Medical start-ups must address the evolving risks of the FDA's final rule (or get left behind)

Embarking on the journey of a medical start-up is like navigating a complex labyrinth, where the final prize is the coveted FDA approval. This pathway is fraught with challenges, demanding innovative solutions and a robust strategy to shield your venture from financial losses and potential lawsuits. But how can your innovative start-up dodge these evolving risks?

An example of these ongoing threats recently materialised in the FDA’s final rule on laboratory-developed tests (LDTs). This recent change, which will be phased out in four years, categorises these tests as medical devices requiring compliance with existing device regulations. Before this rule, only commercially manufactured tests sold to labs were regulated by the FDA, as opposed to LDTs, which are manufactured and tested in the same lab.

Until now, LDTs have been a source of innovation and speed to develop solutions for uncommon diseases and even rapid testing during pandemics — when time is of the essence. However, there’s ample context to justify the FDA’s decision.

Existing LDT regulations, such as the Clinical Laboratory Improvement Amendments (CLIA), established in 1988, focus on delivering high-quality certifications for complex testing. But as we saw with the infamous Theranos case, these don't sufficiently certify an LDT is reliable and operational. The FDA’s new rule also cites concerns over false positives and other errors related to LDTs, which have caused patients to be misdiagnosed and worsen their condition.

Now, only those who adapt to FDA regulations during the four-year phase-out period will be able to continue operations — sending start-ups into a spin to quickly shift their operations and products for FDA approval.

While this will affect any and every LDT company, those with a risk management plan that involves stakeholders, investors, and partners will weather this shake-up with more grace.

Understanding the risks of regulatory changes

To start, leaders must understand the FDA process — a rigorous journey involving several phases of clinical trials, extensive documentation, and strict compliance with safety standards. Each step aims to ensure the efficacy and safety of medical products, from drugs to devices, protecting public health.

Here’s a pro tip: understanding and navigating these steps is crucial for approval and securing investor confidence in the face of crucial regulatory changes.

So, start-up teams must strategically navigate compliance issues, manufacturing challenges, market saturation, legal disputes, and more. These liability risks roll off of our tongues easily in conversations. In real life, they change with each passing day and with little notice, complicating clinical trials and funding efforts.

Strangely enough, risks surface from as far back as the planning phase of any FDA approval process. For example, the specialised skills required for FDA-approved medical devices or drugs can be hard to find and retain, and technical hurdles may arise during development, forcing redesign or delaying trials. Start-ups may even run out of funds before trials begin.

And it’s no surprise that many of the challenges mentioned above continue throughout the journey, making it difficult to navigate changes like the FDA’s latest decision. In other words, medical start-ups aren’t cut much slack.

To make matters more complicated, most challenges can quickly snowball into legal suits, financial loss, and reputational damage. Consider, for instance, the implications of a trial gone wrong or a product recall due to safety concerns. These scenarios underscore the importance of a proactive approach to risk management, ensuring that start-ups are well-prepared to handle potential pitfalls.

Preparing for the inevitable transition

Effective risk mitigation is the backbone of a resilient medical start-up — and maintaining rigorous compliance is an excellent start. So, start-up leaders must network with legal and compliance experts specialising in healthcare and biotech to stay current.
And, while there’s still time for start-ups to act, they must move fast to avoid stalling company operations and shocking stakeholders. Streamlining operations in line with the latest regulations must continue by connecting and collaborating with FDA-approved commercial companies. How do they innovate? How do they streamline the FDA auditing process? Being well-connected with industry experts is a necessity to keep up with this quickly evolving landscape.

Another networking opportunity is collaborating with medical professionals to refine the start-up’s offerings and ensure they meet the highest standards of safety and effectiveness. This approach will help you avoid product development risks. One helpful tip is merely to rely on market research. Keep adapting your business model to be agile in the face of change.

Lastly, insurance should be used as a tool instead of only a safety net. We like to refer to insurance as a shield and a sword, instilling confidence in start-up investors — a must-have for rapid growth. Fortunately, there’s an uptick in investor interest, mainly because they understand this sector can provide breakthrough solutions to address growing healthcare demands. And this is not just unfounded optimism.

By the time the final rule is enforced, start-ups implementing these preparation steps will be ahead of the curve, enabling them to expand and innovate, despite the added regulatory pressure.

Looking ahead after new regulations

The landscape of medical technology start-ups is undoubtedly poised for significant evolution due to the FDA’s final rule. Such legal precedents signal to start-ups the critical need for fool-proof compliance frameworks and risk management strategies to mitigate compliance issues and capitalise on emerging opportunities down the road.

Needless to say, this change might also pose setbacks in a start-up’s progress. It’s up to founders and their teams to move as swiftly as possible to fast-track the lengthy and often complex FDA approval pipeline with a fit product and resilient operations as the rule takes effect.

The insurance sector encourages medical start-ups to take a proactive approach, continuously evaluating and strengthening their risk management and insurance strategies. By doing so, they protect their venture and pave the way for a future of innovation and success in the ever-evolving medical field. Your journey might be complex, but with the proper preparations, the path leads to breakthroughs that can redefine healthcare.