranos throws in the towel on clinical labs, officially pivots to devices [Ars Technica]
  9. How Playing the Long Game Made Elizabeth Holmes a Billionaire [Inc.]
  10. Theranos’ Scandal Exposes the Problem With Tech’s Hype Cycle [Wired]
  11. Will Shareholder Lawsuit Trigger Theranos To Return Capital To Shareholders? [Forbes]

  12. Theranos Just Got Slammed With Another Lawsuit [Fortune]

The artificial hip fiasco

http://en.wikipedia.org/wiki/Hip_replacement
image via wikipedia.org

Designing medical devices is hard work. Designing artificial joints is even harder. The ongoing artificial hip fiasco in the medical device industry is proof.

Artificial joints such as hips and knees are incredible technologies. They can take people out of wheelchairs and turn them into active adults. The crippling pain and infirmity of arthritis and other degenerative diseases are banished, at least for a while.

The requirements for these high tech medical devices are challenging. They are implants, subjected to full immersion in bodily fluids and subject to all of the stresses and biochemical processes of the human body. Ideally, the implant should last the rest of the patient’s life although that seems to be one of the most challenging requirements.

Implants such as artificial joints that must move may be the most difficult of all to design and to last in the body. Materials selection is particularly challenging. Metal implants must be sufficiently hard and tough to take the loading and repetitive motion of a patient’s joint for years and years. Ceramic implants must be fracture-resistant to impact loads and shocks, say from a jump or a fall. Polymer implants must be low friction but must not break up under mechanical stress or chemical attack. And coatings must not migrate to other parts of the body. Of course, none of the materials in the implants can be toxic.

Unfortunately, there does not appear to be an ideal combination of materials for hip implants. Interestingly as well (and I’m sure of substantial frustration to device engineers), there does not appear to be a reliable in vitro or in vivo model with which to perform wear and life testing. If there were a robust model, none of these implants would have made it to market without major revisions in materials and/or design.

Implant designs have failed mechanically through fracture and friction and more insidiously, have raised the potential for cancer and autoimmune disorders through migration of metals, coatings, and polymers to other areas of the body. In many cases, patients have undergone additional implant surgeries as a result of the failures. And these are not trivial operations.

A report today in Fierce Medical Devices indicated that Johnson & Johnson has settled 7,500 lawsuits for its metal-on-metal hip implants for a whopping $4 billion. That’s an average of $300,000 per implant and is in addition to other lawsuits settled in October. Other lawsuits against J&J are still pending as well as legal exposure outside the U.S. J&J announced recently that it will exit the metal-on-metal and ceramic-on-metal implant markets in 2014. I’m guessing that the legal settlements wiped out any profits made over the years and is probably going to cost untold numbers of jobs.

J&J’s competitors have problems too. According the the Fierce Medical article, Biomet, Stryker, and others are facing similar liability situations with respect to metal-on-metal implants.

The market for these devices is large and increasing. Hip implants are one of the most frequent orthopedic surgeries. As the population of seniors in the U.S. and other developed countries continues to grow while the baby boom generation ages, demand for procedures that maintain active lifestyles will continue to increase.

Takeaways: The onus is on medical device engineers to create valid in vitro and in vivo preclinical models and to test exhaustively before releasing to manufacturing. Engineers and researchers must also identify biomaterials and designs that are truly biocompatible and able to meet the demanding requirements that these implants must satisfy.

Give the track record of implants, engineers and medical device executives can expect increased scrutiny and skepticism from regulatory agencies, investors, physicians, and patients and their families.

Of course, it also means that there is an incredible opportunity awaiting the company or engineer that can solve this intractable issue.

Read more:

Report: J&J settles most metal hip lawsuits in $4B-plus accord – FierceMedicalDevices.

More Artificial Hip Concerns – NYTimes.com.

Jumper Cables for Your Brain

http://graphics8.nytimes.com/images/2013/11/03/magazine/03brain1/mag-03brain-t_CA0-articleLarge.jpgA novel therapy that improves mental performance in healthy people is being called “jumper cables for your brain.” The scientific name for the therapy is transcranial direct-current stimulation, tDCS for short.

A similar yet very different treatment, electroconvulsive therapy (ECT), formerly called electroshock therapy, doesn’t have a positive image in most peoples’ minds. Popular culture including movies and TV has convinced most of us that it’s used to treat crazy people, usually with extremely undesirable outcomes, and that the people giving the treatment are either mad scientists or evil government agents.

ECT does have a place in modern neuroscience, however. It is often the last resort therapy for patients with intractable depression and other conditions that do not respond to drug treatments.

tDCS uses very low voltage and very little current to achieve its effect, less than 1% of the enegy used in ECT. The tDCS devices being studied today use a 9 volt battery for power. tDCS researchers have been using currents in the range of 300 to 500 microamps. In contrast, ECT uses much more current, about 2000 times as much. According to an article in Wikipedia, “Typically, the electrical stimulus used in ECT is about 800 milliamps…”

 Researchers have identified a myriad of benefits for the novel therapy. From the article in The New York Times:

Scientific papers published in leading peer-reviewed journals since 2005 have shown that tDCS can improve the speed or accuracy with which people perform [a computerized] attention-switching task. Other studies have found it can improve everything from working memory to long-term memory, math calculations, reading ability, solving difficult problems, piano playing, complex verbal thought, planning, visual memory, the ability to categorize, the capacity for insight, post-stroke paralysis and aphasia, chronic pain and even depression. Effects have been shown to last for weeks or months.

“tDCS will not make you superhuman, but it may allow you to work at your maximum capacity,” said Felipe Fregni, the Brazilian physician and neurophysiologist who runs Harvard’s Laboratory of Neuromodulation at the Spaulding Rehabilitation Hospital. “It helps you achieve your personal best level of functioning. Let’s say you didn’t sleep well the night before. Or perhaps you’re depressed, or you suffered a stroke. It helps your brain reach its peak performance.”

No one is really sure why the therapy works although there are theories. The brain is essentially a very complex electrochemical computer. Applying a weak electrical field to neurons while performing a task seems to make the neurons fire easier and to remember the task for some time. Unfortunately, researchers have not yet identified the specific mechanism that is responsible for the improvements. As a result, research funding has been sparse because peer reviewers for funding agencies in the U.S. government remain skeptical.

A number of companies are pursuing commercialization of tDCS technology and are engaged with the U.S. FDA on the regulatory approval process. ECT devices are categorized as Class III or pre-market approval (PMA). It remains to be seen if the new, lower power devices also fall into the PMA category. A less restrictive FDA classification would mean a greater market potential and benefits to ordinary healthy people who are looking for a little mental advantage. I would definitely consider trying one of these devices in exchange for a few of those mental benefits!

Takeaways: There are many processes and body functions that are not fully understood or characterized. When researchers continue to investigate these promising areas despite a lack of funding, it might mean that there is an opportunity for collaboration and eventual commercialization.

