The announcement lands just before markets open, ‘the TGA has approved our device’; the buy orders begin to pile up and the pre-open share price begins to surge.

But while a nod from Australia’s drug and device regulator, the Therapeutic Goods Administration (TGA), is permission to sell, only a handful of medical device companies will be able to make good on that promise.

“If you haven’t done your [product-market fit] research you won’t know who is going to buy your product and why,” veteran medical device investor Andrew Maxwell says.

Maxwell, managing director of advisory firm Chatsworth Associates, says he’s seen many companies have a device approved by a regulator yet fail to sell it, because they were never able to prove that it would save the ultimate users time, or save the people who would have to pay for it money.

“I think there is a big misnomer in the Australian investor marketplace,” he said.

“Regulatory approval is really not the key determinant of value. That sounds counterintuitive because for markets where you are bringing a medical device, you can’t actually sell it unless you’ve got regulatory approval.

“But [there is a] big problem with thinking about it in that way… before you even start down the process of regulatory approval, you want to know what you want on the label that you get the regulatory approval for.”


Does anyone want it?

The ASX is littered with medical device companies that have not lived up to the dreams they sold.

These include Osprey Medical (ASX:OSP) which has struggled to convince large numbers of doctors to buy its x-ray dye reduction technology since it started sales in 2015.

DorsaVi’s (ASX:DVL) back movement software never caught fire.

The final straw for now-delisted AirXpanders‘ was a TGA ban on eight types of breast implants, and it struggled to meet lofty sales targets.

Adherium (ASX:ADR), now with a new CEO, has so far not had much luck convincing people to buy its inhaler-use monitoring software.

And Impedimed (ASX:IPD) at first couldn’t get its secondary lymphoma measurement device across the line, then once it did sales still didn’t eventuate because nurses had an easier way of measuring fluid retention — a tape measure.

Companies must work out whether they have a product people will buy or use before heading to the regulator, says EMVision (ASX:EVM) regulatory and quality head Ruth Cremin.

Her company is still in the early stages of putting the stroke imaging device through clinical trials, but during this phase is building relationships with key opinion leaders who can help mould the final product to ensure it functions in ways they would use it.

Key opinion leaders, or KOLs in industry parlance, are “avant garde guys” who do research, lead opinions, have a degree of acumen in both research and academia, and ideally have local and international reputation, says Paul Anderson, boss of bone and nerve bio-scaffold company Orthocell (ASX:OCC).

Anderson has lined up KOLs in Australia, Europe and seven people in the US who can proselytise (for free, because they believe in the product) around the device.

The reason why they can do this, before a device is approved by a regulator as safe and efficacious and therefore is allowed to be sold, is because devices such as implants can only be tested by putting them inside patients in need.

Orthocell has run several pilot studies implanting its product as a tendon, nerve, and bone regeneration scaffold that have won over surgeons.

Memphasys (ASX:MEM) is another company relying heavily on KOLs around the world to establish markets before it puts its sperm separator device to regulators.


What it takes to get a TGA tick

The TGA has come under fire in the last five years for approving devices, such as trans-vaginal mesh implants which left women in excruciating pain or a graphite orthopaedic replacement called a PyroTITAN which was highly breakable.

The regulator is in the process of reviewing its device approval processes.

There are currently five categories a device falls under, from a low risk class one which covers bandages or slings, to active class three which covers implants like pacemakers.

All the TGA is looking for is evidence via audits and a conformity assessment to determine whether a device is safe, is of high quality, and works. If it is, it’ll be listed on the Australia Register of Therapeutic Goods (ARTG). If not, companies have 28 days to answer any questions or withdraw their application.

Having approvals from Europe (a CE Mark), or the US Federal Drug Administration (FDA) helps support a TGA application, as does hiring the right agency to navigate the Australian bureaucracy, says Osteopore (ASX:OSX) regulatory and quality assurance head Jasmine Ang.

“Europe has a number of mutual recognition agreements in place, including with Australia, that facilitates market access to Australia. Osteopore’s CE mark has therefore facilitated our TGA review process, subsequently leading to our approval and listing on the ARTG,” she said.

EMVision’s Cremin says a low-risk device could be approved in six months whereas a high-risk device could take between 18 and 36 months.


The audits never stop

Once a device is approved, modifications must be approved too and regulators in each jurisdiction where a device is registered undertake audits of manufacturers and quality control.

Rob Phillips, founder of Uscom (ASX:UCM) which makes blood movement monitoring devices, believes the system is “incongruous and large”.

Uscom manufactures in Sydney and Budapest and has sales agreements for countries around the world.

“The pathways for different countries are very different, the assumptions are different,” he says.

Phillips says any modifications require further audits and evidence to prove they work and are safe in each jurisdiction it’s registered in, which costs time and money, and suggests this holds back improved devices from being developed.

“I just naively thought that if I came up with a device that does something better than what current devices do… it should have been quite easy to replace,” he said.

“There is a bias towards the status quo [because of the defensive nature of the regulatory environment].”