Medical device crowd-funding becoming legal grey area
Using crowd-funding websites, medical device developers are gaining large amounts of customers and amassing hundreds of thousands in funds, all with devices that are yet to be approved by health regulators. One such device, Airing has crowd-funded more than $1m, even though the device is not expected until 2017 if it gets regulatory approval at all. It remains to be seen whether regulators, such as the US FDA, will clamp down on this practice. 
Crowdfunding is creating a bit of a legal gray area for medical device companies: It’s helping medtech startups reach consumers, and even sell their wares even before they’ve been cleared by the Food and Drug Administration.

Indeed, medical device startups are bypassing traditional funding methods by appealing to their customer base through crowdfunding on sites like IndieGoGo. But they’re often making far-reaching claims – calling their nascent techs “breakthrough technology” and the like – which appeals to paying consumers. The catch? Investors in these crowdfunded products are paying in advance for a device that may or may not receive regulatory approval.

This issue was highlighted in a new article from Stat News, a new life sciences spinout from the Boston Globe. It writes:

Hawking “early-bird” discounts, these companies are quietly lining up hundreds of customers — and raking in hundreds of thousands of dollars — even though their products are still months or even years away from being reviewed by regulators at the Food and Drug Administration.

This is an interesting juxtaposition of two issues that hit the medical device industry hard: A dearth of funding and a slowed regulatory pathway. Venture investment in medical devices has been weakening in recent years – with investors favoring later stage companies over device upstarts. This has driven many innovators with early stage ideas to the realm of crowdfunding. But there’s also the issue that U.S. approval times for medical devices in particular is slow – with many companies headed to Europe and other countries to test and market their products. So this is a legitimate cause for concern among consumers that invest in a medical device company’s crowdfunded wares.

The Stat News piece highlights medical device startup Airing, which is aggressively crowdfunding for a disposable CPAP device that treats sleep apnea. The startup has raised more than $1 million from more than 10,000 donors and customers – though its device is expected to arrive, at the earliest, in 2017. If it gets approval at all.

The piece found that several other medical device startups that have used crowdfunding have failed to deliver, as yet, on their promises to consumers. Take the epilepsy-detecting wristband from Cambridge startup Empatica – though several consumers have preordered the device, production has been delayed twice already. Empatica raised more than $780,000 on Indiegogo – a solid seed round for a devicemaker. But to push any product through the regulatory process, many millions more tend to be required.

However, regulators don’t seem to be concerned as yet about the practice, Stat News reports:

Regulators have taken no action to halt the practice. William Maisel, acting director of the FDA’s Office of Device Evaluation, said through a spokesman that medical device companies must follow the agency’s marketing and advertising regulations, regardless of how they raise funds. The FDA didn’t respond to questions about the legality of specific crowdfunding practices. Lawyers and agency observers say it’s unlikely the FDA will devote its limited resources to regulating the practice unless it appears patients are being harmed.

It should be noted, of course, that these medical device startups absolutely have disclaimers that distribution of the device pends on FDA approval.