Of course, something like tDCS, “brain enhancement technology” comes with risks. What might be the long term effect of the therapy on the brain? What about effects on children and adolescents?

Finally, it will be imperative to separate the new technology from the stigma of electroconvulsive therapy in order to appeal to healthy consumers.

Read more:

Jumper Cables for the Mind | New York Times Magazine

GLNT gets another patent to treat Parkinson’s for transcranial direct current stimulation during sleep.

Hyping a digital health startup

http://graphics8.nytimes.com/images/2013/10/03/technology/bits03-healthtap/bits03-healthtap-tmagArticle.jpg
image via NY Times digital blog

HealthTap is a digital health app and website. It’s a useful way to get health and fitness information that is tailored to your interests. You can even get your specific questions answered by medical experts. I use it myself. In an effort to attract attention and even more users, however, HealthTap appears to have hyped or at least exaggerated its success.

HealthTap works by recruiting physicians (more than 50,000 participate) to answer questions posed by subscribers for free. The subscribers do not pay for the service. I’m not quite sure what their business model is, actually. The rationale for doctors to participate is that the physicians will be recognized (“thanked” in HealthTap parlance), their online reputation will be enhanced, and real life patients will come to them as a result.

After an interaction where a user asks a question and receives a response from a doctor, HealthTap asks the user to thank the doctor or HealthTap and prompts the user for more information. The extra information apparently includes responding with a click to a question like, “This answer saved my life.”

HealthTap keeps a record of all of the positive responses to the “saved my life” prompt and issued a press release when the tally got to 10,000. Nothing wrong with any of that, except there is no way to prove if the app/website/reply really did save a particular life.

As one physician commenter in the New York times article said, “after my third “This saved my life,” I investigated. It was for recommending antifungals for jock itch. Nice pat on the back, but lifesaving? Not!”

Although some of the the lifesaving claims may be legitimate, the touting of “10,000 lives saved so far” on HealthTap’s website seems vaguely desperate and hyped – not what I expect from a serious medical app.

HealthTap also provides a disclaimer on its website and app: “HealthTap does not provide medical advice, diagnosis or treatment.” The disclaimer is obviously there to avoid being treated as an FDA-regulated medical application. Of course, the FDA (and malpractice attorneys) will have the final say on that status. I don’t know how asking a specific medical question and having an answer provided by a physician avoids becoming medical advice.

HealthTap is competing with big players in the health information field. WebMD is the 800 pound gorilla and granddaddy of health information sites. I suppose the executives at HealthTap feel they have to be aggressive in order to create awareness and get users and doctors to take notice. Unfortunately, their real utility and service has been tainted by excessive marketing, in my opinion.

HealthTap appears to be a well-funded Silicon Valley startup. Its investors include luminaries like Eric Schmidt, Chairman of Google, Vinod Khosla, Esther Dyson, and more.

Postscript:  I removed the HealthTap app from my mobile phone because I thought the notifications it provided were too frequent and intrusive. I still receive an email every few days on the subjects I told HealthTap were important to me.

Takeaways: Yes, you need to be aggressive in marketing your startup. There is a lot of competition for mind share among similar startups all over the world, no matter how unique you believe your company/product/service to be.

No, you should not make up or exaggerate claims about your product. Perhaps it can be excused as puffery or marketing hype but healthcare companies are held to a higher standard than consumer products like beer or body wash.

Read more:

An App That Saved 10,000 Lives – NYTimes.com.

HealthTap.com

High tech medical device maker focuses on…China?

http://axialexchange.com/images/articles/Hypertension-Nutrition-Counseling.jpg
image via axialexchange.com

High blood pressure is a significant societal health problem all over the world. Kona Medical is trying to address the huge hypertension population with a noninvasive ultrasound device that might eliminate the need to take daily blood pressure medication. In a somewhat unorthodox move, the company is focusing initially on China.

 

Last year, Medtronic acquired Ardian, another startup that is focused on the same clinical condition. Ardian, based in the San Francisco Bay Area, was purchased for $800 million.

From axialexchange.com:

The statistics for hypertension are stunning. 30% of US adults have hypertension (high blood pressure). Another 30% of Americans are pre-hypertensive. Less than half of those people with hypertension have their condition under control.  A fifth don’t know they have it. The annual price tag for direct medical expenses related to high blood pressure is $131 billion. This is driven in part by the 55 million doctor visits that are prompted by high blood pressure. High blood pressure is present in most first heart attacks (69%), first strokes (77%), and in people with congestive heart failure (74%). High blood pressure was listed as a primary or contributing cause of death for about 348,000 Americans in 2008.

Recent medical research has shown that ablation (destruction) of the nerves around the renal arteries can reduce blood pressure in patients with hypertension. A number of medical device companies are racing to commercialize products based on their proprietary technologies in order to take a lead in this evolving market.

Ardian uses radio frequency ablation delivered via catheter to the area of the renal arteries. Kona is using focused external ultrasound to deliver the therapeutic energy – they are calling it “surround sound.” In a superficial assessment, it appears that Kona has the edge since their technology is completely noninvasive while the Ardian technology could at best be described as minimally invasive.

Of course, what should really matter is which technology works best with the fewest side effect, not how the therapy is delivered. The “best” technology doesn’t always prevail in the medical device industry, however. Sometimes first to market gets and keeps the largest share while in other situations the best marketing prevails.

Kona has previously raised $40 million in venture capital earlier this year and in 2012.

Kona’s latest announcement, to use a new investment of $10 million to launch their product in China, is somewhat confusing. Yes, there are vast numbers of people in China and untold numbers with hypertension. Most, however, probably do not have the type of health insurance that would pay for a high tech solution. In its press release, the company said that their therapy has the promise of being delivered in an outpatient setting. Outpatient hypertension therapy clinics – now that’s a disruptive concept!

China is not a traditional launch market for new medical devices. The company says that the latest investment, from a fund with deep ties to China, will be used exclusively to address the many clinical, regulatory, and intellectual property issues unique to China as a medical device market for Kona’s new therapy.

It will be interesting to see if Kona can successfully launch their product into the Chinese market while simultaneously commercializing for the traditional U.S. or E.U. markets without losing focus or depleting key resources.

Takeaways: Most companies commercializing novel medical devices pick a launch market and stick with it. There are any number of reasons to launch in the U.S. first. Other companies pick the European Union countries and some look to large, less regulated countries in South America.

While many development and commercialization tasks are the same no matter which initial market is selected, there are important differences. It’s usually best to choose the first, second, and perhaps third initial markets so that the launch components are not uniquely different and the company can use scarce resources for other commercialization tasks.

 Read more: Kona Medical raises $10M to reduce high blood pressure for people in China – GeekWire.

