By Christina Farr
Health care entrepreneurs are a different breed than most entrepreneurs. Rather than hunkering down to build a cool product, they need to think about regulation and red tape — right from the start.
As boring as it may sound, health-tech founders need to develop a relationship with the U.S. Food and Drug Administration (FDA). This process might drag on for some time, as this authority has the unenviable job of overseeing an explosion of new medical technology, whether it’s a new electronic health record or a device that turns your smartphone into an ear scope.
In recent years, Silicon Valley’s entrepreneurs have become increasingly critical, attacking the agency’s antiquated processes in a string of interviews and op-eds.
“There is this perceived myth that the FDA will change its mind on a dime,” said Ellie Cachette, an entrepreneur and health advocate who has served on a number of committee boards for the National Institutes of Health.
The crux of the problem is a mismatch of priorities.
The FDA’s chief mandate is to protect public health, but some (perhaps many) entrepreneurs fear that it’s under-resourced, overwhelmed, and a roadblock to life-saving innovation. Life sciences-focused venture capitalists say the FDA is prone to delays and abrupt policy changes, making health care a precarious bet.
“The first cause of death for our startups is a lack of capital, and if investors aren’t confident that they can scale the FDA hurdles, they simply won’t invest,” said Kyra Davis, a program manager at the Entrepreneurship Center at UCSF, who works closely with budding health-tech entrepreneurs.
Life sciences startups are in a particularly tough spot, with investment in a downward spiral. (Note: The picture looked a bit rosier in the first quarter of 2014, in part due to a few successful recent biotech IPOs.)
Whether it’s justified or not, the FDA is often cited by health investors as the reason for this decline.
“We have been pushing the FDA on how difficult it is to get products approved,” said Michael Carusi, a general partner at ATV Capital, in an interview for a series I wrote in April, 2013 for VentureBeat on Silicon Valley’s perceptions of the FDA.
For that article, the FDA responded that it is doing its best with entrepreneurs and VCs to “develop smart regulation that balance patient safety and innovation.”
Tension Between Protecting Public Health and Regulating Innovation
The FDA’s crack down on 23andMe last November prompted health entrepreneurs to quake in their boots and angry Internet commentators to rail against “Big Government.” In February, Senators Angus King (I-Maine) and Deb Fischer (R-Nebraska) proposed a bill in Congress to prevent the agency from regulating “low risk” health IT altogether.
But the FDA has stepped up in one important regard. After demurring for several months, it released its final guidance on how it plans to regulate the explosion in mobile medical technology, a particularly trendy space. Most mobile medical apps do not require federal regulation, the FDA found, so developers and investors could breathe a bit easier.
According to John Wilson, a health policy expert and advisor to the NewMe startup accelerator, the FDA is doing its job and doesn’t deserve the bad rep.
“Entrepreneurs have a tendency to over-promise and under-deliver. But in health care, people’s lives are at stake,” he explained.
“When the company doesn’t work out, the FDA is often blamed. Startups are looking for a fall guy.”
While Wilson believes in a “checks and balancing” body like the FDA, he does admit that the agency has plenty of work to do.
It’s a boom time for technology, and some of it is genuinely breaking new ground. It will take some time to determine whether this new tech is potentially harmful, and how it should be classified. For instance, it’s a matter of ongoing debate among geneticists and lawyers whether 23andMe should have been treated as a medical device. This field of consumer genetic reporting is nascent, making it a particularly problematic area for the FDA.
Meanwhile, Silicon Valley expects to move quickly — and doesn’t respond well to hesitation and delays.
“The pendulum swings with the FDA — or at least it has in my 25 years,” added Joe Kiani, chief executive of California-based Masimo Corp., a medical technology company that was founded in 1989 and went public in 2007.
“Sometimes, the agency can be very difficult, and other times it’s easy and formulaic. Right now, it’s one of those difficult periods.”
“Don’t View the FDA As This Scary Thing”
Even those who are sympathetic to the FDA would admit that the regulatory processes are no small matter.
Amy Sheng, founder of a company that develops a low-risk medical device, estimates that it required “hundreds of thousands of dollars” and a “truck-load” of paperwork to implement a full quality system.
Sheng hired several consultants to navigate legislation, as well as a few key employees. She advises health-tech entrepreneurs to raise significant funding at the outset — and bring the right set of legal and quality assurance experts on board.
“I’ve been speaking the medical device language my whole career, so I don’t view the FDA as this scary thing,” said Sheng. “Just keep in mind that the agency’s mission is to protect patients and make sure your product is safe and accurate.”
Meanwhile, Malay Gandhi, chief strategy officer at digital health accelerator Rock Health, would advise entrepreneurs to take a deep breath and relax. He has a far more optimistic view about regulatory processes, and doesn’t believe that the FDA is “out to get” health entrepreneurs.
“There is some level of fear but the process is well defined and you can get through it,” he said. “There are countless numbers of people who have done it already.”
According to Gandhi, the entrepreneurs in Rock Health will often approach the FDA for clarification and typically receive a response within a few weeks. In the past few years, none of the founders were publicly admonished in a similar manner to 23andMe.
“At the end of the day, there aren’t that many health companies that are anything like 23andMe,” he added.
For those who don’t have the requisite funding, another good option is to take the business overseas.
Kiani often advises newcomers to launch their products in Europe first, where regulation is far more predictable. It can take years (and those hundreds of thousands of dollars) for U.S.-based entrepreneurs to gain approval from the FDA — and in that time, many founders will find success in international markets.
“China and Japan and Brazil have their own regulatory difficulties, Japan is a predictable process, but Europe is probably best,” said Kiani. “It’s the fastest way to market.”
Ultimately, the experts stress that the FDA is unlikely to pay attention unless something is seriously wrong. Pass the regulatory checks, file the paperwork, do the research, and avoid making overblown statements in marketing to patients.
For health entrepreneurs, getting in the FDA’s good graces is money and time well-spent, Walter de Brouwer, founder of Scanadu, a hand-held medical device, told Fast Company. Despite the efforts of politicians like Senators King and Fisher, the agency is not going anywhere anytime soon, so de Brouwer advises getting in its good graces.
“Trying to do something medical and avoiding the FDA, that is a lost battle. It’s like asking the Vatican to become atheist.”
Christina Farr is a San Francisco-based journalist covering health technology. She previously wrote for Venture Beat, The Bay Citizen and SFGate.