Second quarter of 2013 sees fewer, richer medtech VC rounds

After the surprise in the first quarter when the largest venture capital financing in the medical device space eclipsed that seen in pharma, the funding situation has settled down a little.

The second quarter of 2013 saw fewer medtech VC rounds than the first, though at 62 the number is still respectable. Importantly, though, at $891m the total amount of cash raised was even greater, suggesting that while fewer companies may be able to persuade investors to part with their money, those that do convince reap significant rewards.

Quarterly VC investments
Financing Date Investment ($m) Financing Count
Q2 2013 891 62
Q1 2013 880 66
Q4 2012 632 49
Q3 2012 664 45
Q2 2012 973 72
Q1 2012 1,061 82
Q4 2011 891 80
Q3 2011 1,179 101
Q2 2011 981 92
Q1 2011 990 98
Q4 2010 1,068 80
Q3 2010 1,028 85
Q2 2010 1,317 95
Q1 2010 773 72
Q4 2009 780 81
Q3 2009 871 80
Q2 2009 1,113 80
Q1 2009 676 62
Q4 2008 932 61
Q3 2008 775 54
Q2 2008 525 53
Q1 2008 634 60

In fact, EvaluateMedTech data show that the mean deal value in the first half of this year is $13.8m, the highest since 2007’s pre-crash average of $16.4m. An optimist might say that this signals that a recovery is well on its way, although it is only an incremental improvement from the $13.4m mean in 2012.

Devices vs drugs

The fact that the largest medtech financing in the first quarter of 2013 beat that in pharma speaks more of the atrocious first quarter the drug developers suffered rather than an unusually good period for device manufacturers (Medtech beats pharma on biggest first-quarter VC deal, April 30, 2013). 

Still, if the medtech sector is picking up, it is not doing so anywhere near as quickly as pharma and biotech. From Q1 to Q2 the total medtech venture investment increased by 1.2%, but pharma and biotech jumped an astonishing 189% (VC funding zooms back with biggest quarter since 2009, July 17, 2013). 

Annual VC investments
Financing Date Investment ($bn) Financing Count
H1 2013 1.8 128
2012 3.3 248
2011 4.0 371
2010 4.2 332
2009 3.4 303
2008 2.9 228
2007 3.0 183

The second quarter is traditionally the best period for VC investment, with the total raised in this period over the past six years averaging $966m. But this has not been borne out when it comes to individual deals: the largest VC funding round in the first half actually came in the first quarter.

Morrisville, North Carolina-based TearScience’s $70m funding to fund commercialisation of its dry eye therapy still leads the pack. Sensor developer Proteus Digital Health, radiotherapy Mevion Medical Systems and Natera, which is working on tests for diagnosing genetic foetal abnormalities using maternal blood, have displaced the previous number two, neurostimulation firm Nevro.

Biggest rounds to date
Company Financing Round Investment ($m)
TearScience Series Undisclosed 70.0
Proteus Digital Health Series F 62.5
Mevion Medical Systems Series Undisclosed 55.0
Natera Series E 54.6
Nevro Series C 48.0

Path to market lengthening

Regulatory changes are taking shape on both sides of the Atlantic, and look likely to make it slightly harder to get certain devices to market.

In the US, it appears that early-stage companies seeking to exploit the CLIA pathway as a source of revenue before obtaining full approval may soon find this route barred (Vantage Point – FDA regulation of lab-developed tests could hurt smaller companies, June 19, 2013).

Meanwhile in Europe, laws designed to harmonise the somewhat fragmented CE mark pathway are taking shape, with a vote on the current proposals scheduled for September (New European medtech laws will improve vigilance, but could delay approvals, October 5, 2012). In both cases the putative changes will make gaining approval for the devices they cover longer, more difficult and more costly, and could even now be off-putting to potential VCs.

After all, a company developing a product soon to be caught in a regulatory net will be less likely to attract a buyer. With the majority of exits in medtech coming in the shape of acquisitions, this is what venture funders can be forgiven for fearing.

To contact the writers of this story email Elizabeth Cairns or Joanne Fagg in London at [email protected] or follow @LizEPVantage or @JoEPVantage on Twitter

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