Funding Follies Publicly traded medtech companies in the United States and Europe turned in a sol

Funding Follies

Publicly traded medtech companies in the United States and Europe turned in a solid performance in 2010, but the numbers are a bit deceiving. Net income for non-conglomerates, for example, totaled $17.4billion, a 43 percent increase compared with the $12.2 billion reported in 2009. However, the Ernst & Young report attributes the increase to large, one-time charges in 2009; without those charges, net income growth would have totaled only 9 percent. Revenues for all publicly traded medtech firms in the United States and Europe amounted to $315.9 billion last year, a 4 percent rise from 2009.

The data on capital raised by American and European companies in 2010 is just as misleading. While capital raised by medtech firms reached $23.6 billion last year—a whopping 66 percent increase compared with the $14.1 billion companies put together in 2009—financial experts claim the increase was not driven by a fundamental improvement in investor sentiment toward the industry. Rather, the rise in capital was driven by a handful of mature companies that took advantage of historically low interest rates to raise debt and then restructure their balance sheets, finance acquisitions or fund general operations.

“On the surface it seems like good news that the amount of capital raised is up so dramatically,” said Dave DeMarco, a principal at Ernst & Young. “But a majority of the increase was driven by large debt offerings. When you look at the venture capital picture as a whole, the most poignant conclusion you can make is that the amount of venture capital going into early [funding] rounds has decreased for the third consecutive year. Venture capitalists appear to be placing their money in safer bets. We’ve seen more money go into areas like non-imaging diagnostics, for example. It’s all part of the new normal.”

Venture funding did indeed fall in 2010, though the amount raised remains consistent with pre-recession levels, according to the report. Venture capital investment fell 13 percent compared with 2009, while venture funding in the United States plummeted 15 percent to $3.5 billion. In Europe, venture investment was up 4.7 percent to $707 million.

After two years of sluggishness, initial public offerings (IPO) picked up once again in 2010, but at a significantly slower pace compared with the years leading up to the global financial crisis. Nine medtech companies in the United States or Europe completed IPOs last year, grossing a total of $568 million. In 2009, only two IPOs took place, thanks to less-than-enthusiastic investor sentiment. And, of course, the “new normal.”