FDA – Friend or Foe? T3’s Silicon Valley Life Science Real Estate Team Attends a Great Conference

October 2011
T3 Advisors

mdmaThe big question among all medical device CEOs and investors is “How much capital and time will it take to get through the FDA?”  The Medical Device Manufacturing Association recently hosted an event with over 100 CEOs, venture capitalists, and industry leaders to discuss this exact topic.  The event was located at the Four Seasons Palo Alto in the heart of Silicon Valley’s biotech innovation.  The day was filled with discussions around how companies can attract funding, what impact will patent reform have, what steps is the FDA taking to streamline the process, and why are companies choosing to operate outside of the US.

There continues to be a decline in early stage medical device investing primarily due to the required time and capital necessary to get through the FDA approval process.   Healthcare investors are skeptical these days because of the increased level of uncertainty.  Casey McGlynn (Partner at Wilson Sonsini Goodrich & Rosati) and Allan May (Managing Director at Emergent Medical Partners) discussed how entrepreneurs have to adapt in order to survive.  They are constantly being pushed to do more with less.   Many early stage companies are operating virtually through outsourcing which has helped keep companies lean and attractive to investors.  Many companies are also looking to strategic partnerships earlier in the process.

fdaJust hours before the MDMA event, President Obama signed the long-discussed Patent Reform Bill into law.  “It’s a bill that will put a dent in the huge stack of patent applications waiting for review. It will help startups and small business owners turn their ideas into products three times faster than they can today,” Obama said at a signing ceremony carried on television. The most impactful change due to the bill is transforming from the first-to-invent system (which has been used in the US historically) to the first-to-file system which is used on an international level.  Proponents of the bill say that patent lawsuits are incredibly expensive and this reform will help companies avoid costly disputes as patents will be granted to the first applicant.  Stephen Jensen (Partner at Knobbe Martens Olsen & Bear) was on-site to discuss the bill as well as answer questions surrounding its implementation.

Over the past few years, medical device companies have faced increasing challenges navigating the FDA.  The process has become less predictable, transparent and reliable.  The MDMA was able to get William Maisel (Deputy CDRH Director of the FDA) live on a teleconference with updates on how the FDA is making strides to foster innovation.  The audience was there in hopes of getting answers.  Industry leader, Hanson Gifford, observed that the room was three quarters full as compared to last year’s event which is an example of the struggle early stage companies are having today.  Just a few weeks ago, Margaret Hamburg (Commissioner of the FDA) released a 40-page overview titled Driving Biomedical Innovation.  She was quoted in the report saying that the agency “is working to position itself not only as a positive driving force in the ecosystem as a regulator, but also to facilitate medical product innovation.”  We will all continue to monitor the progress that the FDA is making to streamline the innovation within the medical device community.

worldWith the uncertainly surrounding the FDA process, companies continue to look at other alternatives.  Mike Klein (CEO of Endogastric Solutions) and Eitan Konstantino (CEO of http://www.trirememedical.com/) discussed the advantages of operating outside of the United States.  Companies have started operating in locations such as China, Singapore and Ireland which has brought benefits such as government subsidies and shorter regulatory processes.  BothCEO’s were quick to say that although regulatory risk is mitigated, there are other risks associated with operating in other countries such as culture, product adoption risk, and reimbursement risk.  For investors and companies it is a question of which you would prefer to take.

Despite the uncertainties with the federal policy, we continue to meet with investors and CEO’s of medical device companies that are working on game changing technologies.  As previously discussed, the key to surviving is staying lean and deploying your capital into your product.  More often than not, a company’s second or third largest line item on the balance sheet is its real estate.  T3 Advisors industry expertise and conflict free approach can help ensure that your company is operating at the lowest cost possible.