SUCCESSFULLY TURNING A NEW TECHNOLOGY INTO A MEDICAL DEVICE—A BRIEF GUIDE FOR VENTURE CAPITALISTS AND STARTUP EXECUTIVES

YOU SAW THE PROTOTYPE WORKING. THE PRELIMINARY CLINICAL DATA LOOKED PROMISING. THERE WAS A HUGE MARKET NEED FOR THE PRODUCT. IT LOOKED LIKE A SURE THING.

Two years later than anticipated, the product finally gets to market. Development cost millions more than expected. Worst of all, because it took so long to get to market, you now have three competitors that didn't exist when you made the investment.

How could everything go so wrong despite all the due diligence that went into the deal? How could it happen more than once? What can you do to prevent it from happening again?

There are many facets of selecting and working with startups to optimize the chances for success. This article considers the often-overlooked technical aspects of choosing a startup investment and building a technical team for successful development of medical devices.

PROTOTYPE PITFALLS: LESS THAN MEETS THE EYE

You can be swayed by a prototype that looks almost like a finished product, but prototypes are not products. They are not even close to being products because of the amount of work necessary to follow good design, development, and documentation practices required by the FDA's design controls. Don't be lured into thinking that the prototype just needs a pretty cover before you can start shipping the actual product.

The technical aspect of medical device startups usually begins with the traditional analysis of the underlying technology by technology experts. That can only assure that the product is based on sound science and research. It does not tell you how much work is needed to complete the development of a saleable product.

Medical device development experts also need to look at the quality of the engineering to estimate just how much it will cost to convert the prototype to a product. Do not trust the estimates of the engineers and scientists who created the prototype. Because of their closeness to the technology they will almost always underestimate how much development work remains. Chances are, they have limited experience in developing medical devices into manufacturable products.

Look at the documentation that has been created for the prototypes. Is it up to the FDA's design control requirements? How much work will it take to rework the documents to get them into a usable form to start product development in a regulated environment? If the startup divulges that the documentation needs a touch up for compliance purposes, it can probably be assumed that a controlled design process was not being followed, and that the prototype developers don't have a clear understanding of the design control requirements for medical devices.

BUILDING THE PRODUCTDEVELOPMENT TEAM

You're investing in not only the technology, but also in the team that will convert the technology or prototype into a saleable product. Recognize that product development in a regulated industry like the medical device industry requires special skills, adherence to good engineering principles and processes, and a familiarity with the regulatory requirements. If a development team does not exist, or if it must be expanded significantly, several options are available; all of which have potential merits and potential risks.

Outsourcing product development is often appealing for startups. Long-term cost and overhead commitments for employees can be minimized. The team may already be in place and probably has worked together successfully on previous projects; a good outsource company can significantly reduce time to market. If medical device development outsource companies are used, you'll benefit from hiring their specific expertise not only in technology and product development, but also in compliance, experience and project management.

CHOOSE YOUR OUTSOURCE PARTNERS CAREFULLY

Because outsource companies pose their own risks, you need to be selective when choosing them. They will become as important to your investment as the startup in which you have invested. Verify that they have successfully completed medical device projects in the past. Ask for their specific role on the project, and verify it with the reference. Ask to meet the team that will develop your product. Verify that the company actually has the resources they claim. How many on the team have medical device experience? When was their last medical device project? What is the company's track record with medical device development projects? What percentage of projects started have made it to market? How many are successful on the market? Have they ever abandoned a development project? Have any of their devices ever been involved in a recall or patient safety event?

Intellectual property is a crucial issue. Some outsource companies try to retain IP ownership of rights. Make sure you own what you paid for, and verify that past clients' intellectual property has not been used in your product, exposing you to patent-infringement claims.

ENGINEERING THE RELATIONSHIP WITH OUTSOURCE PARTNERS

If outsourcing makes sense for at least part of your product development project, what can you do to use that resource to your best benefit? Part of it comes down to good engineering of relationships.

When using expert out source companies, let the experts do their jobs. If you are hiring experts in medical device software, let them advise you on processor, operating system and development language selections. Don't box your experts in with unnecessary constraints. Follow their advice and let them do things the way they have successfully done them in the past; it will be the least risky path to success.

Also ask the experts how long they think the development project will take, and how much it will cost. Do so before you have set budgets and committed to schedules. Typically, the outsource partner has had years of experience in estimating projects, take advantage of their expertise.

The best results happen when the outsource company becomes a partner in the development process. Being a partner means aligning incentives, not becoming adversaries in a contractual contest. Many startups attempt to transfer their development risk to the outsource partners by demanding rigid fixed-price development contracts. This gives the development company a large amount of risk with no potential for sharing the rewards of a successful project. In fact, it sets up a relationship in which the developer has every incentive to do the least work possible for the fixed price. The developer has the added incentive to identify every possible out-of-scope task to add to the fixed price. If the incentives are not aligned, the partners become adversaries.

Time-and-materials contracts are more appropriate for new product development in which the work scope changes frequently as the project evolves. Unscrupulous developers could, of course, interpret this as an incentive to run up the hours on a project to maximize their profit. A good process in selecting outsource partners should uncover any past evidence of such activity.

Define project metrics before the development project gets underway. Agree with your outsource partner what metrics will be used to measure success or failure. Agree on whose responsibility it is to collect and maintain the metrics, and review weekly with the outsource partner. Use the metrics to predict and manage problems before they get out of hand. Do not use them simply to document how the project got into trouble.

Think about using incentives for your outsource partners. It will make your company and project stand out from the others they may be working on at the same time. It is important for the employees, contractors, and outsource partners to act as one cohesive team. Engineer the incentives so that one team member cannot succeed through another team member's failure.

Make sure that all team members understand what a success is, and what a failure is. It sounds too easy, but all too often, individuals interpret team failure as individual success. For example, an operating system is chosen over one team member's objections. That team member now sees it as a personal success when the project is late or doesn't work properly because of the wrong operating system selection. Align interests so that team members work together to anticipate and avoid problems rather than take them head on to prove a point. If one member of the team fails, the whole team fails.

Don't bring in too many outsource partners. Each partner will require some management resources from the startup company. Too often, multiple outsource partners have overlapping skill sets and end up competing for each other's business. Determine if this is a possibility early in the selection process. Avoid the situation if possible, and if not, create incentives that will not allow one outsource partner to succeed through another partner's (and potential competitor's) failure.

There is no formula that guarantees success in developing new medical devices in a startup environment, but there are best practices. Investors in the medical device industry can improve their odds of success by paying attention to development issues early; viewing prototypes skeptically; getting the advice of experts early; advising their clients in selecting development teams; and in helping startups engineer good developmentteam relationships. Find a process that works, and stick with it. Find outsource partners that work, and stick with them.