• Login
    • Join
  • FOLLOW:
  • Subscribe Free
    • Magazine
    • eNewsletter
    Checkout
    • Magazine
    • News
    • Opinions
    • Top 30
    • Research
    • Supply Chain
    • Device Sectors
    • Directory
    • Events
    • Resources
    • Microsites
    • More
  • Magazine
  • News
  • Opinions
  • Top 30
  • Research
  • Supply Chain
  • Device Sectors
  • Directory
  • Events
  • Resources
  • Microsites
  • Current / Back Issues
    Features
    Editorial
    Digital Edition
    eNewsletter Archive
    Our Team
    Editorial Guidelines
    Reprints
    Subscribe Now
    Advertise Now
    Top Features
    Voices for Medtech: AdvaMed and MDMA Leaders Share Thoughts

    Digitize Your QMS via an Enterprise Cloud Platform

    Diagnostic Desperation: A Look at IVD Trends During COVID-19

    Resourceful Resources: Materials Make a Difference During the Pandemic

    Stressed Testing: Challenges with Medical Device Testing
    OEM News
    Supplier News
    Service / Press Releases
    Online Exclusives
    Press Releases
    People in the News
    Product & Service Releases
    Supplier News
    Medtech Makers
    Technical Features
    International News
    Videos
    Product & Service Releases
    Live From Shows
    Top News
    Cretex CFO Announces Retirement

    New AI-Based Tool Developed for Coronary Artery Analysis, Intervention Planning

    First Reported Use of Pulse Biosciences' CellFX System

    EUA Granted for New COVID-19, Flu A, Flu B Combo Kit

    EchoNous Expands Its Kosmos Hardware Platform
    From the Editor
    Blogs
    Guest Opinions
    Top Opinions
    Voices for Medtech: AdvaMed and MDMA Leaders Share Thoughts

    Digitize Your QMS via an Enterprise Cloud Platform

    Diagnostic Desperation: A Look at IVD Trends During COVID-19

    Resourceful Resources: Materials Make a Difference During the Pandemic

    Stressed Testing: Challenges with Medical Device Testing
    Top 30 Medical Device Companies
    Market Data
    White Papers
    Top Research
    Cybersecurity Compromises, Courtesy of COVID-19

    A Look at the Actual Device Costs for Hospitals

    Show Time: Here’s What a Year of No Tradeshows Meant for Small Businesses

    FDA Making Progress With Technology and Data Action Plans

    What’s Hot Now in Medtech M&A
    3D/Additive Manufacturing
    Contract Manufacturing
    Electronics
    Machining & Laser Processing
    Materials
    Molding
    Packaging & Sterilization
    R&D & Design
    Software & IT
    Testing
    Tubing & Extrusion
    Cardiovascular
    Diagnostics
    Digital Health
    Neurological
    Patient Monitoring
    Surgical
    Orthopedics
    All Companies
    Categories
    Company Capabilities
    Add New Company
    Outsourcing Directory
    FUTEK Advanced Sensor Technology Inc.

    Medicoil

    Medbio LLC

    Forefront Medical Technology

    Spectrum Plastics Group
    MPO Summit
    Industry Events
    Webinars
    Live From Show Event
    Industry Associations
    Videos
    Career Central
    eBook
    Slideshows
    Top Resources
    How Grant Funding Works and How It Can Help

    Refurbished Medical Equipment Testing and Certification Under the NEC

    Taking the First Step with Metal Components

    4 Trends Driving Medical Manufacturing in 2021

    Pioneering AI Solutions to Reinforce Healthcare Services
    Companies
    News Releases
    Product Releases
    Press Releases
    Product Spec Sheets
    Service Releases
    Case Studies
    White Papers
    Brochures
    Videos
    Outsourcing Directory
    Forefront Medical Technology

    Qosina Corp.