Kona Medical

Medical Device Startup Fundraising: 5 keys for your pitch

Woman presentingIf you are leading a medical device startup, fundraising is your top priority. Here are five key points that you must address in every pitch that you make, no matter if it’s for a grant, seed investment from friends and family, angel investment, venture capital funding, or strategic partnerships with multinational medical device companies.

From the article:

  • Be clear on what your product is, right up front
  • Articulate the important problem you are solving
  • Define your customers
  • Spell out how you will create value with the $$ you are raising
  • Instill confidence in you and your team

Another way to look at the pitch is to think of it in terms of risk reduction. Most experienced investors talk about three main areas of risk in startup investing:

  • Technical Risk
  • Market Risk
  • Execution Risk

Investors will not move forward with an opportunity unless they believe that these key risks have been addressed and are below their personal threshold. Of course, you will never know that threshold so you must work to convince the investor that you have mitigated the three risks to the maximum extent possible.

Technical risk is all about the product or solution. Does your product solve the customer’s problem? Have you built a working prototype? Do you have an animal model? Have you performed animal testing? Are there important technical issues yet to be resolved? Do you have any intellectual property protection? Have you conducted a freedom to operate analysis? Does your product or solution depend on products or IP owned by other companies? Have you conducted beta testing? What’s your regulatory classification and plan? Are there more products in the pipeline?

Market risk is about the customer(s). Have you identified the problem? Is the problem a large one? Is the market opportunity big enough to justify the investment? Who are the customers? Why will they buy from you? What’s the competition (and don’t make the rookie mistake of saying that there is no competition)? Do you have evidence of demand? Do you have testimonials or at least interest from Key Opinion Leader customers? How do you plan to distribute and sell your product? How does your product or solution fit in today’s environment of managed care, healthcare reform, and evidence-based medicine? What’s your reimbursement strategy and plan?

Execution risk is about you and your team’s ability to convince investors that you can use their money to execute your plan. Does your team have the talent and experience to successfully commercialize your product? Do you have experienced and knowledgeable advisors, both business and clinical? Do you have a credible business model? What are your key milestones? What’s your exit strategy? Do you have a detailed pro forma income statement, especially for the period up to launch and for the two years after launch? Will you execute it exactly as conceived? Of course not, but you should be confident in your plan and your ability to execute. You should also have detailed contingency plans for the inevitable crisis when things go awry. 

Takeaways: Like many things, being successful at medical device fundraising requires being a great salesperson. Whether it’s a surgeon or an investor you’re selling to, put yourself in the place of that person. Be sure to address the five key points with details, evidence, and background information: product, problem, customer, milestones, team. Also keep in mind the risk tolerance of the investor. Your ability to communicate mitigation of technical risk, market risk, and execution risk will determine your success in fundraising.

Read more: Medical Device Startups: 5 essentials for your pitch deck | MassDevice.

A Cautionary Tale: Biotech firm Atossa recalls its only product | The Seattle Times

Atossa Genetics is an early stage biotechnology company in Seattle developing breast cancer diagnostic tests and medical devices using molecular diagnostic technology. The publicly traded company ran afoul of FDA regulations earlier this year and last week announced a voluntary recall of its products, causing its stock to tank.

The company bills itself as “the breast health company (TM).” Atossa is small, with only ten full-time employees (at least five of whom are senior management executives) according to Yahoo Finance.

Here’s a timeline of company events:

  • November 8, 2012 Atossa Genetics, Inc. Announces Initial Public Offering (NASDAQ exchange, IPO value $4 million). That’s not a typo. It really was $4 million, 800,000 shares at $5 per share.
  • February 21, 2013 Atossa Genetics, Inc. received a Warning Letter from the FDA regarding its Mammary Aspirate Specimen Cytology Test (MASCT) System and MASCT System Collection Test. From the company’s press release:

“The FDA alleges in the Letter that following 510(k) clearance the Company changed the System in a manner that requires submission of an additional 510(k) notification to the FDA.”

  • March – September 2013 Atossa Genetics Inc. continues marketing its products, announcing numerous distribution and partnering agreements as well as supporting women’s health events.
  • September 18, 2013 The company’s stock closes up almost 21% in one day at $6.00 on volume of more than 8.4 million shares traded when it announces a distribution agreement with medical distributor McKesson.
  • October 4, 2013 Atossa Genetics Inc. initiated a voluntary recall to remove the ForeCYTE Breast Health Test and the Mammary Aspiration Specimen Cytology Test (MASCT) device from the market. This voluntary recall includes the MASCT System Kit and Patient Sample Kit.
  • October 7, 2013 Atossa Genetics Inc. stock opens at $5.32 and quickly drops to $2.66 (down 50%) on the news of the voluntary recall. The stock closed today at $2.45, an all-time low.
  • October 7-8, 2013 At least six law firms have announced initiation of shareholder lawsuits in the aftermath of the recall.

Apparently, the company and the FDA disagreed on whether a new 510(k) was required after the company changed the Instructions for Use (IFU) on its product. The company seems to have decided to continue marketing without submitting a new 510(k). What happened next is unclear but the “voluntary” recall ensued.

The company told The Seattle Times that it currently has “sufficient cash for the next 8-12 months of operations without raising additional capital,” though it cautioned that the cost of the recall and other associated expenses is not yet known. Sales revenues were about half a million dollars for the first half of 2013. Atossa reported a $2.2 million loss for the same period.

According to The Seattle Times, Atossa is continuing to develop other diagnostic tests but “will be reassessing the regulatory status of these products … in light of our recent experience,” said CEO Quay. Seems like a prudent action given their recent history…

Takeaways: Do not disregard the FDA. They have the power to shut down your company. If you have a fundamental disagreement with FDA, hire a regulatory consultant and attorney and take their advice.

Make sure you have people with experience in commercializing medical devices, especially regulatory affairs, on your executive team and board of directors.

Think carefully before deciding that an IPO is your best financing option. There are very large fees to be paid and the reporting requirements (Sarbanes-Oxley, etc.) are much more revealing – and onerous – than anything required if you remain private and use VCs or angel investors as your sources of capital.

As the article points out, there are plenty of attorneys waiting to represent disgruntled shareholders. Perhaps you can prevail against all of this adversity but think of the opportunity costs in lost time and cash spent on lawyers and regulatory revisions instead of product development or marketing.

Read more: Biotech firm Atossa recalls its only product | Business & Technology | The Seattle Times.

8 healthcare applications for Microsoft Kinect, 6 reasons not to pursue them

Microhttp://dri2.img.digitalrivercontent.net/Storefront/Company/msintl/images/English/en-INTL_Kinect_for_Windows_L6M-00001/en-INTL_L_Kinect_for_Windows_L6M-00001_mnco.jpgsoft’s Kinect is absolutely amazing technology. And Microsoft keeps improving it. Did you know that Kinect has multiple potential healthcare applications?

