Medical-Devices Sector Could Face Tougher Regulatory Pathway

As the Food and Drug Administration reviews the way it approves medical devices, companies are girding for changes that could make it tougher and more expensive to roll out new products.

The FDA, under its new leadership, has toughened its image. Amid this atmosphere, device makers are particularly focused on a review of a fast-track approval pathway known as 510(k) that has drawn criticism for leniency.

"I think that one has to believe that the 510(k) pathway is going to get tightened up and that the processes are going to be rigorous," David Dvorak, president and chief executive of Zimmer Holdings Inc. (ZMH), said recently.

He expects "some adjustments but nothing that would fundamentally change how we think about research and development within our sector."

Zimmer is a big manufacturer of orthopedic products like replacement hips and knees, which are typically cleared through the quicker review process. The 510(k) pathway, also known as the "premarket notification" process, doesn't require the same level of medical evidence as a full "premarket approval," or PMA review, making it faster and cheaper.

The 510(k) process is intended for new products that are similar to items already approved. Most medical devices are cleared this way, but the FDA has drawn flak for how it interprets the rules.

After the FDA issued a self-critical report in September about the approval process for a ReGen Biologics Inc. (RGBO) knee device, the agency asked the influential Institute of Medicine to review the 510(k) process. That review is expected to conclude in March next year.

The FDA also tapped an internal working group with reviewing ways to strengthen the program and is holding a public meeting to discuss 510(k) challenges on Feb. 18. The review process was launched more than 30 years ago to make available safe and effective devices while promoting industry innovation, the FDA noted.

"During the past three decades, technology and the medical device industry have changed dramatically, making it an appropriate time for the FDA to review the adequacy of the premarket notification program in meeting these two goals," the agency said when it announced this month's meeting.

Wells Fargo sees potential system changes later this year and next that could take a financial toll.

"We believe the FDA will require more data for approval of devices in general and this is likely to increase the cost of bringing new devices to market," analyst Larry Biegelsen said in a research note.

The industry also anticipates changes.

"Probably like everybody else, we're assuming that the requirements for some of the products will be a little more stringent," Stephen MacMillan, chairman and chief executive at Zimmer rival Stryker Corp. (SYK), said during his firm's recent earnings call.

Health-care giant Johnson & Johnson (JNJ) has a huge devices business, including an orthopedics unit that competes with Stryker and Zimmer. Chairman and Chief Executive William Weldon said on J&J's call that the overall FDA regulatory environment--for drugs, devices and consumer products--will get tougher.

FDA changes include new top-level leadership. The Senate confirmed Margaret Hamburg as the new FDA commissioner in May last year. More specifically for device companies, Jeffrey Shuren took over as director of the agency's Center for Devices and Radiological Health in January after becoming acting director in September.

In a recent interview, Medtronic Inc. (MDT) Chairman and Chief Executive William Hawkins said regulatory changes aren't unexpected when FDA adds new leaders, and that it's part of the business cycle for device companies.

Medtronic and other companies making high-tech heart implants, such as Boston Scientific Corp. (BSX) and St. Jude Medical Inc. (STJ), already use the more stringent regulatory pathway for such products. That said, they aren't immune to regulatory changes.

A costlier path to market will be particularly hard on small companies, said Tracy Lefteroff, who leads the life sciences practice at PricewaterhouseCoopers LLP. While big companies can digest such costs, they often rely on acquisitions of small companies that incubate new technology, he said.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

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