    Medicoil

    K-Tube Technologies

    MW Life Sciences
    • Magazine
      • Current/Back Issues
      • Features
      • Editorial
      • Columns
      • Digital Editions
      • Subscribe Now
      • Advertise Now
    • News
    • Directory
      • All Companies
      • ALL CATEGORIES
      • Industry Associations
      • Company Capabilities
      • Add Your Company
    • Supply Chain
      • 3D/Additive Manufacturing
      • Contract Manufacturing
      • Electronics
      • Machining & Laser Processing
      • Materials
      • Molding
      • Packaging & Sterilization
      • R&D & Design
      • Software & IT
      • Testing
      • Tubing & Extrusion
    • Device Sectors
      • Cardiovascular
      • Diagnostics
      • Digital Health
      • Neurological
      • Patient Monitoring
      • Surgical
      • Orthopedics
    • Top 30 Company Report
    • Expert Insights
    • Slideshows
    • Videos
    • Podcasts
    • Resources
    • eBook
    • Infographics
    • Whitepapers
    • Research
      • White Papers
      • Case Studies
      • Product Spec Sheets
      • Market Data
    • MPO Summit
    • Events
      • Industry Events
      • Live From Show Events
      • Webinars
    • Microsite
      • Companies
      • Product Releases
      • Product Spec Sheets
      • Services
      • White Papers / Tech Papers
      • Press Releases
      • Videos
      • Literature / Brochures
      • Case Studies
    • About Us
      • About Us
      • Contact Us
      • Advertise with Us
      • eNewsletter Archive
      • Privacy Policy
      • Terms of Use
    Columns

    Medical Device Funding: Any Signs of Life?

    ...

    Medical Device Funding: Any Signs of Life?
    Related CONTENT
    • Extractables & Leachables
    • Reusable device validation
    • Deciding whether to insource or outsource your testing
    • The Many Hats of an Integrated Contract Manufacturer
    • Plastikos Medical Begins Phase II of Expansion
    Ben Dunn, Managing Director, Covington Associates05.01.17
    One of the most concerning aspects of the recent financial boom has been the lack of funding for medical device companies. While the implications of this shortage of capital have an immediate impact on anyone involved in the medical device industry, the shortage will eventually affect our entire society due to our dependence on medical devices that enhance the quality of life. As with most problems, the dearth in funding has been driven by various factors, rather than one single cause. 

    Taunted by the proclamations of record amounts of available investor capital and cash on company balance sheets, medical device companies of all sizes seeking investments have found it difficult to leverage such financing. With numerous reports about large amounts of available capital and investors’ struggle to put that money to work, the medical device entrepreneur must feel like he or she exists in a parallel universe, because none of the capital has trickled down. Whether it is a Series A or dreaded Series B round—which some refer to as the “valley of death”—it has been difficult to get an investor’s attention, let alone to convince them to part with their money. These obstacles expose more troubling and far-reaching issues within the medtech industry, namely, the amount of money available to companies and the reasons funding has become so difficult to obtain.

    Unlike in past years, there is a record amount of capital currently available for investment. According to Bain & Company, there was more than $1.4 trillion of committed but undeployed capital in private equity funds at the end of 2016, and that number doesn’t even include the large amounts of capital controlled by family offices or government investment arms.
    Moreover, the National Venture Capital Association reports that healthcare-focused venture capital funds raised over $12 billion of new capital in 2016. Clearly, there is a tremendous amount of dry powder for investment.

    So where is the money going?

    Certainly not into medical devices. The different investor classes—private equity, venture capital, and corporate investors—are funneling dollars into non-medtech sectors. Private equity firms have focused their investments on more mature businesses with stable cash flows and historical earnings (the opposite of a typical device company profile) while venture capital firms, which back early-stage companies, have invested heavily in non-medical technology organizations. The firms that have remained in healthcare have gravitated to biotechnology companies and ignored the medical device sector. Corporate investors, flush with cash and demonstrating a more risk averse strategy, have focused their efforts on less risky acquisitions rather than making investments in young companies. Rather than take the risk of investing in an early-stage business, OEMs are content to wait for a company to develop and ultimately pay more to acquire the business.

    Charts 1 and 2 (based on data compiled by Silicon Valley Bank) show the decline in medical device financing as a percentage of total venture investments. In 2016, of the approximately $75 billion of venture capital invested, just over 5 percent went to medical device companies. That figure represents a relative decrease of more than 50 percent compared with 2010, when over 11 percent of venture investments went toward medical devices. The impact of this relative decline is evident upon a closer examination of 2016, a year in which the aggregate amount of medical device investment dropped by 25 percent (from 2015) to $3.9 billion and the number of investments fell to a five-year low at 511.