If you have an early teenage or “tween” kid, you probably have an Xbox gaming system. The Kinect sensor technology is perfect for all sorts of innovative interfaces for dance, exercise, and role-playing games.

The Kinect sensors and software have the ability to perform skeletal mapping on multiple people simultaneously, to detect 3D gestures and motions and facial and voice recognition. Kinect can even determine users’ heart rates! The device also has the ability to “see” in the dark with infrared camera technology.

The Microsoft Kinect is an amazing amalgam of sensor technology. I’m sure it has many useful and possibly disruptive applications in healthcare and other industries.

Here’s why you should not base your healthcare product or application on Microsoft’s Kinect:

  1. Single sourcing is risky for any startup business or new product development organization. You have no alternative way to duplicate  or replicate the Kinect functions if Kinect or its key functions are unavailable for any reason.
  2. Healthcare is not Microsoft’s core business – it could remove access at any time and/or de-emphasize it in any number of ways. In fact, Microsoft is in strategic transition right now and its long-time CEO, Steve Ballmer, announced recently that he will be retiring in 2014.
  3. You have no access to the device’s source code – access to that code might be necessary if you are developing an FDA Class II or Class III device.
  4. The Microsoft Kinect is based on a console or PC-centric world view. What about tablets and smartphones? Oh, and don’t expect to ever see an Android or iOS device with Kinect capability.
  5. Although Microsoft has made an SDK available for Kinect development on Windows operating systems, the installed base of 24 million Kinects is almost all in Xbox gaming systems. Microsoft is not interested in giving up valuable real estate on its premier gaming platform to comparatively low volume and low margin healthcare apps. If you develop a Kinect-dependent windows app, you will a). have to wait for an installed base to develop or b). take on the added risk of marketing Kinect hardware to create your own installed base.
  6. You will have little technical support from Microsoft simply because your business potential is small compared to their other ventures.

If those six reasons aren’t enough to give you pause, here are the healthcare market areas identified by MobiHealthNews that are particularly suited for Kinect-enabled applications.

  1. Fitness and Exergaming – games and exercises to get people off the couch and on their feet
  2. Physical Therapy  – conduct PT sessions, monitor recovery
  3. Surgery Support  – hands-free image manipulation
  4. Autism Screening and Therapy – not quite sure what the advantage is here. Perhaps some on the spectrum can’t relate as well to people?
  5. Virtual Visits and Virtual Nurses – automated nursing visits. I think this is a bad idea, as senior shut-ins crave human contact.
  6. Virtual Group Therapy – avatar-based online group talk sessions (I believe you can do this with Google Hangouts as well)
  7. Aging in Place and Fall Prevention – gait analysis and fall prediction
  8. Helping the Blind to Navigate and the Deaf to Communicate – using machine vision and text to speech

Takeaways: It’s incredibly risky to develop new technology that’s based on someone else’s proprietary technology. It’s even more risky if that proprietary technology is primarily focused on non-healthcare applications.

You should consider open source projects as an alternative. There are many open source projects all over the world. If it’s critically important to you, try organizing and starting an open source project to support your development work.

If you must use the proprietary technology, try to negotiate a development agreement that places key parts of the technology in escrow so it is still available to you in the event of a default to the agreement. This tactic doesn’t work with gigantic corporations like Microsoft but it may be effective with smaller partners.

Read more: Eight ways the Microsoft Kinect will change healthcare | mobihealthnews.

How to Get Payors to Pay For Your Medical Device | MDDI Medical Device and Diagnostic Industry News

You and your medical device development team have created an exciting new widget. You’re gearing up for a costly product launch. How do you make sure health insurers will reimburse hospitals for purchasing your device?

It’s a very important question because hospitals will not purchase your device unless they are confident that they will receive reimbursement from the payor (insurance company).

If your widget is the same as existing products except it’s cheaper, congratulations. You’ve developed what could be considered a commodity product. You can take advantage of existing reimbursement codes (CPT and DRG) and explain the codes to the physicians and decision-makers at the hospital. You can sell your device on the basis that it saves money.

If you have created a really new widget that is unlike other devices, congratulations again. You’ve developed a differentiated product. Your reimbursement effort is just beginning.

If you haven’t done so yet, now would be a good time to engage with a reimbursement consultant. Perhaps your new widget can fit within existing reimbursement codes. If not, the path will be long and involved to get a new code – a topic worthy of its own post, perhaps even a chapter in a book.

In a discussion at AdvaMed 2013, Alan Muney, chief medical officer at Cigna, said Cigna asks three questions when considering coverage for a new device:

1. Has the new technology been proven by studies in peer-reviewed journals?
2. Has the new technology produced better outcomes than current technologies?
3. Does the new technology produce the same outcomes as current technologies but at a lower cost?

These seem like reasonable questions. Although Dr. Muney did not explicitly say so, I’m assuming that you need only answer “yes” to one of these questions in order to be considered for coverage for your device. The questions all have implications, however.

First, to have a study published in a peer-reviewed journal generally means you must conduct a randomized clinical study with enough statistical “power” to make a definitive conclusion. In this context, “proven” means that the new technology has equivalent or superior clinical efficacy to the existing “gold standard” technology. And you already know that clinical studies are expensive and take a long time to conduct.

Second, “outcomes” are more focused on patient health than on a comparison with other technologies. You will need to conduct a clinical study, but with different endpoints measuring different things. The study may last longer and involve more patients, all of which will cost more money and involve more risk to you, your company, and your investors.

The third question adds costs to the equation, not just the procurement costs of your device but the Big Picture costs: does your technology reduce or increase overall costs to the healthcare system? At this point, you may need to consult with a healthcare economist to determine what to measure and how to measure it. And proving cost claims usually involves conducting a big, expensive clinical study. Of course, if you prove better outcomes at reduced cost to the healthcare system, congratulations again. Your product should be adopted rapidly and your focus will shift to keeping up with demand.

Takeaways: Obtaining medical device reimbursement is complicated and risky. It increases costs and time to market for many medical devices. You can’t go to market without knowing how (or if) your device will be reimbursed by insurers. During your business planning process, you should have an idea as to which of the three questions raised by the Cigna CMO you can positively answer for your device. That response should also help inform the size, cost, and duration of the clinical study you will need to conduct. And that will be an important component of the capital you need to raise for commercialization,

Read more: Cigna CMO Explains How to Get Payors to Pony Up For Your Device | MDDI Medical Device and Diagnostic Industry News Products and Suppliers.

FDA finally publishes final guidance for mobile medical apps | mobihealthnews

This has to be welcome news to any company competing in the mobile health market segment. Although the guidance is not binding in typical FDA fashion, it does remove some uncertainty about what the FDA considers mobile software that should fall under Class II (510k) device regulations.

