Show Me Where It Hurts

If you care about Minnesota’s entrepreneurial economy, you care about the medical device industry. Right now, unfortunately, it’s not feeling so good.

What’s giving the industry aches and pains? An unpredictable Food and Drug Administration (FDA), and a virulent mix of finance-related woes. What happens in the next year or two—with regulatory issues, venture funding, a new tax, and the IPO market—could debilitate an industry sector that defines the international business reputation of the Twin Cities. Local backers are trying to change that prognosis.

Flipped Upside Down by the FDA

Any medical device company trying to bring a new product to market must travel one of two routes through the FDA. One is premarket approval (PMA); it’s for new therapies, treatments that are more revolutionary than evolutionary.

The other route, the 510(k) process (named for part of a 1976 law), allows a therapy to be evaluated based on its similarity to something that’s already been approved. In other words, 510(k) products generally are incremental improvements to technologies that already are proven safe and effective. Venture capitalists often prefer a company that’s taking the 510(k) route. Many steer clear of start-ups that need PMA, because that almost always entails long, expensive clinical trials.

From an investor standpoint, the FDA system has worked well for years, providing venture firms—whatever their preference for 510(k) or PMA—with a landscape where risks were relatively easy to gauge. Until recently.

The FDA is interpreting the 510(k) rules differently now, according to Tom Letscher, chair of Minneapolis law firm Oppenheimer Wolff & Donnelly. Products that VCs might peg as likely to gain quick approval based on historical precedents instead suffer long evaluation times or crippling demands for additional clinical information. Delays and uncertainties are especially punishing for start-up and emerging-growth companies, given their limited cash reserves.

“Right now, there is a real risk of lasting damage to the start-up medical device community,” Letscher says. Fixing the 510(k) process has become a “question of life and death.”

In response to the problem, Letscher and Mark DuVal, of the Minneapolis law firm DuVal & Associates, cofounded the Minnesota Medical Device Alliance last January. It’s more an “organism” than an “organization,” they say. There is no formal membership, just a steering committee of local venture investors, med-tech CEOs, and doctors. Firms involved include Thomas, McNerney & Partners; SightLine Partners; Affinity Capital Management; Split Rock Partners; Anulex Technologies; and Atritech.