    There are several reasons for this abscondence from medical devices. The most fundamental explanation involves the principal of risk versus return. Investors prefer financial prospects that give them the greatest chance of returns with the least amount of risk. When compared to other sectors, capitalists consider medical device investments as less attractive on the risk versus return scale. The environment for new medical devices has become much more challenging in recent years. U.S. Food and Drug Administration (FDA) approvals have been less predictable and more time-consuming. Consequently, the longer regulatory process increases time to market and reduces an investor’s time-based rate of return. Even after successfully navigating the FDA gauntlet, medical device companies are not out of the woods yet, as reimbursement has become much more uncertain and tedious. Investors used to be confident about product marketability upon regulatory approval, but that strategy is no longer viable. Regulatory approval is not enough to guarantee success—the device must now also demonstrate that it will be reimbursed and support value-based healthcare initiatives. 

    Not surprisingly, the liquidity path for medical device companies has become much more difficult as well. The initial public offering (IPO) window has been only open a crack (with a limited number of companies going public), forcing investors to rely on an M&A exit for their liquidity. And while medtech M&A remains very active, there have been some unfavorable changes in recent years affecting investments. Perhaps the most troubling change is the challenging regulatory environment, which has increased the amount of time it takes for an acquisition to occur. Previously, an acquisition would quickly follow regulatory approval; now companies wait to determine the type of market traction for a product (due to reimbursement concerns) before merging. Accordingly, the longer time frame makes an investment less valuable and increases its risk.

    Another factor significantly impacting medtech financing is the consolidation among large medical device OEMs. These unions are reducing the number of potential buyers of businesses, leaving investors with fewer exit options and lower values. Medical device exits for VC-backed companies hit a three-year low in 2016, with the industry experiencing only three IPOs and 13 M&A transactions, according to Silicon Valley Bank. Exits for device companies are taking longer and occurring increasingly in later stages. Over the past three years, two-thirds of the companies with meaningful exits have been commercial stage while only 18 percent have been pre-approval stage, thereby increasing the average time to exit for medical device companies to more than eight years in 2016.

    The industry’s financial struggles become even more troubling when compared with the glut of biotechnology investments. As medical device companies fight to attract funding, biotechnology firms have attracted record amounts of funding seemingly with ease. Since 2010, annual investments in biotechnology have more than doubled, from less than $4 billion annually to just under $9 billion. While this disparity certainly is frustrating to medtech entrepreneurs, there are some important factors that have made the biotechnology sector more appealing. First and foremost, biotechnology has produced several impressive exits for investors. It almost seems as if an early-stage biotechnology company is being acquired on a weekly basis. There has also been a steady stream of IPOs providing both liquidity for investors and new potential buyers for startups. Finally, biotechnology firms are striking deals earlier in their lifecycle. Investors don’t even wait for regulatory approval anymore—phase 2 clinical results are often sufficient for buyers. An evaluation of large biotechnology exits over the past two years shows that more than half of the major exits occurred in companies that were either in the pre-clinical stage or had just completed phase I trials. Considering most medical device exits occurred after eight years and well into commercialization, it is easy to understand the allure of the biotechnology sector. 

    A Light at the End of the Tunnel?
    Those of us who have lived through a number of business cycles know the investment pendulum will eventually swing back to medical devices. The long-term fundamentals of this market remain too strong and the global need too great for investors to ignore. Sooner or later, the sectors currently in favor will begin to overheat, burning stakeholders and forcing them to seek new investment areas. Intrepid and contrarian financiers who anticipate this shift will reap the greatest rewards, as they will realize there are great returns awaiting in the medical device space. The lack of recent funding has left fewer startups with which to compete, increasing companies’ chances of success. In time, healthcare investors will naturally start to look for alternatives to informatics and biotechnology ventures, and when they change their focus, they’ll find a new breed of medical device startups. In this class will be companies that have developed capital-efficient models through the effective use of outsourced partners. These companies will also be managed by executives who take nothing for granted and understand their products must provide better clinical efficacy as well as greater societal value.

