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)…
“Marketers need competent and reliable scientific evidence to support all health, safety, or efficacy claims their ads convey to consumers expressly or by implication.
And they need it in hand before the ad is disseminated.”
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 Advertising Regulation
When it comes to advertising, medical devices are subject to both Food and Drug Administration (FDA) and Federal Trade Commission (FTC) regulations.
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.
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 (Rx) devices.
This means the majority of medical devices are actually regulated by the Federal Trade Commission under Sections 12-15 of the Federal Trade Commission Act.
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.
And 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.
How Alpha Launches Are Used to Generate Clinical Data for Marketing Claims
Kleiner Device Labs (KDL) – a medical device company raising capital on the Equfund Crowd Funding Portal – recently received 510(k) Clearance for their KG2 device (which means it is not a restricted medical device).
The KG2 is the next generation of the KG1 device that Dr Kleiner used in his own surgical practice.
You’ll notice that the above graphic makes a claim: the KG 1 improves fusion success rate from 75% to 92%.
However, these claims cannot be transferred to the KG2 until there is clinical proof.
This is one of the primary reasons for conducting an “Alpha Launch” (which KDL is planning on doing in Q1, ‘22).
Not only does the Alpha Launch provide an opportunity to gather clinical data required for marketing claims…
With proper planning, the company can review the data as it comes in to see if it fits their hypothesis (or expectations), and craft marketing pieces to highlight these substantiated claims.
For example, one of the marketing claims KDL would like to make about the KG2 is that it will improve clinical outcomes while reducing costs.
More specifically, they would like to be able to make claims like (keep in mind, these are not yet substantiated)…
- Improves fusion rates in a minimally invasive setting and reduces the risk of readmittance (or other post surgical complications)
- Decreases operation time, which in turn, reduces the risk of infection and blood loss. Not to mention this could potentially reduce the overall cost of surgery.
- Faster recovery times for patients which could result in higher patient satisfaction and reduce the cost of overnight stays
To do this, KDL has engaged a third-party firm that specializes in clinical data collection.
The firm will help them formulate the types of claims they aim 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, KDL will be armed with substantial proof that allows them to make substantive claims when attempting to sell the KG2 device to physicians…
Which hopefully leads to more sales, increasing shareholder value, and more interest from potential strategic investors and acquirers of the company.
Considering an Investment in Kleiner Device Labs?
If so, you’ll want to review their offering listed on the Equifund Crowd Funding Portal by going here.
Currently, KDL can raise up to $1.07 million under their current Form-C filing (they’ve already raised over $800k of this).
Management has also indicated they will be closing this round once the first surgery has been completed with the new KG2.
They may or may not continue to raise more capital via regulation crowdfunding.
Put another way, this may soon be your last chance to invest in Kleiner Device Labs at this early stage.
If you have any questions for the team, be sure to use the Q&A forum at the bottom of their offering page.
Jake Hoffberg – Publisher