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May 26, 2021, looms large for CFOs of medical technology (medtech) companies. That’s the start date for the European Union’s (EU) new Medical Device Regulation (MDR), enacted in May 2017.
MDR introduces major changes for EU-operating medtech companies. But, despite the three-year lead time, some firms are struggling to fulfill requirements. A September 2019 survey by KPMG LLC and the Regulatory Affairs Professional Society found only 27% of respondents would be fully compliant with the new regulations by May 26.
What should a medtech CFO be doing about MDR? CFO Dive asked Brian Abraham, director of market access, life sciences, at BDO USA, LLP, to share his advice.
CFO DIVE: What changes are CFOs expecting to make, from a finance and accounting standpoint, to position their company to succeed in the European market under these new circumstances?
BRIAN ABRAHAM: I would see the changes as including more specialized regulatory staff, but I think that this has likely been going on since 2017 when the EU passed the original legislation. Many manufacturers have already been prepared and they’ve been making those changes for the past couple of years. There certainly will be more regulatory staff and as the regulatory staff provides advice to the manufacturing and development areas, that's where you’ll see the changes and, of course, those changes always have some sort of financial implication.
What hurdles do CFOs face in managing what is expected to be a more expensive process for getting approvals?
ABRAHAM: While the EU process may be more expensive than obtaining approval in an individual country, there could be potential offsets by not having to apply in multiple countries, and not having to apply in a particular way to one country and in a different way to another, even with mutual recognition agreements in place among EU nations.
I think that some of those financial implications that you see internally in terms of staffing and in terms of the way that they might change the development would be offset by the fact that it's now only a single application rather than potentially multiple applications, even if that application has more stringent requirements than previously.
Is it possible that product lines will have to be eliminated or modified to manage costs?
ABRAHAM: There's always that possibility, at least to my understanding. But the regulations seem to accommodate for different products and what classes they ultimately reside in and that will help, I think, yet product lines might be modified in the way that a product may not fit into a class or category now and would need to in the future.
So, when we talk about the modification of product line, I don't think it's elimination of a product or a whole line of products. I think it's more of, yes, we're going to have to modify it, and possibly make some changes to the product so that it would fit into a particular class or category.
What’s your overall sense of medtech companies' progress in complying with the regulations?
ABRAHAM: It's difficult to gauge, because many of the companies don't reveal their internal activities. But the companies who have been preparing for the switch will have relatively rapid transitions from individual applications and approvals to the European Commission for med device approvals. Our take on it is that those who have been preparing the past couple of years should be right on schedule.
What are some of the best practices you're seeing in terms of compliance efforts?
ABRAHAM: The companies are generally not forthcoming about their progress. But if they’ve been getting their products cleared for marketing in the U.S., for instance, then they’re comfortable with the regulatory environment and the regulatory operations and shouldn’t need to make radical adjustments.
That said, several companies have participated in stakeholder meetings as part of the transition, so they have input into the process and a clear picture of what it will look like. If they've got that comfort level already because of the way that they've been operating, then I think that if you want to call it a best practice you can but they're basically modeling off other major countries like the U.S. and China.
Several industry observers recommend companies that do significant business in Europe consider appointing a dedicated compliance officer if they haven't done so already. Any thoughts on that suggestion?
ABRAHAM: I've certainly read that, and, not to take too much of a contrarian position, but they may not need a dedicated compliance officer. That's not to say that they don't need a compliance program, which I certainly think they do.
When I was working for a med device company, we had a compliance program that ran through every functional area. Manufacturing, clinical and other departments were involved both on the regulatory and the commercialization sides to ensure that there were no deviations that could be detrimental to getting a product approved.
So, it could be a specific compliance officer but it’s really the compliance program in terms of regulatory compliance that they want to establish and follow. If that means one single leader to do that, that’s fine.
Is it possible that we could see companies shifting to the U.S. as the first stop in the approval process before the EU?
ABRAHAM: I think it depends on a number of factors, including where the companies are located. I saw that two of the EU advisory committees that were implementing the regulations have representatives from the FDA, presumably to explain the U.S. regulatory framework for device clearance or approval.
In terms of targeting, I think it will depend more on now where the market segment is in terms of patients, clinical sites and the types of populations that the manufacturers want. There are some pockets where there are different patient populations, different types of patients and that could make a difference in where these companies target.
But generally, I think that it will be more of 'Do we go the U.S. route or do we go the EU route?' They have many more similarities than they used to.
In the past, EU clearance was swift and happened before the U.S. Now, or, rather, we expect in 2021, companies will have to go through the process to determine the timelines for clearance. Of course, the front-runners will likely experience a few more bumps in the road than those after them.
What should medtech CFOs think about, at this point, with the possibility of pandemic-related delay, and, if not, then with the implementation date coming up fairly quickly?
ABRAHAM: It appears there will be a yearlong delay, which will help those concerned they won't be ready. First, companies have to get through the effects of the coronavirus, then they can regroup to make sure they are ready for the implementation of the new medical device regulations.
CFOs should be thinking, 'we know there will be backlogs, but at the same time there is enough time between the effective date of May 26 and the end of the grace or grandfathering period in May 2024, potentially 2025 with the extension.'
There shouldn't be too much of a market shift where, all of a sudden, they have to take their products off the market, because those dates have passed. It should be a very smooth transition and there shouldn't really be anything alarming, or of great concern, that the CFOs need to be thinking about about whether their products will stay on the market.