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Medical Device Startup Best Practices


This is our guide to best practices for medical device startups. This article is based on our experiences of working with our medical device startup clients, as well as guidance from the insurance industry. It should not be construed as legal advice. Please consult with your team of advisors and experienced legal counsel prior to taking any action recommended in this article.

If you’re seeking an insurance advisor for your medical device startup, please contact us for a consultation.

Medical Device Startup Considerations

Risk-based thinking should be at the forefront of the medical device industry. All businesses in this industry need quality processes and a risk mitigation plan unique to their operations. The regulatory burdens and associated risks are among the most rigorous of any sector. FDA is the only government body that can shut down a business. Businesses should not be comfortable with FDA’s audit capabilities! In addition, there is constant innovation so there is a short lifecycle of products, which creates more risk for product lifecycle management and supply control. Because new products are always coming online, the quality of products must be consistently sustained.

Commercializing a brilliant idea for a new medical device is a long journey with many steps and early on should include strategic planning for patents, trademarks, and copyright, applying for patent applications and protection, receiving patent counseling and opinion work, registering trademark and copyright, and enforcing Intellectual Property (IP). Some of the best investment dollars a medical device company can spend are for IP protection.

Medical device firms tend to center around certain regions or states with a cooperative business, regulatory, and tax climate. It is critical to find the right ecosystem, near supportive universities and within entrepreneurial cultures, which have access to capital through venture capital, accelerators, and R&D funding, including from city, county, or state governments and local foundations, along with access to industry talent, facilities, and infrastructure. Most medical device and diagnostic companies are small; roughly two-thirds have less than 20 employees, and critical functions are typically outsourced.  Another 20% of businesses have 20 to 100 employees.  With only one in eight businesses having over 100 employees, there is plenty of headroom for small business medical device companies.

Following is a checklist of some important considerations for bringing a new device to market:

Establish Best Practices for Your Medical Device Startup Early

  • Form the appropriate legal entity with the assistance of experienced medical device startup counsel, including attorneys and accountants.
  • Be familiar with critical tax issues (including R&D tax credits)
  • Develop suitable contracts for your employees, vendors, consultants and other service providers with the aid of experienced legal counsel.
  • Develop benefits packages to attract and retain the best talent
  • Develop company policies and procedures including a TQM (Total Quality Management) system, regulatory compliance based on QSR (Quality System Regulation) based on 21 CFR Part 820 and business continuity planning
  • Understand the Golden Rule at FDA: the agency looks at objective evidence and documentation; if it didn’t get written down, it didn’t happen
  • Develop the overall business strategy plan, including a compelling investor deck presentation.
  • Build advisory board

Best Practices for Medical Device Development

  • Research funding options and obtain seed funding through angel investors, private equity, competitions, academia, MedTech incubators, venture capital, etc.
  • Conduct pre-FDA studies, animal studies, and clinical trials, if necessary.
  • Determine if there is a need for an Investigational Device Exemption, or if the company can pursue Substantial Equivalence (510(k) for a Class II device).
  • Complete 510(k), or Pre-Market Approval for Class III device.
  • Develop data to convince third-party payers (insurance companies, private self-insured companies, and government) to pay for the device, establishing reasonable payment levels.
  • Weigh the costs and benefits of outsourcing. Medical device OEMs may cut product development costs by up to 30% and can realize a 2-5% savings from outsourcing.
  • Qualify and vet contract manufacturers for product design expertise, prototype development, and scalable production runs.
  • Develop clinical and cost information to support marketing program (see below).

Best Practices for Medical Device Marketing

  • Create marketing strategies in conformance with laws and regulations, including state-level.
  • Develop and implement a Regulatory Compliance Plan, including Postmarket Surveillance. Review FDA guidance.
  • Establish payment levels using either existing reimbursement codes or unlisted procedure codes.
  • Identify and understand the ultimate customer and payer for the product, and understand the costs of reimbursement
  • Assess potential litigation issues including Product Liability, corporate disputes, and IP and seek appropriate insurance as available by limit and coverage.

Further Considerations for Medical Device Companies

  • Secure IP and Freedom to Operate (FTO) strategy.
  • Establish relationships with key opinion leaders in the Medical Technology space.
  • Build relationships early with venture capital, family offices, private equity and update them with progress to assist with future funding.
  • Consider buy/sell agreements and key person life insurance for owners/officers and key employees.

Having a clearly defined set of strategies, policies, and procedures and being surrounded by the right people to support and execute them will help enable reaching commercial and personal success.  The pathways to failure are marked by lack of focus and clear priorities and objectives within the overall business strategy, funding challenges, or having a great technology but no viable market.  Here is an article further explaining some of the ways healthcare startups fail.

Crafting and following best practices from the start through development and commercialization, and knowing and avoiding the common pitfalls, will help attain your ultimate goal while enjoying the many steps of the journey.

If you’re seeking an insurance advisor for your medical device startup, please contact us for a consultation.

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