Apparently, lobbying elected officials has some benefit. The story reports that the FDA promised to issue the guidance “in the current fiscal year” in congressional hearings last summer. We are in the last week of the fiscal year and true to the FDA’s word, the guidance is finally issued, two years after the draft guidance was issued.

As one might expect in a “land grab” environment, the absence of regulatory guidance has not been a barrier to market for a number of companies. There have been 100 510(k) marketing clearances issued for mobile medical applications in the past ten years, 40 of which occurred since the draft guidance was issued.

Some companies might have bigger concerns in that they are actively marketing apps that fall under the regulated category but have not obtained 510(k) clearance. Two acne treatment apps were removed from the Apple and Android app stores by the FTC recently.

The guidance treats mobile apps in four broad categories:

  1. Class II apps:

a. Apps that “are intended to be used as an accessory to a regulated medical device – for example, an application that allows a health care professional to make a specific diagnosis by viewing a medical image from a picture archiving and communication system (PACS) on a smartphone or a mobile tablet.”

b. Apps that “transform a mobile platform into a regulated medical device – for example, an application that turns a smartphone into an electrocardiography (ECG) machine to detect abnormal heart rhythms or determine if a patient is experiencing a heart attack.”

2.  Mobile Apps for which FDA intends to exercise “enforcement discretion” (meaning that FDA does not intend to enforce requirements under the FD&C Act).

From the Guidance:

FDA intends to exercise enforcement discretion for mobile apps that:

• Help patients (i.e., users) self-manage their disease or conditions without providing specific treatment or treatment suggestions
• Provide patients with simple tools to organize and track their health information
• Provide easy access to information related to patients’ health conditions or treatments
• Help patients document, show, or communicate potential medical conditions to health care providers
• Automate simple tasks for health care providers
• Enable patients or providers to interact with Personal Health Record (PHR) or Electronic Health Record (EHR) systems.

3.  Apps that are not medical devices and thus are unregulated: Apps that provide a means of monitoring and reporting health parameters and activities but that make no claimed benefit. Examples:

a. Mobile apps that are intended to provide access to electronic “copies” (e.g., e-books, audio books) of medical textbooks or other reference materials with generic text search capabilities. These are not devices because these apps are intended to be used as reference materials and are not intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease by facilitating a health professional’s assessment of a specific patient, replacing the judgment of clinical personnel, or performing any clinical assessment.

b. Mobile apps that are intended for health care providers to use as educational tools for medical training or to reinforce training previously received. These may have more functionality than providing an electronic copy of text (e.g., videos, interactive diagrams), but are not devices because they are intended generally for user education and are not intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease by facilitating a health professional’s assessment of a specific patient, replacing the judgment of clinical personnel, or performing any clinical assessment.

c. Mobile apps that are intended for general patient education and facilitate patient access to commonly used reference information. These apps can be patient-specific (i.e., filters information to patient-specific characteristics), but are intended for increased patient awareness, education, and empowerment, and ultimately support patient-centered health care. These are not devices because they are intended generally for patient education, and are not intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease by aiding clinical decision-making (i.e., to facilitate a health professional’s assessment of a specific patient, replace the judgment of a health professional, or perform any clinical assessment).

d. Mobile apps that automate general office operations in a health care setting and are not intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease.

e. Mobile apps that are generic aids or general purpose products. These apps are not considered devices because they are not intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease.

Takeaways: While the FDA appears to move at a glacial pace in many instances, it eventually responds to market activity. Mobile health is a growing segment and should grow even faster in the coming years.

The trick to escaping regulation under the “enforcement discretion” provision is to avoid making diagnoses or recommendations for treatment. If your app/device interfaces with a class II device or provides diagnostic or therapeutic information or suggestions, you are going to need a 510(k).

 Read more:

FDA finally publishes final guidance for mobile medical apps | mobihealthnews.

Get the FDA Guidance here:

 http://www.fda.gov/downloads/MedicalDevices/DeviceRegulationandGuidance/GuidanceDocuments/UCM263366.pdf

Startups beware. A potential “death sentence” awaits the uninformed.

A fine example of unintended consequences, the JOBS act (Jumpstart Our Business Startups) was supposed to make it easier for startup companies to raise capital and to talk about their financing needs without getting into hot water with the SEC. The law was passed with bipartisan support, and was signed into law by President Obama on April 5, 2012.

As this GeekWire article points out, the new law has made it somewhat easier for startups to conduct IPOs. Unfortunately, that’s the last thing a startup does before it gets transformed into a public company.

The provisions of the JOBS act can actually jeopardize the fundraising activities of a startup during the critically important early stage, before significant capital has been raised and probably before the companies can afford expensive attorneys to advise them.

The main issue with the JOBS act from a startup perspective is that it has complicated rather than simplified the rules around “general solicitation,” the prohibition against publicly offering equity in the company in exchange for investment. The prohibition applies to participation in pitch events, very common forums where startup CEOs present their pitches to a crowd containing a mixture of people, including (it is hoped) a few angel investors.

At least one Internet-based angel investor “crowdsourcing” site, Poliwogg, is counting on the new law to attract novice angel investors to its online marketplace for healthcare company investment opportunities. It remains to be seen if the details of the regulations have a chilling effect on what could be an important resource for early stage startups and for prospective angel investors.

Dan Rosen, a prominent Seattle angel investor who was interviewed for the GeekWire article, pointed out that the “death sentence” can occur if a startup makes two mistakes regarding general solicitation. The penalty from the SEC is a one year prohibition against fundraising. That would sink most startups.

What’s next? A number of organizations are lobbying for changes to the law or at least a more lenient interpretation by the SEC. Given the polarized climate in Washington, D.C., it may take some time for this issue to be resolved.

Takeaways: Startup CEOs should educate themselves about the provisions of the JOBS act as it applies to them. As the saying goes, ignorance of the law is no excuse. I’ve been reading the blog of a Seattle attorney who has a special interest in this matter, William Carleton. You can reach his blog here: http://www.wac6.com/ It’s also wise to engage a corporate attorney who is experienced in startups and startup financing law. Yes it’s expensive but it may be the best insurance you can buy for your startup.

Read more: The messy side of the JOBS act, and the potential ‘death sentence’ for startups – GeekWire.

Top 10 Pitfalls of a 510(k) Submission and How to Avoid Them | MDDI Medical Device and Diagnostic Industry

The FDA marketing clearance process (never “approval” for a class II or 510(k) device) can be maddeningly ambiguous, time-consuming, expensive, and risky if conducted incorrectly. There are, however, many companies that have a straightforward and relatively easy pre-market notification process. This article in MDDI lists a number of dos and don’ts to help you and your company end up in the latter category.