    Cause for optimism can be found upon closer evaluation of medical device investments last year. Series A investments reached a 10-year high of 60 companies in 2016, nearly doubling from the previous year’s total. This shift could potentially indicate that institutional investors may be looking more closely at medical device companies and are planting more seeds. One can only hope that investors will continue to nurture these promising young companies and not let them wither on the vine. 


    Ben Dunn is a managing director with Boston, Mass.-based Covington Associates. For more than 20 years, he has advised medical technology companies in the areas of mergers, acquisitions, investments, and strategic partnerships. Having advised clients on more than 100 transactions, Dunn has represented both private and public companies on both the buy and sell side. He is a frequent speaker at healthcare conferences and the author of numerous articles, including the whitepaper, “Medical Device Outsourcing Industry: Emerging Trends and Opportunities.” 
    Related Searches
    • medical device companies
    • series a
    • regulatory
    • venture capital
    Suggested For You
    Extractables & Leachables Extractables & Leachables
    Reusable device validation Reusable device validation
    Deciding whether to insource or outsource your testing Deciding whether to insource or outsource your testing
    The Many Hats of an  Integrated Contract Manufacturer The Many Hats of an Integrated Contract Manufacturer
    Plastikos Medical Begins Phase II of Expansion Plastikos Medical Begins Phase II of Expansion
    NAMSA Acquires American Preclinical Services NAMSA Acquires American Preclinical Services
    FDA Breakthrough Device Designation Awarded to BrainCool AB FDA Breakthrough Device Designation Awarded to BrainCool AB's Cooral System
    Medtech Matters: FDA’s Ambiguity on Hyaluronic Acid Medtech Matters: FDA’s Ambiguity on Hyaluronic Acid
    Mike on Medtech: Update on FDA Mike on Medtech: Update on FDA's STeP Designation
    First Patient in Europe Treated With Diamondback 360 Coronary Orbital Atherectomy System First Patient in Europe Treated With Diamondback 360 Coronary Orbital Atherectomy System
    Artificial Intelligence, Machine Learning Adoption in Healthcare to Grow Considerably Artificial Intelligence, Machine Learning Adoption in Healthcare to Grow Considerably
    Refurbished Medical Equipment Testing and Certification Under the NEC Refurbished Medical Equipment Testing and Certification Under the NEC
    Portescap Slotless Brushless DC Motors Receive ISO 13485 Certification Portescap Slotless Brushless DC Motors Receive ISO 13485 Certification
    FDA Breakthrough Device Designation Given to MI Transcatheter Heart Pump FDA Breakthrough Device Designation Given to MI Transcatheter Heart Pump
    Millstone Medical Outsourcing Reaches 600-Employee Milestone Millstone Medical Outsourcing Reaches 600-Employee Milestone

    Related Columns

    • Software & IT
      Cybersecurity Compromises, Courtesy of COVID-19

      Cybersecurity Compromises, Courtesy of COVID-19

      As the healthcare industry focused its energies last year on battling SARS-CoV-2, cybercriminals used the distraction to their advantage.
      Michael Barbella, Managing Editor 03.04.21

    • A Look at the Actual Device Costs for Hospitals

      A Look at the Actual Device Costs for Hospitals

      According to a 2018 clinical journal article, U.S. hospitals spent approximately $200 billion on medical devices.
      Maria Shepherd, President and Founder, Medi-Vantage 03.04.21

    • Show Time: Here’s What a Year of No Tradeshows Meant for Small Businesses

      Show Time: Here’s What a Year of No Tradeshows Meant for Small Businesses

      For small businesses, trade shows are a critical part of developing new business as well as maintaining contacts.
      Dawn A. Lissy, Founder & President, Empirical 03.04.21


    • FDA Making Progress With Technology and Data Action Plans

      FDA Making Progress With Technology and Data Action Plans

      There is an urgent need to get advanced technologies into the healthcare ecosystem, but all products must first get regulatory approval.
      Alan Rencher, Vice President, Engineering, MasterControl 03.04.21

    • What’s Hot Now in Medtech M&A

      What’s Hot Now in Medtech M&A

      Every M&A cycle in the life sciences/medtech sector fosters exciting deals that interestingly impact the industry in both the short and long term.
      Florence Joffroy-Black and Dave Sheppard, MedWorld Advisors 03.04.21

