Venture Capitalists Show Confidence in Medical Device Sector

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I once saw Treasury Secretary Timothy Geithner buying shrimp at a nice fish place in my neighborhood. I wish I’d had the courage to walk over and ask whether he was a bull or a bear when it came to the medical device sector market.

But a new report from The Burrill Report may have answered the question just as well as my friend Tim.

Noting that drug developers shouldn’t be all that pleased by the new data, author Marie Daghlian notes, “medical device and technology developers are seeing a greater interest in their products, demand for which is expected to grow as the global population ages and demands improved quality of life.”

In fact, investment in medical device and technology companies, while still lower than what therapeutics garnered, was up 37% in the first half of 2012, from $1.1 billion in 2011 to $1.5 billion in these most recent figures available.

The medical device industry has been tied up in knots to a degree over looming federal regulation and perceived inconsistencies from FDA inspectors and the agency’s focus. That doesn’t seem to be fazing the money guys, though.

“The increased investment also comes despite worries of increased regulatory scrutiny and reimbursement uncertainty,” Daghlian reports. She cites a survey in late 2011 conducted by the National Venture Capital Association that found nearly 60% percent of venture capitalists expected a decrease in investment in the biopharmaceutical and medical device sectors.

Looks like the VCs may have changed their mind, at least as evidenced by this latest report.

Finally, data compiled by The Burrill Report itself found that funding at all stages for medical device financings that have disclosed the funding stage increased in the first half of 2012, compared to the first half of 2011.

Investors take note: Geithner is a relatively young man, but a lot of those Federal Reserve guys and Capitol Hill types aren’t exactly spring chickens. I’ve seen Former Fed Chair Alan Greenspan at Nationals games a few times this season, and he’s a spry guy for his age, but he’s also a poster adult (as opposed to child) for the growing demand for medical devices among affluent folks who want to remain active for many years to come.

As Deep Throat said in the movie version of “All The President’s Men,” we’d do well to follow the money when we try to read the tea leaves for the medical device industry.

Maybe I’ll bounce this off Tim the next time I see him at our fish place.

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Venture Capitalists Show Confidence in Medical Device Sector
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Venture Capitalists Show Confidence in Medical Device Sector
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I once saw Treasury Secretary Timothy Geithner buying shrimp at a nice fish place in my neighborhood. I wish I’d had the courage to walk over and ask whether he was a bull or a bear when it came to the medical device market.
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  • Reply

    Mike –

    Thanks for some good comments on the device space. I’d like to add our venture firm’s position on medical devices. Overall, we like the space, and have considered it similar to the software space but in the life science market – especially when compared to biotech. However, what we have seen in the past couple of years is that the device companies are taking too much capital to get off the ground and to first revenue while the exit values that the companies are getting are dropping. Typically we see companies raise $30M-$60M and sell for $80M-$100M – numbers that don’t work for us or for most other venture capital firms.

    I think part of it is the increase in the regulations that these companies are required and forced to abide by. Another issue is that in the past the device companies were acquired just as the technology was being commercialized; today the potential acquirers are waiting longer and demanding not only first revenue, but quarterly revenue growth. This grow requires a lot of venture dollars and usually returns only 1x to 2x.

    Maybe when the number of device companies drops enough so that the acquirers have to step on earlier and will things pick up again. But today’s economics don’t work well.

    • Reply

      Hi Ben, I appreciate your comments. Very intelligent. You clearly are on the front-lines of all this. Your perspective is invaluable. I hope medical device companies read your comment carefully. Would love to keep up the dialogue with you on this

      Thanks again, Michael

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