Medical Device Manufacturers Have a Cost Problem
Manufacturers of critical, life-saving healthcare equipment deal with a myriad of complexities and regulations that no other industry has to consider. Many of these considerations require significant additional costs, and in an era that has been defined by risks and disruption include supply chain delays, inflation, raw material shortages, extensive lead times, natural disasters, geopolitical tensions, and much more, preservation of working capital must be considered a priority.
One of the clearest examples of this is in the FDA certification process medical devices require to enter the market. Essentially, biomedical devices are broadly categorized in terms of risk to the patient. Class I devices, for example, regardless of function, present a low/moderate risk to patient health, while Class II devices pose a more moderate risk. This includes equipment such as CT scanners. Moving higher up the scale, Class III and Class IV devices, present a high risk and are largely devices critical to sustaining life, such as dialysis equipment and pacemakers.
The costs for certification of these devices are largely determined by the class the device falls under, as well as the length of time the certification process can take. A Class I device, which include things as nominal as oxygen masks and electric toothbrushes, can be registered in only a matter of days. Class II devices, meanwhile, have an average wait time of about six months, or as long as 245 days in the case of anesthesiology devices. Class III and beyond takes even longer, with an average time length of about eight months to a year. Class III and IV products also are required to register through a separate pre-market approval (PMA) pathway, which is separate from the 501k(k) pathway typically used for Class I and II devices and requires an additional application for an Investigational Device Exception (IDE). Essentially, this exemption allows the company to begin collection of data via clinical trials which can then be presented to the FDA in their submission.
All of this has drastic implications on cost. According to the FDA, the average cost of bringing a product to market via the 501(k) pathway is $31 million. Should the product require use of the PMA pathway, that average cost increases to approximately $94 million.
Facing such costs, it is clear that considerations must be made to preserve capital when possible, especially during the development of a new product that may take months or years to enter the market after designs are completed. An Inventory Ownership Solution through a supply chain partner such as Partstat pairs perfectly with such initiatives by allowing medical device manufacturers in that it allows them to place large inventory orders at the beginning of the process without any upfront cost. Not only does this mitigate any obsolescence issues that may arise — a concern particularly prevalent in the healthcare industry where products commonly have lifecycles over 20 years — but it keeps precious working capital on the books right when manufacturers need it most.
With Partstat, medical device manufacturers preserve capital, preserve business continuity, and preserve the sanctity of their brand with no surprises or drawbacks. In today’s environment, it’s simply a must-have.