Through 312 deals, venture capitalists invested $2.5 billion in the medical device industry in 2009. Source: MoneyTree report.

For start-ups in the medical device industry, competition for venture capital (VC) is more intense than ever in this sluggish economy. Figures from the MoneyTree report, produced by PricewaterhouseCoopers and the National Venture Capital Association, show a drop in investments in venture-backed U.S. companies in Q1 2010.  

Compared with Q4 2009, the medical device and equipment sector saw a 29% decline in dollars in Q1 2010, with $517 million invested in 61 deals. However, the Q1 2010 investments represent an increase of 5.5% in dollars compared with Q1 2009. If 2010 investments trend like they did in 2009, investments will shoot up as the year progresses.  

A survey conducted by MassMEDIC and PRTM, “MedTech Innovation in an Era of Change,” also sheds some light on the financial health of the medical device industry. It surveyed 100 leaders from medtech companies and industry service providers that earned anywhere from $0 to >$1 billion in annual revenue.  

Respondents answered how the economy had affected their companies’ investments. Source: MassMEDIC and PRTM survey.

A mixed response was found when respondents were asked how their companies performed during the current economic downturn. While 45% of respondents reported significant or slight growth, 14% reported a flat growth rate, and 42% reported a slight or significant decline. When comparing these results with the performance of the S&P 500 companies, the survey concluded that “in general, the medtech industry has fared better than others.”  

The VC invested in medical device and equipment companies ranged from 11% to 16% of total U.S. investments between Q4 2008 and Q4 2009. Source: MoneyTree report

Based on its sample size, the survey also found that the type of medtech company played a factor in financial performance. Manufacturers of medical supplies and implantables were less affected by the weakened economy than the manufacturers of medical and diagnostic equipment. More than 40% of the respondents from diagnostic equipment manufacturers said that their companies had experienced significant decline in 2009.  

The survey revealed a potential silver lining for medical device companies going forward. When polled how expanded healthcare coverage would affect the market size for their company’s products, about 41% said they expected some sort of increase. Only about 16% expected a decrease or significant decrease.