“Top Ten Pitfalls:”

  1. Misconceptions about 510(k)’s goals. 
  2. Not knowing the regulatory history of your product in the United States.
  3. Choosing the wrong comparison (predicate) device. 
  4. Choosing a predicate that is not available to test. 
  5. Choosing a predicate that is not available in the U.S.
  6. Not understanding (or being able to find) appropriate guidance.
  7. Not starting validation testing.
  8. Errors and inconsistencies in the 510(k). 
  9. Inattention to FDA’s instructions. 
  10. Missing and incomplete forms. 

My experience is that many people new to the 510(k) process misunderstand the FDA’s goals and role in the 510(k) process:

In the 510(k) review process, devices that meet eligibility requirements are “cleared” as opposed to being “approved” by FDA…The requirements and expectations for a properly completed 510(k) have evolved along with medical technology.

…the documentation must show that the device is “substantially equivalent” to a previously cleared (predicate) device. The device needs to have the same intended use and technical characteristics [as the predicate, but not necessarily the same technology]…The reviewers will also want to see data substantiating that the device’s performance, safety, and effectiveness are equivalent to the predicate.

Here are some of my own recommendations for avoiding FDA pitfalls:

  • Hire a regulatory professional, either a consultant or an FTE. Give special consideration to the regulatory professional’s experience and field of expertise. You want someone who has extensive experience with products in the same regulatory classification and preferably the same medical specialty as your products. If you can’t afford to have the regulatory person manage the entire 510(k) process, negotiate to have them help you with planning and to review all part of the submission as well as any communications with FDA.
  • Don’t second guess or micro-manage the regulatory professional. You should ask questions and have discussions, intense and challenging if necessary, about schedule, budget, indications, predicate device selection, test requirements and plan, clinical study requirements and plan, and so on. Once you have a recommendation, proceed. Trying to force an answer that is satisfactory to you will almost inevitably result in delays and increased expenses. If you find that you are spending a lot of time questioning your regulatory professional’s decisions, it’s probably not a good fit and you should find a new regulatory person.
  • Do not second guess the FDA and do not ignore their questions or recommendations. Also, do not assume that you can rely 100% on their answers to your questions. The FDA will always tell you that their guidance is not a legal opinion and is not binding. As the saying goes, “you pays your money and you takes your chance.”
  • On the other hand, don’t be afraid to ask questions of the FDA. This is particularly true if you fall into the “small manufacturer” category. You can get extra help free of charge from FDA staffers. Once again, however, do not rely exclusively on this guidance.
  • If you are concerned about risk, timing, and/or expense, consider launching your product in another market first. You can generate much-needed cash flow and perhaps even obtain clinical data for your 510(k) submission in places like the EU or a country in South America.

Takeaways: Regulatory submissions and clearances are among the most important milestones in commercializing a medical device. It would be foolish to leave this important function to amateurs or to ignore important recommendations and guidance.

If you are a medical device startup CEO, marketing manager, or product manager and especially if you are without much regulatory experience, be sure to budget for and recruit a highly regarded regulatory professional with experience and expertise in your market and your regulatory classification. The regulatory clearance process is complicated and can be daunting to novices but it can be successfully navigated by engaging experts and by learning and following the rules.

Read more: Top 10 Pitfalls of a 510(k) Submission and How to Avoid Them | MDDI Medical Device and Diagnostic Industry News Products and Suppliers.

Obamacare is Changing Market Access | MDDI Medical Device and Diagnostic Industry News

Access to the healthcare market is changing for medical device companies, particularly for startups with new technologies and no track record. It’s not clear to me if Obamacare is really the driver or if it’s the larger initiative of “healthcare reform” that’s causing providers and payers to make changes in the way they do business.

In any event, providers such as hospitals have become more demanding of new products and new companies. They want to see evidence of clinical efficacy as well as evidence of economic efficacy (outcomes) before they agree to purchase or in some cases, trial the products. Importantly, payers – private insurers and Medicare – are slowing, reducing, or even denying reimbursement for new products and procedures. The outcomes data is being called comparative effectiveness research. Most current data supplied by industry has been deemed insufficient. Evidence of the increased demand for data is the current emphasis on and support of healthcare IT applications by government entities as well as payers.

The authors of this article argue that responsibility for market access must be broadened to become an integral part of the commercialization process like regulatory clearance and that it should be applied to a broad cross-section of the organization and also throughout the product life cycle. This is a major change in the way that most companies conduct product development and commercialization. It will require executive management involvement and changes to strategic goals and plans to implement and sustain such a change.

For example, it is in the best interests of the organization to create and provide “strong evidence of clinical differentiation.” Not only will the evidence make it easier to get agreement from providers and payers, it also provides a degree of protection against premature commoditization. It’s equally important to lobby government officials, either directly or through a trade group. Finally the organization must be sure to protect itself by retroactively addressing products already in the market, as a demand for data could come at any time and cause significant disruptions to manufacturing, sales, materials management, etc.

Takeaways: Startup CEOs and medical device product managers, project managers, and program managers must incorporate comparative effectiveness research for both clinical efficacy and economic effectiveness into their strategic plans, product development plans, and go-to-market plans. Without outcomes data to demonstrate economic and clinical value (ECV), the risk of a failure at product launch because there are no willing buyers for your product is very high. This can kill a company or a career.

Read more: Obamacare is Changing Market Access | MDDI Medical Device and Diagnostic Industry News

Healthcare’s interoperability problem isn’t about technology | MedCity News

So the crux of this problem is that hospitals/institutions/clinicians think they “own” patient data. If we in America ever want to achieve the significant potential savings that could be realized through application of various forms of information technology to the healthcare system, the mindset will have to change. The patient owns his/her patient data.

Big Data, the catchphrase to indicate that every click on the Internet is captured, aggregated, and analyzed, is already in wide use by all sorts of consumer companies, large and small. It works – to reduce costs, to fine tune marketing messages, and to enable highly specific targeting of a company’s best prospects. It works because – except for “walled gardens” like Facebook – the data generated by Internet users is freely available for anyone to use.

There is no reason to think that Big Data won’t work equally well in healthcare. The problem is that healthcare data resides in an enormous number of well-insulated silos. Very few of the silos share anything, even sometimes within an institution.

Consider a patient with several doctors – a primary care physician, a cardiologist, and an endocrinologist. It’s very possible that the three doctors cannot access their patient’s records from their colleagues without special requests and permissions. Sure, they may get test results and written summaries of procedures but the minutiae where much actionable data is hidden is kept locked up in proprietary systems.

Consider a healthcare IT startup that needs (anonymized) patient data to validate its offering and to demonstrate its claimed benefits. It must cut deals with a number of providers to access the data. This takes time and costs money, two things not in abundance at most startups. And yet investors and customers demand proof of beneficial economic outcomes before investing or buying. A classic catch-22 situation.

