When a colleague and I started our medical device company in 2009, we were in our second year at Harvard Medical School. Some classmates joked that they would still be in residency by the time we had moved on to our next big idea. We knew better — we expected it to be a long haul. Eight years into our journey, thousands of individuals have used our product in countries where it has been approved. But we have yet to gain approval in the U.S. — a long and expensive process.

In 2016, the United States Food and Drug Administration approved 22 new drugs, down from 45 approvals in 2015. The decline in drug discovery has been attributed to a variety of factors that include ballooning research and development expenses (the cost to develop a new drug is now estimated to be more than $2.5 billion), high rates of failure (a whopping 90 percent of Phase 1 candidates never make it to launch), and the complexity of human biology, which can thwart even the most promising candidates.

Medical devices have historically been viewed as having faster and lower-cost paths to market than their pharmacological counterparts: the average cost to develop high-risk, novel medical devices is estimated to be $94 million. After all, device engineers can leverage lower-cost animal models further into development than their pharmaceutical colleagues, the human clinical trials necessary for FDA approval are often smaller in scale, and, in some cases, expenses can be defrayed by revenue generated outside the United States in markets with faster regulatory pathways.


Yet, despite these advantages, the FDA approved only 39 novel devices last year through its premarket approval process. Why is it so hard to bring a medical device to market in the U.S.? I see three major challenges.

First, the traditional business model for many medical device companies is growing more difficult. Insurance providers, both private and public, are no longer relying solely on the opinions of medical experts or clinical trial data to make coverage decisions. They are increasingly looking at cost effectiveness as the gating factor for payment. This shift has introduced yet another hurdle for medical device companies in fields like orthopedic surgery and cardiovascular medicine, where reimbursement from insurance providers is the lifeblood of their business. In addition to conducting trials to demonstrate clinical benefit, many companies are now investing additional — often substantial — time and money into cost-effectiveness trials to demonstrate benefit to insurance providers.

While this may be useful in lowering the overall cost of delivering health care, it adds an additional burden on companies trying to bring innovative products to market. Although some device companies, including mine, have positioned their products as consumer-focused, self-pay offerings, the majority are still heavily reliant on insurance providers saying “yes” to reimbursement.

Second, the longer timelines and additional payment hurdles have made it more difficult for early-stage medical device companies to attract investment. In 2016, according to Silicon Valley Bank, $8.1 billion was invested in biopharmaceutical companies, compared to $3.8 billion in medical device companies. For companies in the earliest stages of development, the difference was even more pronounced, with $2.3 billion plowed into biopharmaceuticals versus just $240 million into devices.

In what can often become a vicious feedback loop, the drop in early-stage investment in devices may also be due to fewer opportunities for investors to cash out. In 2016, there were 28 venture capital-backed biopharmaceutical initial public offerings, compared to just three in the device space. When health care investors couple growing hurdles to device payment with limited access to public markets, it is no surprise that capital allocation is skewed toward biopharmaceuticals.

Third, many medical device entrepreneurs have watched with trepidation as the larger device companies have consolidated. These large companies play a multitude of roles in the device ecosystem. First, many have investment arms that provide startups with capital. Second, they can accelerate the growth of a mid-stage company through strategic partnerships. Finally, they can acquire later-stage companies, providing yet another means for early investors to cash out. More of these large companies means a healthier ecosystem. Medtronic’s acquisition of Covidien, Abbott’s merger with St. Jude, and Becton Dickinson’s acquisition of Bard do not bode well for early-stage medical device companies. As the pool of large companies shrinks, there may be fewer investments, partnerships, and acquisitions in the ecosystem, making it even more difficult for entrepreneurs to succeed.

Despite these challenges, all is not doom and gloom in the medical device industry. Some of these pressures have driven companies to take innovative, consumer-facing approaches that prioritize self-pay models over reimbursement. While the regulatory pathway in the United States remains long and capital intensive for novel devices, other large markets, including Europe, the Middle East, and South America, have comparatively faster approval pathways, and represent revenue-generating opportunities to mid-stage companies.

As long as talented, hungry entrepreneurs are entering the medical device industry to tackle problems with worldwide appeal, innovation will continue. It may just look a lot different than it has in the past.

Shantanu Gaur, M.D., is the co-founder and chief scientific officer at Allurion Technologies, a medical device company that developed and markets the Elipse Balloon, a weight-loss device.

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  • Excellent Article. Another path of development is making devices for your own patients. This worked for three of my products to the benefit of my patients.

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