By Kiran Johnson

Elke Rehbock is a partner at Dentons US LLP where she co-chairs the manufacturing sector. She focuses on representing corporate and financial institution clients, both US and foreign, in a variety of cross border corporate and finance matters. HealthCare Business News checked in with her to get a better sense of the US medical technology market, and key considerations for companies trying to get involved.

HCB News: The sheer size of the market in the US, and a unified market at that, attract a lot of foreign investment, including medical technology companies. What are some trends you’re seeing today and why are they happening?
Elke Rehbock: What most stands out right now in the manufacturing sectors, including medtech, is that companies are dealing with tremendous pressures on their supply chain. COVID brought a number of disruptions, such as freight bottlenecks, closed borders and stay at home work. We’re now challenged with supply chain issues beyond what COVID initially triggered. For medtech companies, this is an even bigger issue because many of the parts they depend on are highly regulated. Consequently, not only can these companies not get their desired parts, but regulations make substitutions more challenging. More generally, companies in the industry are bringing production and choosing their suppliers closer to where the need is. We’ve also seen companies build flexibility into their contracts to allow for increased supply from one supplier over another, if one falls short.

HCB News: After committing to entering the US market how do companies typically get started? What is the right team to think through such potentially sizable investments?
ER: The initial team needs to include someone who understands the local market. Coming to the market without local guidance creates room for a lot of misunderstandings, resulting in many different missed opportunities. The starting point to fixing these problems is lining up the right marketing, real estate, sales and legal support.

HCB News: It seems like a simple question, but how do companies get their products into the US market?
ER: That depends partially on how the company enters the US market. New market entrants have several options ranging from direct sales, sales representative on a commission basis or go through a distributor. Acquiring a US entity is an attractive alternative for those seeking to leverage an existing structure. A downside is the initial cost and the need for management to integrate companies across all fields: business, marketing, IT and really every function.

HCB News: If you want to manufacture in the US how does a company decide on a state and city to go to?
ER: For medtech companies with manufacturing capabilities, availability of talent, infrastructure, logistics and taxes and incentives are important factors. Without a need for manufacturing capabilities, infrastructure is much less of a concern. Especially now, a growing concern for everyone is the availability of a local workforce. What type of people do you need and what are their skills? If needed can you work with local educational institutions to provide training? What are the local and state incentives companies can obtain when new jobs are created. We always recommend that companies look at several locations to get a sense of where the tax breaks will be most favorable and then weigh those benefits against all other factors.

HCB News: Rather than building from scratch, a significant number of foreign companies are seeking to acquire existing US companies. What are some of the major challenges and what do they need to consider?
ER: It takes time and it takes a lot of upfront effort to get that done. Targets could be enterprises with whom a company has done business in the past where they is familiarity, trust and a working relationship. Alternatively, there are advisors who can help identify targets in the United States. From there, it takes a lot of time to get to a letter of intent and to get to closing, especially in highly regulated industries, because there's a lot of licensing involved to make sure that all the proper compliance structures are in place. Another major challenge, which is often overlooked, is the thoughtful post-acquisition integration of systems and people so that the acquisition is actually additive to the business as a whole. Many acquisitions struggle or fail because this last piece is not given the proper attention.

HCB News: Who is responsible for the compliance piece? Does the counsel that you retain take care of the advisors and deal with everybody involved, or do you seek a compliance professional or you? What experts are involved in that?
ER: The diligence on compliance spans various practice areas and professions. Lawyers assess the strengths of the target’s compliance program, financial risks related to product liability and enforcement actions of the US Food and Drug Administration (FDA), intellectual property and other regulatory and contractual matters. We rely on technical consultants to assist with the review of the FDA’s technical requirements and on IT experts review whether a target is prepared against cybersecurity attacks, for example. The exact deal team will depend on the nature and type of deal.

HCB News: With a large federal government, and so many states, what do foreign companies need to know about medical regulatory hurdles, reimbursement, and the potential for their devices to be adopted?
ER: Foreign companies in the medtech space largely understand that, unlike many other countries, the United States doesn’t have a single payer system through which devices and device-related procedures are reimbursed by insurance for providers. That means that any market entrant needs to carefully consider, in advance, how its products will be reimbursed so that providers can financially justify their acquisition. The onus is on medical technology companies to work with regulators prior to a product launch to ensure that the requisite approvals are in place. It is crucial that federal health care program payers have classified the products and related medical procedures for payment purposes and have billing mechanisms in place through which hospitals, physicians and other health care providers can submit claims for reimbursement. For example, not only does a product need to be approved by the FDA, but it also may require a unique billing code (CPT or HCPCS) and/or a national coverage determination by the Centers for Medicare & Medicaid Services (CMS), which administers the Medicare program, the federal health care program for the aged and disabled. Without both the regulatory approvals and payment mechanics already in place, medical technology uptake in the US simply is not feasible.

HCB News: Most companies are intimidated by the risk of product liability and rightly worry about US laws and a litigious society. How do you advise them?
ER: While the US culture is indeed different in this regard, the perception of this risk tends to be exaggerated abroad. The real question is what can be done to mitigate litigation risks in the United States. Broadly speaking, there are a few steps companies can take to better insulate themselves from liability ranging from appropriate corporate structuring, and related housekeeping, to insurance.

In the medtech space specifically, manufacturers may face strict liability and negligence claims by individuals if harm was caused by a medical device and the manufacturer violated applicable regulations. Consequently, more than any other space, the answer starts with a solid compliance program which allows companies to demonstrate compliance in the face of a claim. Creating a culture which allows for regular communication between the business and the compliance teams also furthers this goal.

HCB News: FDA approval for medical devices is a long, complex process requiring quite a lot of guidance and investment, and there are differences in classification which can make the bar higher, can you comment on that?
ER: A medical device may require premarket review by the FDA before it can be made available in the US market. Timing and process depend on several factors including the classification of the product. A device’s intended use and indications for use determine its classification. Device classification is risk-based. Class I medical devices, pose the lowest risks and generally do not require premarket review. Class II devices are higher risk and are often subject to premarket notification (or 510(k)) requirements. Class III medical devices are those which pose the greatest risk and typically require a premarket approval application including non-clinical and clinical studies supporting the safety and efficacy of the product. This process can take up to 6 months or more.

HCB News: What can foreign firms expect during negotiations in the US? Are we hardscrabble as some perceive?
ER: We see cultural clashes in this regard and it’s our job to smooth that out and make it work. A typical first offer in the US tends to be more one sided, a perfectly acceptable approach in a culture where tough negotiations are expected. In many European countries, by contrast, terms offered at the outset are typically guided by the desire to make a fair and acceptable proposal, so more middle of the road. An advisor is then needed to ‘translate’ the cultural differences to get all parties to a deal.