Medtronic 2014 Annual Report Download - page 23

The laws applicable to us are subject to change, and subject to evolving interpretations. If a governmental authority were to
conclude that we are not in compliance with applicable laws and regulations, Medtronic and its officers and employees could be
subject to severe criminal and civil penalties including substantial fines and damages, and exclusion from participation as a
supplier of product to beneficiaries covered by Medicare or Medicaid.
Product Approval Processes
Authorization to commercially distribute a new medical device in the U.S. is generally received in one of two ways. The first,
known as pre-market notification or the 510(k) process, requires us to demonstrate that our new medical device is substantially
equivalent to a legally marketed medical device. In this process, we must submit data that supports our equivalence claim. If
human clinical data is required, it must be gathered in compliance with U.S. FDA investigational device exemption regulations.
We must receive an order from the U.S. FDA finding substantial equivalence to another legally marketed medical device before
we can commercially distribute the new medical device. Modifications to cleared medical devices can be made without using
the 510(k) process if the changes do not significantly affect safety or effectiveness. A very small number of our devices are
exempt from pre-market review.
The second, more rigorous process, known as pre-market approval (PMA), requires us to independently demonstrate that the
new medical device is safe and effective. We do this by collecting data regarding design, materials, bench and animal testing,
and human clinical data for the medical device. The U.S. FDA will authorize commercial distribution if it determines there is
reasonable assurance that the medical device is safe and effective. This determination is based on the benefit outweighing the
risk for the population intended to be treated with the device. This process is much more detailed, time-consuming, and
expensive than the 510(k) process. A third, seldom used, process for approval exists for humanitarian use devices, intended for
patient populations of less than 4,000 patients per year in the U.S. This exemption is similar to the PMA process; however, a full
showing of product effectiveness from large clinical trials is not required. The threshold for approving these products is
probable benefit and safety.
Many countries outside the U.S. to which we export medical devices also subject such medical devices to their own regulatory
requirements. Frequently, regulatory approval may first be obtained in a foreign country prior to application in the U.S. due to
differing regulatory requirements; however, other countries, such as China for example, require approval in the country of origin
first. Most countries outside of the U.S. require that product approvals be recertified on a regular basis, generally every five
years. The recertification process requires that we evaluate any device changes and any new regulations or standards relevant to
the device and, where needed, conduct appropriate testing to document continued compliance. Where recertification
applications are required, they must be approved in order to continue selling our products in those countries. Because export
control and economic sanctions laws and regulations are complex and constantly changing, we cannot assure you that laws and
regulations may not be enacted, amended, enforced or interpreted in a manner materially impacting our ability to sell or
distribute products.
In the EU, a single regulatory approval process exists, and conformity with the legal requirements is represented by the
CE Mark. To obtain a CE Mark, defined products must meet minimum standards of performance, safety, and quality (i.e., the
essential requirements), and then, according to their classification, comply with one or more of a selection of conformity
assessment routes. A notified body assesses the quality management systems of the manufacturer and the product conformity to
the essential and other requirements within the medical device directive. Medtronic is subject to inspection by notified bodies
for compliance. The competent authorities of the EU countries, generally in the form of their ministries or departments of
health, oversee the clinical research for medical devices and are responsible for market surveillance of products once they are
placed on the market. We are required to report device failures and injuries potentially related to product use to these authorities
in a timely manner. Various penalties exist for non-compliance with the laws transcribing the medical device directives.
To be sold in Japan, most medical devices must undergo thorough safety examinations and demonstrate medical efficacy before
they are granted approval, or “shonin.” The Japanese government, through the Ministry of Health, Labour, and Welfare
(MHLW), regulates medical devices under the Pharmaceutical Affairs Law (PAL). Oversight for medical devices is conducted
with participation by the Pharmaceutical and Medical Devices Agency (PMDA), a quasi-government organization performing
many of the review functions for MHLW. Penalties for a company’s noncompliance with PAL could be severe, including
revocation or suspension of a company’s business license and criminal sanctions. MHLW and PMDA also assess the quality
management systems of the manufacturer and the product conformity to the requirements of the PAL. Medtronic is subject to
inspection for compliance by these agencies.
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