J.K. Wall
October 29, 2012
Indianapolis Business Journal
The mood was gloomy Oct.
23 as venture capitalists gathered at the Indiana Life Sciences Summit to
discuss the environment for medical technology companies wanting to raise
private institutional money.
And for good reason. The
amount of venture capital
invested in medical-device and -equipment companies nationally has declined
each quarter this year, according to data released Oct. 19 by the National
Venture Capital Association and PricewaterhouseCoopers.
Dollars invested in
medical-device companies fell 37 percent in the third quarter, to $434 million
across the country. That was the lowest dollar volume in a quarter since 2004.
The number of deals dropped 27 percent, to 65, according to the National
Venture Capital Association and PricewaterhouseCoopers.
Data for Indiana
medical-device companies has yet to be released. Through the first half of the
year, such Indiana firms had received pledges of more than $32 million in three
deals, according to a tally kept by Cleveland-based BioEnterprises.
But those results were
skewed by Indianapolis-based Strand
Diagnostics LLC, which secured a five-year, $30 million commitment
from a California financier for its blood-sample tracking system called Know
Error.
The only other
medical-device companies to raise money were Indianapolis-based IV Diagnostics,
which secured $1.31 million in angel capital, and Fort Wayne-based Quantum OPS,
which raised $1.05 million from a Pittsburgh life sciences fund.
The drop-off in appetite
for medical-device companies flows from several factors. First,
the U.S. Food and Drug Administration’s process for approving new devices has
become much more uncertain. Also, the FDA is requiring more clinical trials
before approving a medical device, extending the time-to-market for many firms.
Also, the potential for
reimbursement payments for new devices is murkier than ever. And on top of
that, a new 2.3-percent excise tax on medical devices kicked in this year to
help pay for the expansion of health insurance coverage under President Obama’s
health reform law.
That combination of headwinds has led many companies to
launch products first in Europe and then later—if ever—bring them to the United
States.
And the uncertainty is
chasing off some investors
who previously liked medical-device firms because they could get products to
market faster than drug companies and yet still enjoyed markets with
significant barriers to entry.
“Does it make sense
anymore to have a med-tech-only fund?” asked Jonathan Silverstein, a partner at
OrbiMed Advisors LLC in New York, who moderated the Oct. 23 panel discussion.
The summit, organized by Indianapolis-based life sciences group BioCrossroads,
was at the downtown Westin hotel.
No, was the clear answer
he got from two of the panelists: Ron Hunt, a managing director of New York-based
New Leaf Venture Partners, and Adele Oliva, a partner at Philadelphia-based
venture fund Quaker Partners. The panelists also noted that many venture
capital firms having been cutting back their med tech staff members.
"There are still med
tech opportunities, but venture capitalists want to come in later," Oliva
said.
That desire has stretched
the so-called “valley of death” between an initial phase of startup capital and
the point at which venture capitalists come in to about five or six years.
"It's because of the
regulatory and reimbursement concerns," Hunt said, adding, "I don't
know where the money is going to come from."
However, Bernard
Yancovich, a managing partner at Credit Suisse who oversees the bank’s
investments in Indiana-focused life sciences venture funds, said there’s still
a place for medical-device investments as part of a broad-based portfolio
approach.
Comment: Joleen Chambers October 31, 2012
The medical device industry was not able to balance its’ aggressive
drive to profit with the reality that "innovation" lead to
significant patient harm. When the
product is no longer trusted, the product is harder to sell. Consumers are not willing to pay higher
insurance premiums and Medicare contributions to cover the cost of private
companies' desire to exploit patients.
Industry leaders fought government oversight and did not provide
internal checks on 'outliers'
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