Article preview from Start Up - May, 2010
In March 2010, Elsevier Business Intelligence convened a panel of venture capitalists and CEOs of devicestart-ups to discuss the climate for early and late stage funding. Their conclusion: there is money out there, if companies do the right things.
Medtech Venture Investing 2010: Do the Right Thing
Article preview from Start Up - May, 2010
In March 2010, Elsevier Business Intelligence held its IN3 West conference bringing together more than 50 medical device start-ups and the life science venture capital community at the Venetian Resort Hotel Casino in Las Vegas. The CEO of an early-stage device company arrived a bit late to a session on venture capital investing in medical devices. He'd decided to spend a bit longer at the gaming tables, he said, because the odds of walking away with cash were better.
It's true that the venture capital industry, along with the economy in general, has gone through a rough patch, a time of economic uncertainty that has caused medical device investors in particular to question the underlying assumptions that propelled skyrocketing valuations in the years 2004 to 2007. While medical devices plays were once looked at as a surer, quicker path to return on investment than biopharma plays, the troubled times have caused life sciences investors to reconsider. Medical device companies have more protracted time lines in a number of areas than anyone had realized. The runways to regulatory approval are longer, and investors and strategic acquirers are more inclined to wait for most companies to mature before providing VCs with an exit or companies with much needed capital. The biggest risks that device companies already face – regulatory and reimbursement risk – are becoming even riskier, as the 510(k) approval process shows signs of becoming more cumbersome, and health care reform threatens cost-cutting measures that could influence device use as well as a punitive tax on medical devices.
Nevertheless, our gambling CEO is getting better odds at the negotiating table these days. Venture capitalists that invest in medical devices have money to spend and they stand ready to spend it in quality deals. Since 2009, venture capital firms that invest in life sciences have raised more than $7 billion in capital from limited partners. Top-tier venture firms have allocated hundreds of millions of dollars for device investing in particular. Essex Woodlands has approximately $300 million to invest in the sector, New Enterprise Associates $250 million, and Domain Associates, which raised a $500 million fund last year, estimates it will spend $150 million on medical devices. Of course, investment allocations change opportunistically, but these estimates on the part of venture capital firms signal their high level of confidence in the medical device industry.
So how can medical device start-ups get some of this money? That was the question put to a panel of venture capitalists and medical device start-ups in a session entitled, "Medical Device Investing and Financing: Getting Early- and Late-Stage Deals Done Today." The panel was led by members of Elsevier Business Intelligence's medical device team, including Managing Partner David Cassak and Editor in Chief Stephen Levin. The panel brought together both viewpoints on the question – those of representatives from the venture capital industry on one side and device start-ups on the other. Representing the early-stage start-up, Bill Gruber, CEO of women's health company Interlace Medical Inc., had a recent fundraising experience to share as well as advice for other companies, after his company's successful $20.5 million Series C round in June 2009.
- EBI's Medical Device Team
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Companies mentioned in this article:
Accuray Inc.
Elsevier Business Intelligence announces the publication of a new Special Report "Bigger, Tougher,Faster"- Preparing for the New FDA. When the inspector comes calling ... will you be ready?
This 16-page report originally published in "The Silver Sheet". Learn more...
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