    • Software & IT
      Three Ways to Fast-Track the Total Product Lifecycle

      Three Ways to Fast-Track the Total Product Lifecycle

      Here are three ways leaders including Alcon, Baxter Healthcare, Boston Scientific, Epredia, and Illumina are driving innovation in medtech.
      Seth Goldenberg, Ph.D., Vice President, MedTech, Veeva Systems 03.04.21


    • Materials
      Role and Benefits of Plastics in the COVID-19 Vaccine Rollout

      Role and Benefits of Plastics in the COVID-19 Vaccine Rollout

      With some estimating the U.S. needs at least 850 million syringes for every person to receive the vaccine—plastics will play a significant role.
      Josh Blackmore, Global Healthcare Manager, M. Holland Company 03.03.21

    • R&D & Design
      Six Questions to Consider in Developing a Home Healthcare Device

      Six Questions to Consider in Developing a Home Healthcare Device

      These design decisions stem from questions relative to in-home use and 60601-1-11 compliance.
      Rachael Scott, Lead Electrical Engineer, Key Tech 03.03.21

    • Digital Health
      Five Themes to Watch as Digital Health Takes Center Stage

      Five Themes to Watch as Digital Health Takes Center Stage

      Here are five themes to watch in the sector, including what life sciences developers and investors should know about the current deal-making landscape.
      Stephen W. Bernstein, Partner, McDermott Will & Emery 03.03.21


    • Surgical
      Rethink Your Medtech ASC Strategy, Part 1

      Rethink Your Medtech ASC Strategy, Part 1

      ASCs have adopted a strategy to focus on predictable, low-risk procedures with lower complication rates in an out-of-hospital setting.
      Maria Shepherd, President and Founder, Medi-Vantage 02.03.21

    • R&D & Design
      Pandemic-Level Playing Field: How COVID-19 Made Space for Progress

      Pandemic-Level Playing Field: How COVID-19 Made Space for Progress

      Pandemic restrictions may have diminished certain advantages large companies hold over small and mid-sized competitors.
      Dawn A. Lissy, President & Founder, Empirical 02.03.21

    • Tips for Reigniting Your MDR/IVDR Preparation

      Tips for Reigniting Your MDR/IVDR Preparation

      To get the MDR/IVDR preparation ball rolling again, here are four processes to help refocus on achieving compliance with the updated regulations.
      Nicolle Cannon, Founder and CEO, Cannon Quality Group LLC 02.03.21


    • Materials
      Three Major Innovation Opportunities for Biomedical Textiles

      Three Major Innovation Opportunities for Biomedical Textiles

      Biomedical textiles are gaining significant momentum for use in medical devices to facilitate less invasive surgical procedures.
      John Greco, Vice President of Sales, Cortland Biomedical 02.03.21

    • Contract Manufacturing
      Use Vertical Integration to Increase Productivity, Drive Innovation

      Use Vertical Integration to Increase Productivity, Drive Innovation

      The concept of vertical integration is simple: a company combining two or more stages of production that would normally be operated by separate companies.
      Ryan Lipe, Senior Vice President of Sales & Marketing, MGS 02.03.21

    • How to Better Prepare for Regulatory Requests and Minimize Impact

      How to Better Prepare for Regulatory Requests and Minimize Impact

      Pressure to increase efficiency in medical device development has been prevalent over the past year, especially with the intensified regulatory expectations.
      Sandi Schaible, Sherry Parker and Kim Ehman, WuXi AppTec Medical Device Testing 02.03.21


    Trending
    • Plastikos Medical Begins Phase II Of Expansion
    • Hardy Diagnostics Releases Rapid Test For COVID-19
    • FDA Clears ENvizion's Personalized Feeding Tube Placement Device
    • Portable, Home-Use Device Quickly Measures Inflammation Levels
    • Cheetah Medical Introduces Noninvasive Monitoring System
    Breaking News
    • Cretex CFO Announces Retirement
    • New AI-Based Tool Developed for Coronary Artery Analysis, Intervention Planning
    • First Reported Use of Pulse Biosciences' CellFX System
    • EUA Granted for New COVID-19, Flu A, Flu B Combo Kit
    • EchoNous Expands Its Kosmos Hardware Platform
    View Breaking News >
    CURRENT ISSUE

    March 2021

    • Stressed Testing: Challenges with Medical Device Testing
    • Resourceful Resources: Materials Make a Difference During the Pandemic
    • Diagnostic Desperation: A Look at IVD Trends During COVID-19
    • Digitize Your QMS via an Enterprise Cloud Platform
    • Voices for Medtech: AdvaMed and MDMA Leaders Share Thoughts
    • View More >

    Cookies help us to provide you with an excellent service. By using our website, you declare yourself in agreement with our use of cookies.
    You can obtain detailed information about the use of cookies on our website by clicking on "More information”.

