Paul Teitelbaum, managing director with Mesirow Financial's Investment Banking Practice, spoke with DOTmed News about the potential overhaul of the CE mark process in the European Union and its impact on medical device companies here and abroad.

DMN: What's the status of the European CE mark process being overhauled?

PT: We don't know for certain yet that the European CE mark process will be overhauled, and there has been debate about this between the European Parliament and the Commission which oversees medical devices, but there have been issues with medical devices sold into the European market over the past few years that the Parliament is probably trying to address. For example, in 2012 there was a health scandal involving a now-defunct French breast implant company.

Historically, it has been relatively simple for medical device manufacturers to get the CE Mark. As a result, the market has become flooded with devices, many of which have questionable benefits. Therefore, many believe this was due to happen because the CE Mark process has been essentially an open door for medical devices.

DMN: Briefly, how does the CE process for medical device approval differ from the U.S. FDA process?

PT: For relatively invasive devices, such as implants which are critical to life support or pose a potential risk when being used (“Class III” devices, e.g., an implantable heart pacemaker), the approval process has been relatively similar between the U.S. FDA and CE Mark: companies needed to undergo a PMA process which requires costly clinical trials to demonstrate safety and efficacy. This approval process can take three to five years from the beginning of clinical trials.

For the large portion of devices that have lower risks, generally those that are non- or minimally-invasive ("Class II" devices, such as infusion pumps, some catheters, minimally-invasive surgical tools, etc.), the process has been significantly easier in the EU, whereas the FDA 510k process for these devices frequently requires studies of 25-100 patients, a relatively lengthy review time, and can take 12-18 months.

Contrarily, the European Commission has required significantly less - anywhere from just filing information about the device, to small, quick trials with up to 30 patients, and the process has taken three to six months and at a fraction of the cost of a U.S. 510k.

The U.S. process is also a centralized process - applications all go through the FDA, which has stringent requirements and a backlog of applications being reviewed. On the other hand, the EU process has been a decentralized one where an application could be made through a Notified Body in a given country and some countries have been less stringent than others and certainly less so than the U.S.

The proposal submitted to the European Parliament would involve a centralized process with standards and requirements much closer to those of the U.S. FDA.

DMN: How will this impact both the European and U.S. medical device industries?

PT: Over the past several years, particularly after the FDA 510k process became more onerous and lengthy, development and early commercialization stage companies based in the U.S., Europe and other countries leveraged the relatively easier CE mark process to more quickly get to market (starting in Europe). This helped them to start generating sales and cash flow to help sustain themselves and fund later U.S. development efforts via the FDA regulatory process. Through this process, companies also generated some valuable clinical and market data, some of which could later be used in their development efforts for the U.S. market.

The impact would apply to both European and U.S. medical device industries (as well as those in other countries), and could be dramatic. It would raise the bar for medical devices to be approved for the EU market. As a result, companies may look first to other parts of the world that may have easier regulatory requirements in order to start generating revenues, such as Brazil and other parts of South America, Eastern Europe, or some Asian countries.

To some degree, a tougher EU process could stifle or filter out some innovation. It is also likely to force a number of companies to sell out to, or partner with, large medical device companies earlier on, and lead to a potential increase in M&A and strategic partnership activity.

Finally, European clinical research organizations (CROs) and other companies and consultants that provide regulatory assistance to medical device companies seeking approval in the EU market are likely to benefit because companies will need more help and advice. On the flip side, some European CROs might see some of their prospective clients go to other countries to do their first trials.

DMN: What kinds of medical device companies will be affected the most?

PT: Certainly most affected will be companies with "Class II" devices - devices that have lower risks, generally those that are non- or minimally-invasive - that have not required large, lengthy clinical trials or other stringent requirements. It will also impact development-stage and early commercialization-stage companies that have depended on a faster, easier CE process to begin generating revenues in Europe to help funds development efforts in the U.S. and other countries.

Additionally, we may see an effect on small to mid-size U.S.-based revenue-generating companies that have been looking to Europe to expand their businesses, as well as all companies that already have an approved device on the market in Europe. In these cases, the devices initially went through an easy process and may have to go back to re-submit under the new regulations — there might not be "grandfathering."

DMN: How can medical device companies prepare for these changes?

PT: Medical device companies must watch the developments carefully and plan ahead. Be prepared that moving forward, getting approval in the EU could be as costly and lengthy a process as in the U.S., so companies should factor it into budgeting and financing estimates.

In addition, do not depend on the historical strategy of getting an easy approval first in Europe to generate revenues to lessen financing requirements. Begin taking a look at other countries where companies may be able to get approval more quickly than the EU to start generating some revenues and data there. As I mentioned above, assume that any devices companies already have on the market in the EU might have to go back to square one and be resubmitted through the new process, as companies might not be allowed to grandfather products.

Companies should take the approach that there are no free lunches. One needs to design and develop medical devices in a thorough and thoughtful manner, building up all of the necessary clinical data to demonstrate strong safety, efficacy, clinical benefit/improved outcomes for patients, and economic benefit for clinical providers and payers. If a device is weak in one of these areas, companies might need to rethink design and development or the target market.

DMN: When will the new CE marking process be effective and when do you predict we'll make these changes?

PT: There is an election in the EU in about a year from now and the Parliament and Commission will change over in June 2014. If lawmakers in the EU are able to work quickly and get laws passed before the election, then the new process could be become effective by early 2014. However, some of the Parliament members are dragging their feet a bit, because near the end of their term they would rather not deal with the politics of this issue.

The new CE marking process will be effective either by early 2014, or possibly after the end of 2015. If laws do not get passed before June 2014, then we believe that the changes could be delayed to at least 12-18 months past June 2014 (possibly into the 2015/2016 time frame) because the new lawmakers would need time to evaluate and formulate their stance on the issue.