January 15, 2013

The Wall Street Journal -Venture Dispatch

At JP Morgan Conference, VCs Upbeat on Medical Devices

The buzz around biotechnology investing that could be felt this year at the J.P. Morgan Healthcare Conference could reach the beleaguered medical-device sector as well.

But it won’t be a spate of IPOs—and the headlines they generate–that re-ignites interest in device companies, several investors said.

“What we are really hoping to see in 2013 are great new products approved, and put on the market,” said Ryan Drant, a general partner at New Enterprise Associates and a board member at the Medical Device Manufacturers Association.

Many people—including high-net-worth individuals who invest in venture funds—use the number of initial public stock offerings as a gauge to determine the health of any given sector. But if they apply that measurement to the medical-device world, they could conclude that the sector is permanently down for the count.

This is not the case, said Mike Carusi, a veteran device investor with Advanced Technology Ventures.

“There is a more somber tone on the device side,” Carusi said. “The industry in general still feels under siege. But I’m optimistic.”

Medical-device companies and their investors are adapting to adversity, he said, and pushing important technologies closer to market despite the many pitfalls of the notoriously difficult sector.

Among the problems in the device sector are high costs and long development times, a regulatory environment that is said to keep good technologies in limbo for years, the reluctance of insurance companies to reimburse for treatments using brand-new technologies, potential new taxes on devices and–above all–the view by many investors in venture funds that devices are unlikely to bring returns.

But there are glimmers of hope for those who take the time to look for them, investors said.

Venture funding for medical-device startups might be drying up. But strategic, corporate investors–the types of medical-device giants that often acquire startups–are increasingly filling the breach, investors said, investing more capital and at an earlier stage than they have done in the past.

“The big [medical-device companies] are clearly concerned that their farm team is going to shrink,” said Carusi of ATV. “I’m seeing much more involvement and collaboration. I met with ten of them at this conference, and I am optimistic we are coming up with new models” for advancing new devices.

To read the full article, visit: http://blogs.wsj.com/venturecapital/2013/01/14/at-j-p-morgan-conference-vcs-upbeat-on-medical-devices/