Article preview from Medtech Insight - September 2008
Notwithstanding an occasional blip, the environment for medical device companies has never been stronger, with robust technology development, company creation rewarded with high levels of private and venture investment, and strong M&A activity all supporting a business model that was born out of the doldrums that device companies found themselves in a decade ago. Still, there are pressures that are straining the current model and raising legitimate concerns, including physician conflict-of-interest charges; regulatory pathways that are trickier and a climate of evidence-based medicine that leads to longer, more expensive trials; and a robust M&A environment that is sustainable only if a next-generation of acquiring companies steps up. Part one of a two-part series. Find out more.
Article preview from Medtech Insight - September 2008
The Medical Device Industry's Robust Times: Are They Sustainable?
Editor's Note: The following article, Part One of a two-part series, is adapted from a presentation given at FDC-Windhover/Medtech Insight's recent Investment In Innovation (In3) Medical Device Summit, held in San Francisco, CA.
By David Cassak
By at least one measure—the amount of venture dollars that are being invested in medical devices—times have never been better for the device industry than they've been over the past couple of years. VC funding of device start-ups hit a record high of $4.1 billion in 2007, a 55% increase over 2006's figure of $2.9 billion—and 2006 was up more than 30% over 2005, when VCs invested just over $2 billion in device start-ups.
Moreover, the dramatic surge is even more impressive when you recall that just a decade ago, VC investing in devices had all but halted. In the late 1990s, a kind of nuclear winter descended over the device start-up community. Alarmed by a number of device companies that went public in the middle of the decade only to miss their initial revenue and profitability figures, public investors fled from small-cap device stocks. VCs, in large measure, followed suit, fearful that there'd be no exit for the companies they backed. (A handful of device-specialty VCs cropped up, like ThreeArch Partners and DeNovo Ventures, but they were the exception that proves the rule when it came to investing in devices.) In addition, brighter-seeming opportunities in biotech and dot-com also lured investors away from a sector that seemingly held few success stories and registered modest gains for those few that did succeed.
Things looked pretty grim, except for the fact that as public and private investors were fleeing small device companies, large device companies were discovering them. Faced with significant challenges to their organic growth prospects, big device companies, who actually fared well from an investor perspective during the mid-1990s, increasingly found that the only way they could continue to deliver on the growth that investors demanded was to acquire other companies with complementary—and sometimes not so complementary—products.
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Companies mentioned in this article:
Abbott Laboratories Inc.
Biomet Inc.
Boston Scientific Corp.
Centerpulse AG
Covidien Ltd.
Guidant Corp.
Kendall Co. Ltd.
Edwards Lifesciences Corp.
Hologic Inc.
Cytyc Corp.
Integra LifeSciences Holdings Corp.
Integra LifeSciences
Inverness Medical Innovations Inc.
Johnson & Johnson
Medtronic Inc.
St. Jude Medical Inc.
Tyco International Ltd.
Zimmer Holdings Inc.
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Thriving When The Device IPO Window Closes, IN VIVO 7/2008
Device Financings: Recent Growth, Future Opportunities, Start-Up 5/2008
M&A In Medical Devices: A More Robust Climate? Yes & No, IN VIVO 4/2008
Device Investors Arrive Late: Capital Flows to More Developed Companies, Start-Up 2/2008
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