How the FDA’s New Approach to Digital Health Will Impact the Investment Landscape

13 Sep

By Karen Deyo, Investor Research Analyst, LSN

The FDA is working hard to modernize the agency to adapt to the rise of digital health. In his speech on April 26th, FDA Head Scott Gottlieb noted that a clear FDA regulatory strategy for digital health is critical not only for maintaining patient safety, but to provide companies and investors a clear understanding of what, if any, regulatory requirements companies will need to meet before and after market entry. Additionally, the FDA is looking to modernize their own processes by adapting digital tools to help streamline pre-market review of therapeutic safety and for improved compliance with post-market study requirements.

When considering a digital health company for potential investment, investors will ask whether or not the tool will require any sort of FDA oversight. The FDA has determined that any digital health tool that does not have the ability to significantly impact patient safety does not require any regulation. This would include tools such as general wellness apps, tools to streamline doctor-patient communication or track patient care and records, as well as tools to ease patient access to medical records. Investors focused on technologies that don’t require regulatory approval will focus on companies developing these tools when looking for digital health portfolio companies.

Challenges for Digital Therapeutic Tools

The real challenge for the FDA will come in determining the regulatory requirements for digital health tools as part of medical devices, diagnostics and therapeutics. Digital health therapeutic tools, such as tools to monitor patient compliance with medication regimens or monitoring of side effects, would be reviewed in conjunction with drug development programs. Likewise, digital health tools that serve as a component of a medical device will be evaluated as part of the device, unless the FDA determines that the software component can have no effect on patient safety. However, given the difference in time and effort required to develop or alter these software components, the FDA is still determining how to ensure that the review process protects patient safety without delaying access to these tools for long evaluation periods. Since these tools are theoretically being developed side-by-side with a drug or device, they would already be part of the regulatory process and would simply be an added component to current reviews.

New Digital Health Pre-Certification Program Offers Faster Path to Market

Of highest importance to companies and investors is the Digital Health Software Pre-Certification Program that is currently being developed. Initially, this program will only apply to tools that qualify as software as a medical device (SaMD), which is defined as any digital health tool that is not part of a device with unique hardware. This includes software tools for diagnosing, determining treatment plans, imaging, monitoring etc. and any tool using AI or machine learning for these purposes. This is the class of digital health tools that can pose a higher risk for investors due to the uncertainty with regards to regulations and what evaluation will be required before they can be implemented in the clinic, despite their increasing traction among investors. Because of the drastically shorter development time required for these tools when compared with traditional medical devices, as well as the ease in releasing new iterations, the FDA is developing a new regulatory approach: pre-certifying the company as opposed to the digital health tool.

The premise to the FDA’s new approach is that by establishing the excellence of the company releasing the digital health tool, there is an assumption that any software platform the company releases to the market will meet FDA standards. Applying and receiving precertification will allow companies to release new digital health tools to market with little or no pre-market review. Instead, the FDA will rely on post-market studies to assess if any changes need to be made. The FDA has laid out five areas it will evaluate when assessing companies for precertification: the ability to demonstrate a commitment to product quality, patient safety, clinical responsibility (defined as conducting clinical evaluation of the software product), cybersecurity responsibility and maintaining a proactive culture. While this new program is still under development, investors can now evaluate companies by assessing how they plan to meet these guidelines. Once this program is in place, this method of evaluation can serve to mitigate risk when investing in companies before their product reaches the market. Once pre-certification is available, investors can use this as a differentiator when evaluating companies with software tools already on the market.

There are still a lot of unanswered questions with regards to the exact evaluation criteria, both for pre-certification, the delineation between technologies requiring no review, what information companies must provide during the expedited review process, and what data the FDA will require from post-market evaluation. The FDA is currently soliciting feedback from those involved in the industry to help the program take shape with a list of questions related to all aspects of the Pre-Certification Program. Companies and investors in digital health should watch for more updates from the FDA as these programs and regulations take shape.


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