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Market Case Study: NeuroControl's Freehand System

In 1994 NeuroControl was founded to commercialize the Freehand system. The device used in this system used functional electrical stimulation to control upper and lower arm movement. Small movements of the shoulder were monitored by sensors and transmitted as electrical signals to electrodes attached to the arms and hands. These electrical pulses would in turn cause the desired muscle to contract. The Freehand system obtained commercial FDA approval less than three years after their initial $5 million dollar seed funding. This was largely due to NeuroControl's ten years of experience with early prototypes. After FDA approval, the company was able to gain an additional $7.6 million in funding. More than 40 patients were implanted in the first year of commercialization, but the device never reached the 200-250 number of implantations originally promised. In 1998, the president and CEO resigned, and it became clear that the company expectations had been fundamentally unrealistic.

The two main reasons for the commercial failure of the Freehand system was the costly FDA regulation approval system and poor reimbursement. The device cost $24,000 and implantation procedures ranged between $55,000 and $70,000. On the other hand, total Medicare or third party reimbursement seldom exceeded $18,000-$30,000 leaving hospitals with significant financial losses in most cases. Additionally, many of the C5-C6 patients (for whom the FDA approved the device) proved adverse to the new technology. Many patients did not want to leave their familiar long term physical medicine and therapy caregiver for an unknown orthopedic surgeon on top of the major surgery needed for implantation. Also, even though the device was wide touted by the media and achieved a 90% satisfaction rate with implanted patients there was widespread aversion to surgery by quadriplegics, due to their frequently fragile health. The combination of these factors proved to be fatal and the company exited the market in 2001.

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