How MedTech devices are marketed

When valuing medical device companies (MedTech), there’s no question that revenue impacts share price.

But unlike unregulated industries that can make rather aggressive claims about what their products can do…

In the regulated world of MedTech, according to the Federal Trade Commission (FTC)...

Or put another way, if a regulated MedTech company wants to make bold claims about their devices, they need proof to back it up.

Today, we’re going to dig into how MedTech companies navigate this process, how it can impact their ability to effectively drive sales volume, and what impact it can potentially have on shareholder value.

A brief primer on medical device advertising regulation

When it comes to advertising, medical devices are subject to both Food and Drug Administration (FDA) and Federal Trade Commission (FTC) regulations.

The agencies coordinate their enforcement and regulatory efforts pursuant to a Memorandum of Understanding – often called the “FDA-FTC Liaison Agreement” – that governs the basic division of responsibilities between them.

• The FDA has primary responsibility for claims that appear in labeling, including the package, product inserts, and other promotional materials available at point of sale.

• The FTC has primary responsibility for claims in all forms of advertising.

Because of this shared jurisdiction, the two agencies work closely to ensure that their enforcement efforts are consistent to the fullest extent feasible.

However, before any device can be marketed, it has to go through one of the marketing pathways – which include 510(k) Clearance and Premarket Approval (PMA).

Once this happens, the device receives something called a “label” – which serves the purpose of communicating all essential information needed for the safe and effective use of the product.

The FDA considers the following as labels: in-house newsletters, letters, films, CDs, DVDs, in-service, testimonials on medical practitioners, labels, sell sheets, tradeshow material, posters/billboards, broadcast voicemail, and educational materials/CME.

It also includes brochures, booklets, mailing pieces, social media posts, white papers, content on the website, blogs, and instructions for use documents.

Or put another way, pretty much any and all communications made by the company about the device.

The FDA expects that all advertising of the product is consistent with these approved labels and that advertising claims are truthful.

Broadly speaking, there are three categories when it comes to facts and claims:

• Statements of Fact – Easy to verify statements that are obvious and truthful may not need independent substantiation.
  

• Comparative Claims – Statements comparing products to competitors require substantiation.
  

• Clinical Claims – Statements that relate to the performance of the product in patients must be supported by clinical evidence.

However, while FDA has complete jurisdiction over prescription drug labeling and advertising – as well as all medical device labeling – it has limited jurisdiction over medical device advertising.

It turns out, the FDA is only authorized to regulate the advertising of “restricted” medical devices – a small subset of medical devices that can only be sold, distributed or used upon the order of an authorized healthcare provider, generally referred to as prescription devices.

This means the majority of non-restricted medical devices are regulated by the Federal Trade Commission under Sections 12-15 of the Federal Trade Commission Act.

As a result, the FDA has issued far less regulation and guidance regarding medical device promotion than it has prescription drug promotion.

For example, the Federal Food, Drug, and Cosmetic Act (FDCA) includes just two specific provisions regarding restricted device advertising:

• 21 U.S.C. § 352(q) provides that a restricted device is misbranded if its advertising is false and misleading in any particular, and

• 21 U.S.C. § 352(r) provides that a restricted device is misbranded if its advertising does not contain a brief statement of the device’s intended use and relevant warnings precautions, side effects and contraindications.

In short, the FDCA forbids the commercialization of medical devices that lack the appropriate 510(k) clearance or premarket approval (unless exempted), as well as promotion of medical devices for uncleared or unapproved uses.

While this split jurisdiction creates some interesting challenges for medical device manufacturers…

At the core of all FTC regulation is the collection of rules known as “Truth and Advertising” – advertisers cannot make claims that they know to be false or misleading.

It also requires that all claims are substantiated with a reasonable basis of proof.

For any company that seeks to market their product based on any form of health or disease-related claim, they must be able to show clinical proof in order to lawfully advertise those claims.

However, while the FTC’s standards for “false advertising” in many respects track the requirements in FDA’s prescription drug advertising regulations, there are significant differences.

For example,

• FDA regulations require drug advertising to include fair balance between the benefits and risks of the product, as well as specific language and size of print.
  
  However, the FTC advertising laws do not require “fair and balanced communications.”
  

• Although the FDA is prohibited from the regulation of “commercial free speech” under the First Amendment, and may not impose preapproval requirements for either drugs or devices, the FDA has carved out an exception for drugs when the drug is approved through an accelerated pathway or when the FDA finds that the drug pose such risks that preapproval of advertising is needed to protect the public health.
  
  By contrast, the FDA has not imposed a similar preapproval review for medical devices.

For health claims, the FTC requires all claims to have “competent and reliable scientific evidence.”

While there is no magic number of studies required to meet this threshold, the standard has been defined in FTC case law as:

But how do medical device companies generate the data they need in order to substantiate the claims they want to make?

This is one of the primary reasons for gathering data during what we could call an “Alpha Launch”

If you are familiar with the software industry, “Alpha Testing” and “Beta Testing” refer to a type of User Acceptance Testing.

Broadly speaking, Alpha Testing is mainly performed by the in-house software team while Beta Testing is done by potential users or customers.

However, in the world of consumer and enterprise software, the mandate is often to “move fast and break things.”

Speed to market is key in the tech world. Even if there are bugs in the software, it’s generally more important to ship software as fast as possible to the end user and (hopefully) fix problems with continual updates.

The commonly held understanding is that the consumer will tolerate failures so long as they have access to the latest and greatest technology.

However, in the much higher-stakes world of medicine, this attitude simply doesn’t work.

Risk management is a far greater consideration in the development cycle as efficacy, stability and predictability are key.

Unlike Alpha Testing in software, medical devices must be a “finished product” in order to earn 510(k) Clearance.

However, similar to software, the device still needs to be used in the operating theatre under real-world conditions in order to prove efficacy.

In order to do this, a medical device company needs someone to go first and test out the device in live patient procedures – which we will refer to as the Alpha Launch.

Not only does the Alpha Launch provide an opportunity to gather clinical data required for marketing claims…

With proper planning, the company can decide which types of marketing claims they’d like to be able to make about the product… and then determine what type of data they need to collect.

Oftentimes, MedTech companies will hire an outside firm to help them segment the types of claims they want to make, determine what type of data needs to be gathered to support those claims… and then help gather the data itself.

This means they will assist in monitoring the cases and perform postoperative follow up with patients and physicians.

The end result? Ideally, the MedTech company is armed with substantial proof that allows them to make attractive claims when attempting to sell the device to physicians…

Which hopefully leads to more sales, increase shareholder value, and more interest from potential strategic investors and acquirers of the company.