    • About Us
    • Privacy Policy
    • Terms And Conditions
    • Contact Us

    follow us

    Subscribe
    Nutraceuticals World

    Latest Breaking News From Nutraceuticals World

    Thymoquinone Inhibits Viral Infection in In Vitro Settings, New Study Finds
    IFT Transitions 2021 Annual Event to Digital Experience
    NY Federal Judge Enters Permanent Injunction Against Dietary Supplement Manufacturer
    Coatings World

    Latest Breaking News From Coatings World

    Sherwin-Williams Announces Resignation of President, COO
    Ashland Completes Expansion, Relocation of Viatel Bioresorbable Polymers Manufacturing Facility
    Evonik Receives Sustainability Award from EcoVadis
    Medical Product Outsourcing

    Latest Breaking News From Medical Product Outsourcing

    Cretex CFO Announces Retirement
    New AI-Based Tool Developed for Coronary Artery Analysis, Intervention Planning
    First Reported Use of Pulse Biosciences' CellFX System
    Contract Pharma

    Latest Breaking News From Contract Pharma

    AGC Biologics Expands Cell and Gene Facility in Italy
    Celonic to Boost Cell & Gene Therapy Production
    Pharmaron Acquires Biomanufacturing Site in the UK from AbbVie
    Beauty Packaging

    Latest Breaking News From Beauty Packaging

    Ulta Beauty Opens in Herald Square
    Elizabeth Arden Taps Sui He as Global Brand Ambassador
    Natura &Co Outperforms the Global Market in Q4 2020
    Happi

    Latest Breaking News From Happi

    What You're Reading on Happi.com
    Indie Beauty Innovators Wanted
    Cosmetic Chemists Seek Mentors
    Ink World

    Latest Breaking News From Ink World

    Massilly North America Adds Koenig & Bauer MetalStar 3 Metal Decorating Press
    Hydrocarbon Solvents Market to Surpass $8.1 Billion by 2030
    Access Direct Mail Doubles Revenue with SCREEN's Truepress Jet520HD
    Label & Narrow Web

    Latest Breaking News From Label & Narrow Web

    Arjobex America welcomes Maggie Naberezny to sales team
    Henkel publishes 30th Sustainability Report
    Avery Dennison Smartrac launches new Circus Pro inlays
    Nonwovens Industry

    Latest Breaking News From Nonwovens Industry

    FPInnovations Develops Biodegradable Mask
    Sani Professional Sanitizing and Disinfecting Products Approved by EPA
    Autefa Solutions Offers Fully Automated Line for Protective Mask Production
    Orthopedic Design & Technology

    Latest Breaking News From Orthopedic Design & Technology

    Colfax Decides to Divide Its Businesses
    Stryker Corp.'s 2020 Sales Slip 3.6 Percent
    Bioventus Appoints Managing Director, China and Asia Pacific
    Printed Electronics Now

    Latest Breaking News From Printed Electronics Now

    Comercial Kywi Improves Customer Service, Front-Store Operations with Zebra Mobile Solution
    Global Smart Glass Market to Register 6.8% CAGR Between 2021-28: Grand View Research
    Global Printed Circuit Board Market Projected to Reach $69.32 Billion by 2027

    Copyright © 2021 Rodman Media. All rights reserved. Use of this constitutes acceptance of our privacy policy The material on this site may not be reproduced, distributed, transmitted, or otherwise used, except with the prior written permission of Rodman Media.

    AD BLOCKER DETECTED

    Our website is made possible by displaying online advertisements to our visitors.
    Please consider supporting us by disabling your ad blocker.


    FREE SUBSCRIPTION Already a subscriber? Login