Yet another example is a medical software startup (now defunct) where I once worked. They developed a terrific 3D image viewer that could run on low-end PCs, tablets, and laptops. At the time, 3D image viewing and manipulation was limited to high end workstations costing tens of thousands of dollars. The company had to negotiate deals with every hospital’s PACS administrator and vendor (there were many) and then write specific software to access the PACS servers. This was not a sustainable business model and the company went broke.

The CEO of HIMSS (Healthcare Information and Management Systems Society) acknowledges the problem. He doesn’t have a ready solution, however but he admits that part of the problem is the way our system reimburses providers for tests and procedures and not for health improvements. He does hint that Medicare will be changing its reimbursement structure over time and that private insurers are sure to follow.

Takeaways: The two buzzwords in this segment are interoperability and portability. It seems to me that an industry standard could be written enabling two-way access to any appropriately anonymized data. In addition, electronic medical records need standards so that users wanting to switch to a different vendor are not held hostage by high switching costs caused by the need to remap data fields, etc. In the modern day Gold Rush of companies looking to make fortunes in healthcare IT, perhaps there is another Levi’s looking to profit by selling shovels and overalls to the miners.

Read more: Healthcare’s interoperability problem isn’t about technology: A Q&A with HIMSS CEO | MedCity News.

Verizon gets its first FDA clearance for remote monitoring tool for chronic conditions | MedCity News

It’s big news when one of the world’s largest telecommunications companies obtains a 510(k) marketing clearance for a mobile health application. Verizon is developing a cloud-based Converged Health Management software application. The device collects data from in-home monitoring devices such as blood pressure monitors, pulse oximeters, etc. and is perhaps planned to feed into a patient’s electronic medical record. The application seems to be primarily intended for clinicians to access and monitor patient data but patients can view their own data as well.

Verizon partnered with a small Canadian company, IDEAL Life, which will provide the remote devices. Apparently, Verizon will provide the wireless network, application(s), and cloud storage.

Other telecom companies have pursued this mobile health market, which is projected to be worth close to $300 million by 2019. AT&T, Qualcomm, and Sprint have invested in the space. AT&T is partnered with Intuitive Health for their market entry.

All of these companies see the low-hanging fruit: managing chronic medical conditions can reduce costs and improve health while providing a hefty return on investment to any company that can establish a significant market presence. The strategic benefits to the telecommunications companies include locking customers to their networks and garnering high margin data traffic just as the consumer mobile telecom market is starting to commoditize.

Takeaways: Partnering with a gigantic multinational can be terrifying but if you can tolerate the risk, leveraging their massive assets can scale up your technology or solution quickly and with minimal investment on your part. Perhaps you can even avoid angel or venture investment. If you are a startup CEO or product manager developing mobile health technology, make sure you contact every obvious and non-obvious (Intel, Qualcomm) target partner. The telecom companies need medical device expertise and technology. They have the infrastructure and cash to build an end-to-end solution.

Read more: Verizon gets its first FDA clearance for remote monitoring tool for chronic conditions | MedCity News.

Never mind wearable technology, how about do-it-yourself implantables?

It’s a big, diverse, weird world out there when it comes to people experimenting on their own bodies. There are subcultures devoted to whole body tattoos and others seemingly dedicated to placing a fantastic array of metal pieces in or through just about every appendage imaginable (and probably a few that I haven’t imagined).

It looks like the latest development is to implant functional “things” inside the body. There’s even a name for it: recreational cybernetics. The article highlights a man who implanted a magnet into a finger. He stated that it gives him a new sense, for example, being able to detect his mobile phone ringing. I bet it’s also handy for picking up small screws and nails when doing home maintenance.

“Grinders, as they call themselves, represent a unique niche of the do-it-yourself (DIY) culture. These are people who experiment on their own bodies, creating their own implants—often for recreation, but also with a true spirit of academic experimentation. The message is clear: Implants are the future, and some people aren’t waiting around for FDA or the medical device industry.”

A few years ago, there was a trend where people had RFID tags embedded under their skin. The tag could be used to “open” an electronic lock using proximity. There were the predictable howls from conspiracy theorists and fundamentalists and the fad seemed to die out. And who can forget the “cyborgs” at various universities who pioneered wearable computers? One cyborg had metal bolts implanted into his skull so he could mount his head-worn display most securely.

I guess the advantages to self-modification are no need for biocompatibility testing, informed consent, IRB approval, HIPAA compliance, regulatory compliance, etc. And who knows? Perhaps there is a new medical device company waiting to be born out of these early experiments.

Read more: On the Grind: The World of Do-It-Yourself Implants | MDDI Medical Device and Diagnostic Industry News Products and Suppliers.

On a related note, there’s a developing niche in assistive devices for the disabled. Looks like The Six Million Dollar Man isn’t just a character in a cheesy ’70s TV action show anymore.

“Bionic prostheses, which use electronics to restore biological functions that have been lost or compromised, are among the most exciting medical devices. Thanks to bionics, babies born deaf can hear, people who have lost their sight can see, people living with paralysis can walk, lower-limb amputees can run, and upper-limb amputees can type on a keyboard. Bionic medical devices make occurrences once considered miracles happen every day.”

While not truly bionic (not electrically powered), Seattle’s own Cadence Biomedical and its Kickstart Walking System is an example of innovative technology benefiting patients who may have been dreading being confined to a wheelchair.

The article makes the point that it’s tough to succeed as a business in this segment. Patient populations are relatively small. VC investment is difficult to obtain (not that it’s easy anywhere these days…). Finally, obtaining reasonable reimbursement can be challenging and a long-term process.

One company found a way around the challenges through market diversification. They are marketing their bionic walking suit for lower limb paraplegics to the military as an exoskeleton to give infantry soldiers extra-human abilities. Another example of science fiction blurring into reality!

Takeaways: Pay attention to early trends where technology is used in innovative, perhaps unsettling ways. It could be the start of a new industry! Also, don’t be reluctant to find alternative uses, markets, or niches for your technology. The Prime Directive is for your startup to survive long enough to become a going concern.

Read more:Bionic Medical Devices: What’s Holding Them Back? | MDDI Medical Device and Diagnostic Industry News Products and Suppliers.

How Do You Design a Medical Gadget That Costs 95 Percent Less Than Before? | Wired Design | Wired.com

It’s relatively easy. Just put off compliance with regulatory requirements, adherence to a quality system, leave out nice-to-have product features, and omit the infrastructure for customer support, sales, training, etc.

I admire what this inventor is doing. He’s trying to meet an important need for an endoscope in developing countries. I don’t believe, however, that it can be considered the same product as commercially available endoscopes sold in the USA, EU, and other developed countries. In that respect, the Wired headline is misleading.

This innovation has the potential to have a large beneficial effect on public health in developing nations. It will be interesting to see if this design shift becomes “disruptive” technology and challenges the market in developed countries.

