App Makers Crowdfund to Avoid Blindside Hit of FDA Rules

biosense2It sounded like a good idea at the time: A smartphone application that tapped into a growing consumer desire to self-diagnose health ailments at home.
Biosense Technologies Private Ltd. made a splash in February when it unveiled a kit that lets people use their phone cameras to read subtle color differences on test strips designed to show unhealthy levels of proteins and other substances in their urine. What the creators didn’t anticipate was the need for U.S. government approval.
Now Biosense is adjusting to a new reality. After receiving a letter from the Food and Drug Administration questioning the company’s lack of regulatory clearance, Biosense has stopped selling its kit in the U.S. and now plans to seek approval. The letter offered a glimpse into a new push by the FDA to set boundaries in how apps are used for medical care.
“There’s a gigantic gulf between the tech industry as a whole and the medical regulatory infrastructure,” David Jones, chairman and managing director of venture capital company Chrysalis Ventures, said in an interview.
To bridge that gap, Biosense, a closely held company based in Thane, India, decided to put the future of its product, called uChek, at the mercy of the masses. The startup has taken to the Internet to seek out customers who would pre-order uChek to help the company raise $42,000 by Sept. 10 to meet basic regulatory requirements in Europe, as well as some additional money to comply with U.S. standards.
Crowd Wisdom
The kit lets users dip test strips made by Siemens AG (SIE) and Bayer AG (BAYN) in urine and use a smartphone camera and an app, available for Apple Inc. (AAPL)’s iPhone and Verizon Communications Inc. (VZ)’s Android phones, to process results for as many as 14 substances to help determine the risk for more than 60 diseases.
“If your idea doesn’t carry weight, your customers aren’t going to buy it,” said Myshkin Ingawale, a Biosense co-founder, said in an interview. “It could potentially be a great way to validate a new idea in a very lean fashion.”
The FDA hasn’t sent letters to any other app makers as of yet, said Erica Jefferson, an agency spokeswoman. Biosense registered the app April 5, sold its first device April 28 and received the FDA letter May 21.
The mobile health app market is estimated to reach $26 billion by 2017, according to a March report by Research2Guidance, a consulting company based in Berlin. There are 97,000 mobile health applications in major app stores though only 9 percent of revenue will come from app downloads over the next five years while 84 percent will result from related services and products such as sensors, the firm said.
Majority Unapproved
The vast majority of those apps haven’t been cleared through the FDA as the agency determines what level of oversight it may implement. Once the agency decides an app should have clearance, though, a company must comply or it risks the product being removed from the market.
UChek has yet to reach the halfway mark of its fundraising goal, taking in $15,019 in pre-orders as of Sept. 4 through Indiegogo Inc.’s crowdfunding website. It first introduced the app to the public in February at the TED2013 conference.
The potential for more development in the industry is there. A mobile technology company called Scanadu, based in Moffett Field, California, broke fundraising records on Indiegogo recently with its $1.6 million haul for a health vital-signs monitor.
Scanadu plans to seek approval for the monitor, called Scout, which can be held between two fingers and connects wirelessly to an app on a smartphone to read a user’s blood pressure, temperature, heart activity and other vital signs.
‘Consumer Empowering’
“The models are Google- and Facebook-kind of consumer empowering tools where the wisdom of the crowd can rate the effectiveness of the app,” said Jones, whose Louisville, Kentucky-based venture capital firm specializes in health-care and technology investments.
That wisdom of the crowd also determines whether it’s worth a company’s time and money to seek out regulatory approval, which can cost tens of thousands of dollars and take several months or even years to get an FDA decision.
With health care coming to crowdfunding, Jack Lasersohn, a partner at the venture capital firm Vertical Group, said investors must be aware of the potential for FDA regulation.
“In venture capital, there are people who invest in med tech and biotech and there are people who don’t,” Lasersohn said. “One of the reasons is, it takes years and years to understand, to really master, the regulatory system, which is very complicated.”
Pre-Order Chance
Biosense’s crowdfunding page on Indiegogo simply offers people a chance to pre-order the product, pending regulatory approval.
The company said its goal is “democratizing” health care and it has to raise its full funding goal or the money will be returned.
The mobile app world is watching the Biosense experiment and trying to determine the FDA’s level of reach, Jeffrey Gibbs, a lawyer at the Washington-based firm Hyman, Phelps & McNamara, said in an interview. The letter is the first glimpse into what the FDA may require of app makers since the agency hasen’t completed the guidelines manufacturers hope will distinguish when an app requires regulation, he said.
“Because of a lack of guidance, a letter like this, which in the great scheme of things shouldn’t be given much deference, people are trying to read a lot into it,” Gibbs said. “FDA regulation will have an effect on innovation and the dissemination of apps. App people have a background in venture capital and software. Right now they might not be aware of FDA regulation.”
2011 Guidelines
The FDA drafted guidelines in 2011 it aims to finalize this year that would require apps that diagnose or treat conditions to meet similar quality standards as heart stents, ultrasound machines and other medical devices.
The agency would require a 510(k) application, which is the least stringent of FDA device approval pathways that doesn’t typically warrant clinical trials and only requires a company prove its product is similar to one on the market.
Verizon gained FDA clearance for a remote patient-monitoring system Aug. 8. The FDA review process took a “little less than a year,” Janet Brumfield, a spokeswoman for New York-based Verizon, said in an e-mail.
For now, Biosense has vacillated on seeking FDA clearance to once again make the app available in the U.S. While Biosense recently said enough Americans want an updated version of the device it is selling for $84, the $42,000 the company is seeking to raise will actually cover the cost of a CE mark that indicates compliance with European Union safety standards, Ingawale said.
“The CE mark is more widely accepted across the world than the U.S. FDA certification,” he said.
Ingawale aims to gain a CE mark by the end of the year.
If Biosense raises the full $42,000, the funds will cover an EU review and the company will foot the bill for an extra $7,000 to cover additional costs for the less stringent of two kinds of 510(k) review by the FDA, he said.
To contact the reporter on this story: Anna Edney in Washington at aedney@bloomberg.net

Source: Bloomberg – By Anna Edney – Sep 5, 2013
Link: http://www.bloomberg.com/news/2013-09-06/app-makers-crowdfund-to-avoid-blindside-hit-of-fda-rules.html

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