Getting a 510(k) is Not a Business Model

TL;DR: Many early-stage MedTech founders believe regulatory clearance is the finish line. In reality, it’s the halfway point, especially for under-funded Canadian MedTech startups. Without a deep understanding of sales channels, pricing, procedural clinical and market dynamics, lab relationships, even the most promising devices will stall post market clearance.

One of the most common things I heard throughout my years in MedTech is that once we get our 510(k) we can start selling. It’s at this point, you know as an investor or an employee, you are at least 8 to 12 months away from a sale. A sale at which point in the start-up journey, is likely heavily discounted so that validation traction can be achieved. Any regulatory body clearance (or approval) is the 50-yard line at best, not the end-zone.

This represents a huge problem, particularly for Canadian MedTech start-ups that are often funded, in order, first by university grants, then family and friends, then depending on network circumstances, a Super Angel or an/a few Angel group(s). This often means by the time the company arrives at the commercialization stage, the terms they’ve accepted for investment at that early stage means they are less investible for the next round because the Venture Capital firms can’t do what they need to do with the company for their portfolio end goal — return dollar growth to Limited Partners.

Recently at an investment presentation event, I saw a few dozen companies present their pitch and it was one more tougher than the next. Generally speaking, $1M to $4M raised scrappily, four years of operation as a company, regulatory clearance close or in-hand, and minimal traction. A new bridge was required to then hit the next milestone. Either enough wasn’t asked for in the beginning, or as likely, the right decisions weren’t made with urgency to hit the road blocks faster, because there are always roadblocks in MedTech commercialization.

This is not to diminish the brilliant minds and hard work being put into these companies as it’s truly incredible what they have achieved with the limited means at this disposal. These really are exciting products that fit a need. This is also not to diminish ‘super’ Angels or Angel Groups, as they do mean well.

The 510(k) is the most common path for moderate risk devices. Of the 155,000 devices approved or cleared by the FDA since 1976 when the enactment of the Medical Device Amendments Act took hold, approximately 99% used the 510(k) pathway (JAMA 2021). It’s an achievement to be celebrated as it often results in a culmination of engineering feats met with project management excellence and some form of biological success during validation activities. If you achieve your first clearance from any regulatory body without 1-2 hiccups along the way, consider yourself in the top 1%.

Enough about the actual 510(k) though because that topic is less well written about. My experience has been that the venn diagram of people who like to enforce board game rules and the people who talk ad-nauseum about 510(k) is nearly a perfect circle. The rigidity of the topic lends itself to be more easily described as a hurdle, in addition to ways to manage your way through it. It is concrete in its decision tree optionality. Pick a predicate, verify, validate, etc.

However, the rubber hits the road when Day 1 after clearance occurs and the excited MedTech founding team clears away the empty champagne glasses, loads their laptop, and starts pecking away at the keys to send emails out to prospective physicians. It’s extremely deflationary because the reciprocal excitement does not occur. The founding team waits. A call is finally scheduled to talk about a pilot. Months pass, new hurdles arise such as Biomed, a $0 purchase order, ship cross border, a clinical manager who wasn’t informed, or an up-and-coming physician on the team who has been working with another company that doesn’t care about a pilot with yours and works in the background to sabotage it.

The dynamics of medical device sales are immense. I’ve worked with over 500 sales representatives in the United States, Japan, Canada, Europe, China, in addition to distributors. The macro and micro dynamics of your specific procedure that you fit into as a product, need to be worked on pre-510(k), as you are uncovering your Needs Analysis. If you are investing in a company and they don’t know the price of their competitive product, how it is distributed in each region of the United States, at what price, and who are the leading KOLs of each region, then you should hold off investing until it is learned. I have seen clinically superior products not get purchased because the lead physician’s kid plays hockey with the competitor sales reps kid. Sales is relationships based whether you like it or not. Take the world as it is, not as you would like it to be.

Thus, getting a 510(k) is not a business model. In fact, it’s interesting that most physicians don’t care much if you have 510(k) or not because they know the hospital/clinical lab manager/etc. will ensure proper procedure is followed to check that. The physician usually only asks it as their 15th question as a way to know if they can use the device soon or if it has to be used in research or a porcine or canine model in a pre-clinical study. When you speak to the truly innovative physicians and nurses, they know that if a product is desired to be used because it is truly innovative, there are ways to try it out.

Now you might be wondering as an early-stage investor or a MedTech Founder, what are ways to find out the macro and micro dynamics of selling into your procedure vertical?

Want to go deeper into early-stage MedTech commercial strategies? Subscribe or follow us for Part 2: “Mapping the Macro Dynamics of Your Procedure.”