“Traditional endoscopes cost anywhere from $30,000-70,000, but by making different design choices and cutting out extraneous “nice-to-have” features, the price can be reduced dramatically. The EvoTech team found that off-the-shelf camera modules, only slightly better than the ones used in smartphones, could provide pictures crisp enough to meet clinical standards for just a couple hundred dollars. “The EvoCam is basically a webcam you put in your body.” says Zilversmit. Most endoscopes come with dedicated computers and complex image processing hardware. The EvoCam replaces all those expensive extras with software running on a standard laptop, using solar power if necessary, and soon hopes to have a version for tablet. Instead of sending a team of technicians to train doctors, EvoTech distributes training documents and video over the web.”

Read more: How Do You Design a Medical Gadget That Costs 95 Percent Less Than Before? | Wired Design | Wired.com.

2013 Washington State Biomedical Device Summit

I attended this meeting yesterday, June 17 at the Bothell Campus of the University of Washington. Bothell is a hub of the Biomedical Device Innovation Zone.

There was an interesting keynote talk by Mark Leahey, CEO of the Medical Device Manufacturing Association (MDMA). He reported that lobbying in Washington, D.C. to repeal the 2.3% medical device excise tax is intense. He also told the group that efforts to improve the FDA regulatory clearance process are proceeding and that the 510(k) pre-market notification process does not need to be replaced, merely refreshed.

One welcome development was an announcement by Matt Smith, Chair of the Biomedical Device Innovation Zone that a medical device company incubator is being established at Lake Washington Institute of Technology in Kirkland. The incubator will have rapid prototyping capability  – machine shop, 3D printer, etc. – as well as space for several onsite startups and a number of virtual startups. This is great news – there are a number of startup incubators in Seattle focusing on biotech and software but none until now that specifically welcome medical devices!

The most interesting part of the summit was a panel discussion chaired by Chris Rivera, CEO of the Washington Biomedical and Biotechnology Association (WBBA). The panelists were executives in local healthcare organizations. Three of the panelists are also physicians and a fourth is a pharmacist. The message for industry is that the future of the healthcare industry is going to be focused on cost reduction – “cost, cost, cost” according to one panelist.

I did not know that the medical device industry accounts for only 6% of all healthcare costs in the U.S. As one panelist put it, even if you gave away all devices at cost, it would not bend the healthcare system cost curve. The highest expenses are in labor. Devices that eliminate labor or that connect systems requiring manual intervention will be winners in the future. Entrepreneurs and established device companies launching new products must show immediate cost savings, as the CFOs and actuaries are jaded by past promises and will no longer accept assertions that cost reductions will occur over a long period. One reason is that the typical patient tenure in a health insurance plan is only two years. That makes it difficult for an insurer to realize savings on an investment in new technologies or procedures without up-front savings.

An audience member asked a question about the structural costs of practicing “defensive medicine” where clinicians order extra tests and procedures to guard against malpractice judgments. Interestingly, the three physicians on the panel all asserted that, while significant, defensive medicine is not the biggest problem in healthcare economics in the U. S. and further, that  it will be impossible to ever eliminate defensive medicine, primarily because of the trial attorneys lobby in “the other Washington.”

Another panelist stated that companies with new products and procedures must approach hospitals and offer ways to mitigate the risk the hospital is taking by adopting the new technology. This idea is getting attention around the industry. Not sure exactly how it would work and how that would affect financial statements and projections in startups and even established companies. Does the hospital expect some sort of make-good guarantee if the technology’s promises fail to materialize? On the flip-side, does it expect to participate in the company’s success if the technology is even more successful than anticipated? Another panelist suggested that clinical articles about new technologies always include a discussion of financial projections in addition to the usual clinical and technological discussions. “Cost, cost, cost” indeed…

Study: Medical devices spur complications for kids – FierceMedicalDevices

I’ve had direct experience with this dilemma: “most medical devices are designed for adults and have to be adapted for use in children”. Unfortunately, device commercialization comes down to a business case – is the target market big enough and lucrative enough to justify investment? Often, the answer for pediatric indications is “no”. There are also lengthy and expensive regulatory hurdles to overcome. Of course, as parents, we all want the kids’ version of the adult device with equivalent or better safety and efficacy at a reasonable price.

“”Medicine and pediatrics have made amazing advances over the last couple of decades that have resulted in children with congenital diseases and prematurity living longer, so this issue is a by-product of that success,” said Patrick Brady, MD, MSc, the lead author and a physician in the Division of Hospital Medicine at Cincinnati Children’s Hospital Medical Center.

Brady said medical devices are a major factor in improved survival for children with complex medical conditions. But he added there has been relatively little research into how medical devices may expose these children to additional risks, especially when considering the devices are foreign objects to the human body and subject to mechanical problems or causing infections. Also, researchers note that most medical devices are designed for adults and have to be adapted for use in children.”

There has to be a business opportunity in this somewhere…

Read more: Study: Medical devices spur complications for kids – FierceMedicalDevices.

Ghana seizes ‘faulty Chinese condoms’ | BBC News

A couple of interesting facts from this article and from my experience with a client:

Did you know that condoms are medical devices? (Class II = 510k)

We don’t hear or read much about it but there is a raging AIDS epidemic in sub-Saharan Africa. Millions of men, women, and children are afflicted. Among others, the World Health Organization, the Bill and Melinda Gates Foundation, and the U.S. Department of State are heavily involved in AIDS treatment and prevention in Africa.

One of the most effective HIV prevention methods is adult male circumcision, proven in several large randomized clinical trials in Africa. The substantial reduction in HIV susceptibility demonstrated in the clinical studies is described as providing the equivalent of vaccine-level protection, about a 60% reduction in HIV susceptibility.

The PEPFAR program (President’s Emergency Plan for AIDS Relief) was started by President George W. Bush and continued by President Obama. PEPFAR has spent more than $50 billion on AIDS and other infectious disease prevention and treatment to date. While not a panacea, PEPFAR estimates voluntary adult male circumcision will save $15 billion in HIV treatment and care expense, prevent more than 3 million HIV infections, and save hundreds of thousands of lives over the next 12 years.

BBC News – Ghana seizes ‘faulty Chinese condoms’.

UChek’s Bizarre Response to an FDA Letter: An Unfolding Saga | MDDI Medical Device and Diagnostic Industry News Products and Suppliers

This is a still-evolving story but a great read and a valuable lesson to novice medical device marketers and entrepreneurs: ignore the FDA at your peril. As the author points out, FDA regulations are laws. People do go to jail and companies can be shut down for violating them.

The company developed a mobile app that “reads” urinalysis test strips. In what seems to be an ill-considered decision, the company apparently decided to ignore FDA regulations regarding classification of mobile apps and diagnostic software. It also did not react well to an initial warning letter advising that the app was a Class II device. I wonder what will happen next?

UChek’s Bizarre Response to an FDA Letter: An Unfolding Saga | MDDI Medical Device and Diagnostic Industry News Products and Suppliers.