Which Path to Take – Consumer Product or Medical Device?

Written by Eric Sugalski

It’s a critical decision that defines your commercial strategy – but it’s one that is often taken without carefully weighing the pros and cons of each route.

What are the motivations for heading down the unregulated consumer product pathway? Typically, it comes down to accelerating time-to-market and reducing costs of development.

Avoiding the regulatory process can indeed save costs and result in market access earlier, but is this time to market advantage worth it?

Before taking one path or another, consider the following pros and cons of each.

Unregulated Consumer Product Pathway

The Pros –

• Rapid time to market – The unregulated consumer product route avoids many of the steps that slow companies down. There are fewer burdens such as design documentation requirements, formalized design reviews, manufacturing controls, and clinical validation steps. This translates into a much faster time to market.
• Less expensive process – Similarly, the unregulated consumer product requires fewer specialty skillsets, such as regulatory affairs, clinical affairs, and reimbursement specialists. It allows a product to be developed, manufactured, and available to the market with a much smaller investment than would be required for a regulated medical device.
• Direct customer interface – A company selling a consumer product often has a more direct pathway to the end user. Often, the customer and the user are the same in the consumer product pathway. This offers a direct line of feedback for manufacturers that can be invaluable in terms of sales and marketing insights and future product development considerations.

The Cons –

• Lower WTP – When selling unregulated consumer products, willingness to pay (WTP) will often be significantly lower than WTP for regulated medical devices. Your customer for unregulated consumer products will generally be the average consumer (and sometimes clinicians in private practice). Their purchasing constraints will be much lower than those of larger organizations, such as healthcare institutions or public/private insurance. This lower WTP often means that you need to maintain a low cost of goods sold (COGS), which is typically often only available at very high volumes in manufacturing.
• Unable to make medical claims – With an unregulated consumer product, you will be unable to make any claims related to the improvement of a medical condition. Consumers and/or clinician buyers may be looking for evidence that your device improves a medical state. With a consumer product, you will often have to dance around this topic. Even if your product does provide a medical benefit, you will be unable to market it unless it has been reviewed and cleared by the regulatory authorities.
• Not eligible for reimbursement – Many products used by end users in home environments – such as wheelchairs, infusion pumps, or oxygen concentrators – qualify as Durable Medical Equipment (DME), which are often subsidized or paid by public and private payers. If an insurer is going to pay for a device, it makes adoption by the end user significantly easier. If you take the consumer product pathway, this reimbursement will be off the table.

Regulated Medical Device Pathway

The Pros –

• May be able to make medical claims – With a regulated medical device, you will be able to speak to the clinical indications addressed and the intended use that corresponds with the product classification code. Furthermore, the results from clinical studies – often relating to safety and/or efficacy of your medical device – can become part of your promotional materials.
• More likely to gain support of clinical thought leaders (KOLs) – A key part of marketing to the medical community is to engage Key Opinion Leaders (KOLs) in the evaluation, refinement and promotion of your product. KOLs are much more likely to support a product that uses scientific data to show superiority over the standard of care.
• Opens opportunity to customers with higher WTP – Larger organizations, such as healthcare institutions and insurers, often have more to gain with the adoption of a new medical device. A new medical device may expand revenue opportunities by enabling new medical procedures, or significantly reducing a liability that currently exists and drives costs within the healthcare system. In these cases, a new medical device may offer a significant return on investment, which justifies a higher WTP than would be possible with individuals paying out of pocket.

The Cons –

• Longer time to market – Taking the regulated medical device pathway is certainly a longer time to market. There are additional steps, especially when clinical studies are required, that extend timelines. Additionally, many medical devices that could also be considered consumer products are novel and lack existing product classification codes with regulatory agencies. In these cases, the de novo process or pre-market approval (PMA) process may be required, which requires an extensive review period. The additional time required for the medical device route is often measured in years beyond what it would take for a similar unregulated consumer product to gain market access.
• More expensive process – Obviously, time is not free. So, if it will take years longer to gain market access, then teams need to be employed longer. Additionally, the costs for clinical studies can be significant – often far exceeding the costs of product development and manufacturing.
• More complex sales process – Gaining market access with a new medical device does not mean that the device will automatically sell in the market. There is often a considerable commercial effort that is required to compel customers to buy. When healthcare institutions are involved, this often means an array of meetings with various stakeholders ranging from clinicians, procurement officers, IT teams, IRB committees, value analysis committees, and others. When pursuing a new code or new coverage with public and/or private insurers, the pathway can be even more complex. Additional clinical studies may be required to prove your device meets the “reasonable and effective” bar to justify new code / coverage setup. The process for gaining new reimbursement is convoluted and not well published, which introduces significant complexities in the commercialization process.

The 2-Step Approach

Many companies that can take a consumer product pathway elect to start there, thus gaining rapid market access, with the intention of taking the regulated medical device pathway in parallel or subsequent to the consumer product debut. This can be a viable 2-step approach, but there are some important factors to consider.

• Not much to build upon – If you are first taking the consumer product pathway, chances are that you will be operating with speed in-mind. In this case, you will most likely be avoiding the design traceability, standards compliance, documentation requirements, manufacturing controls, and formal verification and validation steps that would be required for a comparable medical device. In this case, you will be unlikely to build upon the consumer product device that has already gained early market access – instead, it will be more of a redo.
• Price anchors – If you start by putting a consumer product in the market, you will be setting a price benchmark. This initial product pricing may be low to help drive initial sales and expand your volumes. The problem is that your regulated medical device will cost much more to develop and gain market access. However, the market perception of this regulated version may be that it’s not too different from the consumer version. In this case, why would the market be willing to pay a much higher amount for your regulated product? Your consumer product pricing will create an anchor that may end up hurting the pricing scheme of your future medical device.
• Unable to hit market expectations – Often, companies are overly optimistic about the market uptake with a consumer product release. Since you are unable to make medical claims, you will be unable to compel many customers of the value of your product. So, instead you'll need to spend massive amounts of money on consumer marketing -- ads, infomercials, celebrity endorsements. It's a commercialization reality that most consumer product companies neglect until the product hits the market. Furthermore, since you will most likely be producing a small quantity of units during early commercialization stages, your breakeven point may be well above the WTP level of average consumers. These factors typically result in the consumer product sales falling flat -- disappointing internal team members, investors, and other stakeholders.
• Time required to float company – In the case where the consumer product doesn’t hit market expectations, teams will often need to shift gears and focus on the medical version. However, this road is a long one, and it will require a significant influx of new investment. Companies sometimes think that the profits gained from the initial consumer version will fuel the development of the medical device. Since the consumer product sales are rarely successful, additional capital is almost always required to float the company through this pivot and medical device execution. And if investors are willing to float the company through this change, it almost always comes with a significant “adjustment” that leaves company founders and early investors disappointed.

Summary

There are numerous factors at-play when considering the Consumer Product and Medical Device pathways. It is a critical decision that is often deferred – with the belief that the right solution will unfold as product development progresses. Unfortunately, this deferral strategy does not work out well for company founders. The pivot discussed above can be catastrophic to medical device ventures and the founding teams that have poured so much time and effort into the process.

A better route is to consider this important decision at the front end – well before extensive time and effort is applied into product development. This is a key element of your business strategy. Your intended customer, revenue model, pricing scheme, and product that supports this commercialization need to be tightly woven together into a cohesive plan that makes sense out of the gate. If your commercialization strategy needs work – Archimedic can help. Let’s discuss the options and ensure that you are setting your company up for success down the road. Click the "Book Strategy Call" button in the upper right hand corner of the screen to get started.