*NEWS: Update on Medtech Investment Environment from OCTANe Forum
OCTANe’s recent Medical Technology Innovation Forum presented an overview by Silicon Valley Bank of the current medtech investment environment. Here are the key points from that panel:
VC invested in medical device companies appears to be up, although on a percentage basis the numbers appear down, buoyed by large increases in tech and biopharma fundraising.
That was the insight provided by Jonathan Norris, managing director of healthcare practice at Silicon Valley Bank’s Menlo Park office. SVB’s HQ is in Santa Clara; it has an OC outpost in Irvine.
Series A investment has recently focused on non-invasive monitoring – sensor-based tech and platforms around using that data – as well as imaging companies.
Overall across stages, funding for surgical robotics has swelled as these technologies continue to develop.
Neuro-focused companies have also raised some larger financing rounds this year.
Norris said that Silicon Valley Bank remains concerned about Series D rounds, as the median step-up in valuation is actually a step-down, which could spell trouble for founders and early-stage investors who cannot participate.
On the exit side, private, venture-backed M&A’s are very healthy and are on pace for a record number of exits and record median up-front payments ($190 million through Q3). The bank also has seen the IPO market start to open up.
In the U.S., the most common forms of pre-market submissions to FDA are the 510(k) and the PMA approvals. Another lesser known submission is de novo. Each of these three results in a determination by the FDA, either clearing 510(k), approving PMA, or granting de novo marketing rights to the successful submitter.
On the private M&A side, Silicon Valley Bank sees PMA pathway companies exit quicker and oftentimes before FDA approval (a median of 5.5 years from close of a Series A).
510(k) pathway companies usually need FDA approval and commercialization fundraise/revenue ramp-up, which takes longer (a median of nine years from the close of a Series A) and yields smaller M&A deal size than PMA companies.
The bank has have seen four de novo deals get to M&A exits in the last two years. These have been FDA-approved, it takes longer to exit (a median of eight years). But these deals actually show the best upfront and total deal value medians of the three categories, Norris said.
Medtronic, (a medical device company with international HQ in Ireland and operational HQ in Minnesota, with its Brain Therapies division in Irvine), and Abbott Laboratories, (a healthcare company with HQ in Illinois), used to be among the most active acquirers of private, VC-backed device companies, but since 2015 they have been completely silent, Norris said.
JJDC is Johnson & Johnson’s corporate venture group, a strategic investment arm focused on building companies that complement the pipelines of the world’s largest healthcare companies.
The group was founded 45 years ago and has a highly diverse set of investors around the globe.
The group supports investment across J&J’s three business units – medical devices, pharmaceuticals and consumer. So far this year, it’s made 35 investments and deployed more than $350 million in capital, Renee Compton Ryan, VP of Investments, Johnson & Johnson Innovation, told the OCTANe forum audience. She’s based in San Mateo.
In terms of OC, J&J Vision, (which primarily makes medical devices), has a presence in Santa Ana.
Another perspective was offered by Bobby Azamian, CEO of Tarsus Pharmaceuticals, with HQ in Newport Beach. He said theinvesting environment in medtech entrepreneurship supports fundamental, rather than incremental, innovation.
Tarsus is developing therapies to treat blepharitis, inflammation of the eyelids. He’s applying what he learned there from a previous company he co-founded — Metavention, with HQ in Minnesota, which makes medical devices for the treatment of metabolic disorders, including Type 2 diabetes.
Metavention’s neuro-modulation procedure to treat metabolic disorders was developed after delving deeply to glean the underlying causes with physiologic and biologic insights. It then took those insights and leveraged established technologies for new targets and indications. The end goal: improve the treatment of chronic diseases affecting millions of patients.
This kind of deep dive offers ample opportunity to develop new products and attract capital to startups, Azamian told the OCTANe audience.
“It’s important to partner with disciplined, experienced, patient investors throughout multiple rounds of venture capital, and pay particular attention to investment by larger medtech company strategic partners, which offer both equity investments and ‘build to buy’ deal structures that can accelerate value creation and liquidity for early, innovative companies, especially if products leverage sales channels and other expertise by strategic partners,” he said.
A similar approach to entrepreneurship can be applied to biopharma, where ample opportunity exists to leverage existing drugs for new chronic disease indications, as Tarsus is doing to develop a treatment for blepharitis, he added.