Expenditure for the Development of a Medical Device: Much Higher Than Commonly Assumed

Introduction

A few years ago, I talked to a colleague from a company about an interesting presentation by a scientist who had developed an innovative idea for a medical device as part of his research. My statement was, “Okay, if an investor or a company now puts 10 million dollars into this idea, then we should have a good new product on the market in two to three years.” The colleague laughed and said that according to his estimation and experience, the costs would be at least 100 to 250 million dollars and the development time at least five years. In the following, I’ll explain why the effort and costs are so much higher than I (and probably many diabetologists) spontaneously estimated and why the development of new products takes so long.

Some readers have probably also asked themselves, what do the developers in the companies do all day long and what do they do with all the money invested? It has to be acknowledged that the development of a new medical device has (highly) complex requirements; the path from an idea to a finished product that a patient with diabetes (PwD) can use in everyday life is rocky and often ends nowhere. The various (problem) areas that a developer and manufacturer of a medical device have to deal with are briefly examined below.

Financing

The management, especially of start-ups, is actually permanently busy looking for further financing for the development of their products. Here, there are a number of financing rounds with their own laws and terminology. The amount of “dollars” involved in these rounds usually increases significantly from one to the next. The number of contacts and communication necessary to get from one round to the next is considerable. It is important to convince people that the investment of millions of dollars/Euros in this one development is worthwhile. In reality, nine out of 10 companies fail at some point during the product development, which only partly says something about the basic idea or the possible product, but in many cases, it also says something about the fact that the financing did not go on. In these cases, the money already invested is lost, so financiers are cautious. They especially take a close look at the management of start-ups. The motivation of the financiers is to make such a large profit from the one product that makes it to market maturity that it clearly exceeds the losses of the other approaches.

Production

Production is an area that many of the employees in start-ups have little or no knowledge of. Lovingly “soldering” a glucose sensor together under a microscope is one thing; even producing 10 or 100 of them a day is still possible, but producing tens of thousands of them a day with consistently high quality is a completely different matter. Also, here it is important to keep the costs in view.

On ther other hand, production is an area in which the large manufacturers of medical products know a lot. They produce a large number of products with constant quality. This is also one reason why many start-ups look for a “big brother” at a certain point in the product development process. On their own, they neither get the costs for the manufacturing machines covered nor do they have the employees with sufficient experience and know-how. For the big manufacturers, it is attractive to cooperate with such start-ups (or buy them directly) because they avoid the risks associated with the (new) development of products. The smaller structures in start-ups make them much more targeted and focused than the development departments of the large manufacturers. This is why many large manufacturers no longer have their own development departments; they buy new products as needed.

Since many products often require components of the product parts from other suppliers, it is important to select the suppliers adequately to ensure that they deliver the parts with a defined quality at a certain time. At this point, there can be any number of frictional losses.

Another underestimated area is that of quality assurance. Even if the production of a product works well on a given day or over a certain period of time, this does not guarantee that the next production series will have the same quality. Also, depending on the raw materials that are delivered or (parts of) components that come from suppliers, this is an area where many problems can occur. In this case, a whole batch of devices can go into the garbage because, for example, the measuring quality was not sufficient, a membrane was applied a fraction too thin, or a supplied component did not work as it should. Of course, one wants to avoid such problems, not only to avoid the costs of useless products but also because the delivery of products with insufficient quality into the market can result in massive burdens (such as the costs of legal disputes). Furthermore, this can also be connected to a considerable loss of reputation for the company.

Evidence/Clinical Benefit

If a researcher is convinced that technology developed by him can pump insulin with such a high degree of accuracy that it offers a real advantage for PwD, then it is still necessary to test/prove that this is also true in the practical use of the novel insulin pump. Since many (if not most) start-ups do not have a physician on staff, researchers and developers often lack feedback on what patients really need in their daily lives and how such evidence can be guided through appropriate clinical studies. As a result, in many cases where a series of “developmental studies” is attempting to prove that such a new pump has real benefits for PwD, there is no good understanding of what needs to be done. The management of the start-up and the investors simply assume that the new pump for PwD will work safely and efficiently in everyday life. How exactly to provide clear proof of this and what kind of effort is required, even in comparison to other products on the market, suddenly requires advice from appropriately specialized clinical research institutes. The costs of such clinical studies are prohibitive for many start-ups, which significantly increases the pressure for close cooperation with a “big brother.” In many cases, large manufacturers see the successful completion of clinical studies in early phases as a prerequisite for concluding a corresponding purchase agreement.

