Crowdfunding is being used every day to raise money for various causes and to aid in the launch of new products. Spurred on by themes such as “Be the change you want to see in the world,” donors feel virtuous for helping to fund a child’s medical bills or helping a non-profit to provide clean water and hygiene to a third-world country. They may also get to try out the latest gizmo prior to market launch. But, when that gizmo is a medical device that has not been approved or even registered with the FDA, that’s when problems start.
In September, a San Diego County couple pleaded guilty in federal court to selling an unapproved medical device, called the “Energy Wave” that they claimed could treat cancer and AIDS. Each device was sold online without FDA approval for about $1,200, and they earned about $271,000. They admitted intending to defraud and mislead the FDA.
If a company launches a crowdsourcing or crowdfunding campaign on its own website prior to filing for the necessary FDA clearance, this may lead to questionable actions. The FDA forbids marketing directly to consumers for unapproved medical products. When a device is considered “investigational,” a company is not cleared for marketing and the company may not promote, advertise, or accept orders for a medical device prior to getting FDA clearance.
When a company called Cur, Inc. launched a $50,000 crowdfunding campaign on its own website prior to filing for the necessary FDA clearance, it raised a red flag and ran several risks. Cur is a transcutaneous electrical nerve stimulation machine that “backers” could obtain for a donation of $149.
After an article appeared on The Verge website questioning its risk-taking by going against FDA regulations, Cur revised the wording on its site and added disclaimers. The wording was changed from “50 percent off for 30 days” to “invest in Cur,” and a disclaimer stated “We are updating our website to reflect that early investors who support us will have the opportunity to receive a Cur perk only after we receive 510(k) clearance from FDA.
Since venture capital for medical device companies has become increasingly scarce, when companies are seeking funding, be aware of which funding sites you can use. Some offer an “all-ornothing” model, where you must meet a funding goal set to get the funds raised. Others follow the “keep it all” model, where whatever is raised is remitted to the entrepreneur.
Some allow medical project funding while others do not. For instance, Kickstarter does not allow projects for “any item claiming to cure, treat, or prevent an illness or condition” to be posted on its site due to safety concerns. However, Indiegogo does host medical device projects, as do Maker Staker, OurCrowd, and MedStartr, among others. Entrepreneurs using careful wording for their ads, and labeling donors as research subjects may find the going easier. But, be aware that claims for your project’s functions or expected results can be tricky.