Has Medtech Funding Hit Rock Bottom?

Nancy Crotti

October 14, 2014

4 Min Read
Has Medtech Funding Hit Rock Bottom?

News out of the major U.S. medical device hub of Minnesota raises more questions about whether the funding slump has really ended.

Fewer Minnesota medtech companies are raising money, and they've been commanding a smaller share of the life science funding pie of late, according to LifeScience Alley, a trade group of medical device and pharmaceutical firms.

The medtech sector raised only 67% of total Minnesota life science funding during the third quarter of 2014, down from 95% for the same period a year ago.

A total of 57 medtech companies raised money in all of 2013, compared with 39 year to date, noted Cheryl Matter, the organization's research director. That's about 68% of the total number of Minnesota medtech companies that attracted funding during the entire calendar year in 2013, but Matter is not worried.

"I think we're on track to probably be close to--at least within the medtech sector--to what we did in 2013," Matter said.

The mixed messages about medtech funding out of Minnesota mirror what's been seen in the other two major U.S. medical device hubs, California and Massachusetts, as well as the nation as a whole.

Quarterly medical device venture capital funding has been between $500 million and $750 million since 2011, and has never returned to the more than $1 billion amounts seen before the Great Recession, according to the MoneyTree report that Thomson Reuters compiles for Pricewaterhouse Coopers and the National Venture Capital Association. Massachusetts is the only one of the three hubs that has at least seen a few quarters in recent years that had a pre-recession feel. 

The situation could be getting even worse. The EvaluateMedTech report from London-based Evaluate Ltd. found significant decreases in both the value and number of venture financing deals in the first half of 2014, versus the first half of 2013. Year-over-year, deals during the first half of the year were down 16% in value, to $2.2 billion, and down 24% in number, to 199.

Meanwhile, digital health funding is booming. It is telling that the firm receiving the most funding in the Evaluate report was a company named Proteus Digital Health. Interest in digital health technology from investors shows no signs of abating just yet. Already in 2014, venture capitalists have invested more than $3 billion in digital health, according to a report from Rock Health. Most of that funding went to firms based in California. 

In Minnesota, medtech companies accounted for 72% of the 18 life science firms that attracted investments in the quarter, accounting for 67% of $113.6 million in total funding, LifeScience Alley said in a statement. Pharmaceutical firms accounted for 22% of the total and health information technology, 11%.

More health IT companies, which work with medtech firms, attracted investments in the first half of this year compared with all of 2013, Matter noted.

Among all of the life science companies, five each raised $10 million or more, including Plymouth-based Rotation Medical, which attracted $27.2 million during the quarter, the trade group said. Rotation Medical makes bioinductive rotator cuff implants and instruments to reverse the progression of rotator cuff disease and restore long-term shoulder function, the company's website says.

Rotation Medical is using the money to support the commercial launch and post-market clinical studies of its rotator cuff system, the company said in a statement. The study began in mid-September, the company said.

Another medtech firm, Zyga Technology of Minnetonka, raised $10 million. A developer of minimally invasive solutions for spinal conditions, Zyga intends to use the proceeds to fund the expansion of its U.S. sales and marketing organization as it prepares to implement a Category 1 CPT code for SI joint fusion procedures in January 2015, the company said in a statement. Zyga will also use the money to support clinical studies of a joint-fusion system, sacroiliac fusion and a facet-restoration device in subjects with lumbar facet pain.  

The state's YTD total life sciences investment of nearly $300 million exceeded the total for the same period of 2013 by 28% LifeScience Alley said. The trade group also predicted that total investment for the year is on pace to exceed the five-year investing high.

This year's median deal size was $3.2 million, a five-year-high and up 204% or $1.5 million in the same quarter last year. It far outpaced the second quarter of 2014, whose total was $0.4 million - an 800% surge.

The total amount of Q3 investment in the state's life science companies was up from the $111 million raised in Q2. The number of companies that attracted investors' dollars in the quarter remained stable at 18 compared with the Q3 2013.

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

Nancy Crotti is a contributor to Qmed and MPMN.

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About the Author(s)

Nancy Crotti

Nancy Crotti is a frequent contributor to MD+DI. Reach her at [email protected].

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