5 Reasons Entrepreneurship in Medtech is Dying

The number of medtech startups launched per year has declined by 70% since the late 1970s, according to a new report from AdvaMed.

Medtech is sorely in need of newcomers. Around a third of the companies in the industry today have been doing business for 25 years or more, and over half have been around longer than 16 years, according to a new report from the trade association AdvaMed.

The problem is a decrease in entrepreneurship. Almost 70% more startups were formed in 1978 than in 2015, according to research by the group. Overall, less than 5% of medtech players were launched within the past 12 months. Contrast that with the information and communications technology sector, where more than one in 10 firms are under a year old.

What gives? According to the AdvaMed report, the following factors are to blame:

Dearth of Funding

Medtech is losing out to other sectors when it comes to attracting venture capital (VC). In 2014, the industry received only about 4% of the total pot, compared with 13% more than two decades earlier, according to AdvaMed. Worse yet, the VC the industry does nab is going to more mature startups.

Long Path to Market

Part of the reason investors have been gun shy when it comes to medtech is that exits in the sector net less than those for software startups and take longer to come to fruition, according to the AdvaMed report. The regulatory process for a novel device in the United States takes around 7.2 months longer than for a "follow-on" product, according to research from Ariel Stern, a professor at the Harvard Business School, and novel products take five times longer to  gain approval in the U.S. as compared with Europe, according to a 2010 survey by Josh Makower, founder of the medtech incubator Exploramed.

Uncertainty Around Reimbursement

FDA has made progress in shortening review times over the past few years, but regulatory approval is only one hurdle medtech companies face in getting to market. Reimbursement is another, and getting coverage from both Medicare and private payers has become increasingly difficult, according to the AdvaMed report. In fact, one person quoted in the trade group's report bemoaned that "CMS is now becoming the new FDA."

Restrictions on Physician Ownership

Physicians have long played a role in medtech innovation, as they're often in the best position to identify unmet needs. But provider policies that aim to prevent fraud by limiting business with physician-owned businesses can also hamper startups. Physicians may be barred by their employer from claiming an ownership stake in startups they advise.  

Competition for Talent

Aeronautics used to be the industry of choice for standout engineers, explained one investor quoted in the AdvaMed report. Today, IT is attracting the top talent. Innovators, it seems, are gravitating to sectors with fewer regulations than medtech.

Jamie Hartford is the director of content for medtech brands in UBM's Advanced Manufacturing Group. Reach her at [email protected].

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