In this context, it is also helpful to address the topic of communication early and systematically, that is, to present the basic principles/innovative aspects of the development in scientific publications, as well as to inform the users both from a medical point of view and the PwD in a kind of premarketing presentation about products that are “coming soon.” The publication of scientific data and their presentation at corresponding congresses is its own kind of “art form,” which is connected to a considerable effort.

One of the requirements that arise in practice is the concrete handling of the product by PwD, which represents a higher hurdle than the developers can imagine. PwD are usually not engineers; they should be able to operate such systems safely under quite different and often not optimal environmental conditions, etc. We often forget that the “simple” operation of a smartphone requires extremely complex and sophisticated technology in the background for implementation. This is why regulatory authorities today require manufacturers to conduct “human factor” studies, in which the primary goal is to prove that patients can handle the products correctly.

Compliance with Regulatory Requirements

In order for a new medical device to be launched on the European market, it must be CE marked. This is issued by the manufacturer (who must have a suitable quality assurance system in-house) in cooperation with a notified body. The requirements that a given medical device must meet and what has to be proven by clinical studies have been tightened considerably in recent years or are now pending. The amount of time and communication required to complete this procedure are often drastically underestimated. Currently, many notified bodies in Germany/Europe have long waiting lists because the requirements for approval have been tightened up in this way.

Looking at the situation in the United States, the Food and Drug Administration (FDA) also has a clear idea of what documents are required for the approval of a medical device. Depending on the risk class in which the product in question falls, the requirements are understandably different. Here, too, it is important to have advice from suitable consultants in order to have the right documents, to use the right language, and to say the right things at meetings.

Reimbursement

Even if the product has been approved by the regulatory authorities, this does not mean that it will be reimbursed by health insurance companies. The cost bearers first want to see evidence (see above) that the use of the product has such clinical advantages that it is “worthwhile” to include it in the appropriate directories (“therapeutic appliances directory”). The motivation for this can be lower costs for health insurance, but it can also be a better clinical outcome. The necessary negotiations can be lengthy and require specialized staff who speak the language of the health insurance companies and are familiar with their requirements.

In the United States, too, the road to commercialization of a medical device is long and complex, peppered with many hurdles. The two highest hurdles are receiving approval by the FDA and then obtaining reimbursement. For a patient to not have to pay for a new device himself, it is necessary for three steps to occur and they must occur in this specific order: First, the medical product must receive a billing code from the payer, which is often Medicare (CMS). Second, the payer will look at the product and the code and determine whether the product will be covered in any way. Third, the company will review this covered product and determine what level of reimbursement they will provide. These actions are three independent sequential steps in a process of allowing payment for a medical product.

With respect to “coding”, the goal is to obtain a specific number for your product, which can be extremely difficult and time-consuming (https://www.meddeviceonline.com/doc/from-approved-to-covered-what-medical-device-companies-need-to-know-0001). This is a rather complex world in itself (https://www.medtechintelligence.com/column/reimbursement-coding-systems-innovative-medical-devices/).

Marketing

Just because you hold the best/most beautiful/most innovative product in your hands after all the effort and years of intensive work, this does not guarantee success in the market. No diabetologist who is unfamiliar with a new product is willing to use it just like that. The first thing to do is to convince him that the effort of switching to another product is really worth it for him and the PwD. Since every manufacturer uses more or less the same communication channels for this, it is not easy to achieve a corresponding perception.

Training/Hotline

In order for the user (be it the PwD or a member of the diabetes team) to be able to handle the new medical device appropriately, training is required in most cases. From the developer’s point of view, the medical device is self-explanatory and operating instructions are not read anyway. In practice, there is therefore a considerable need for a suitable introduction for the users, so that they really make the best use of the product, and thus a good cost-benefit ratio is achieved. A one-time training is—especially with complex products—mostly not enough. It is necessary to solve arising questions and problems in a suitable way (apart from all the logistical problems with ordering, delivery, etc.) For this purpose, a hotline is needed that can really help the user. This requires good training for the people who are in charge of such a hotline. This also requires a certain psychological skill in dealing with the users. Only then, the hotline (whose operation is connected with considerable costs) is not a source of constant annoyance and frustration for the customers.

Conclusion

To develop a successful medical device is not easy. This requires a systematic and structured approach. Such statements should not prevent people with innovative ideas from pursuing them intensively; they should only know what kind of arduous journey they are embarking on.

The aim of this editorial is not to give a complete presentation of all aspects that are important in this context (I have certainly forgotten some or have given them too much weight from my point of view); it is only meant to give an impression of how complex the requirements are in our modern health care systems that are connected with the development of medical devices.