In Diagram 3, I also indicate that suppliers have considerable power for the simple reason that qualifying suppliers can take quite a bit of time and effort. So once a supplier is qualified, the manufacturer will have an incentive to stay with a particular supplier. Further, some companies are not willing to supply inputs to the medical device industry for perceived risk reasons related to product liability, reducing the pool of potential qualified suppliers.
Finally, and this is perhaps the most important point, companies that dive into the FDA-regulated waters often find they have greater leverage in the sale of their products. Companies that do not seek and obtain FDA clearance for products that serve a regulated need often must be merely suppliers to a regulated manufacturer, or avoid regulated claims altogether. Thus, perhaps instead of selling to hundreds if not thousands of customers in the medical marketplace, the company is completely dependent on negotiating with a single or perhaps a handful of regulated manufacturers. The company further has little ability to promote any unique virtues of its product. Unless it has some intellectual property protection, the company’s products may be relegated to commodity status.
Thus FDA regulated status can have a significant, positive impact on the company’s competitive status and profitability.
An additional Plus and Minus of FDA Regulation of mHealth
On the plus side, FDA regulation can serve as a validation of the safety and effectiveness of the product category, effectively expanding the market. The risk that the public will reject a mhealth product as “unsafe” is a clear and present danger. Why? The mhealth network comprises a myriad of interoperating technology presenting many points of failure. Software is among the trickiest of products to validated, and conflicts between programs are commonplace. So FDA regulation could be a welcome vote of confidence for the consumer and greatly assist in market development.
On the minus side, what if FDA does not do its job well? Successful regulation is clear and sensible regulation. Unfortunately, presently many of the rules for device interoperability are unclear, and may in fact disfavor attempts at seeking interoperability. Further, in the first three articles of this series, I outlined several ambiguities in discerning the limits of the scope of FDA regulation. Compounding matters, the whole framework for regulating devices is undergoing significant change due to complaints that FDA has been too lax in approving new devices, and it is too early to predict where that reform will come out. This uncertainty in the FDA’s position is itself a barrier to enter the mhealth market in that it increases the cost of doing business, and makes it harder for companies to secure needed investment. The seventh and last article in this series will address this uncertainty, and offer some thoughts on where FDA regulation is headed.
Conclusion
As explained at the outset, I’ve taken a tremendously complex topic and dealt with it at a high level. As to whether a particular company should take the plunge into FDA regulated territory, in classic legal speak: “It depends.” For an individual firm to figure out whether entering FDA-regulated space makes sense requires detailed analysis of the company’s individual strengths, weaknesses and competitive advantages (that is its value chain), the markets of interest and the competitive dynamics of its industry.
But the point of this article is that companies ought to consider the whole picture, and not merely stop their analysis out of fear of a somewhat opaque and difficult regulatory system. Literally thousands of companies have entered this regulatory arena successfully. Further, it’s not all in or all out. The regulatory scheme includes important nuances. Companies have many choices in selecting the optimal position for their products within varying levels of FDA regulation. Of course, there also are ways to avoid FDA regulation altogether, but naturally those come with diminished opportunities. All that will be explained in the next article. So stay tuned.
Bradley Merrill Thompson is a Member of the Firm in the Health Care and Life Sciences Practice in the firm’s Washington, DC office. There he counsels medical device and drug companies on a wide range of FDA regulatory, reimbursement and clinical trial issues. For trade associations, Mr. Thompson has served as counsel to AdvaMed for payment issues, as General Counsel to the Combination Products Coalition and as Counsel and Secretary for the Indiana Medical Device Manufacturers Council. He has taught Food and Drug Law as an Adjunct Professor at the Indiana University Law School and Columbia Law School. Mr. Thompson also serves as Co-Chair of the Food & Drug Law Committee of the Administrative Law Section of the American Bar Association. More
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