Industry Trends toward Innovation and Investment

NEWS TRENDS

Innovation is a constant in the device industry, and investments are expected to continue, despite general concerns about the economy. And although many industries have a dismal outlook for 2009, the attitude about medical devices remains positive, say venture capital experts.

“The recession and shuttered IPO market will place tremendous pressure on portfolio companies to tighten their belts and retool where necessary,” says Mark Heesen, president of the National Venture Capital Association (NVCA; Arlington, VA), speaking in broader terms about the economy. “We will likely see a market slowdown of new investments as venture capitalists turn their attention to supporting these existing companies.”

Despite this prediction, Heesen expresses a sentiment that many have shared in recent months. “There's no recession on innovation, and great ideas will still get funded,” especially in the life sciences industry, he says. Late last year, NVCA conducted a survey of more than 400 U.S. venture capitalists. Of those who responded, 24% said investment in the medical device industry would increase in 2009, while 38% predicted a stable investment.

Some investors are optimistic about 2009. Jonathan Rather, general partner and CFO of Welsh, Carson, Anderson & Stowe (WCAS; New York City), says his firm has been lucky enough to have a lot of capital in a clearly beaten up market, which is to its advantage, because the next few years are certain to be a buyers market. “While you're reading about layoffs in the press, even in the private equity industry, we feel fortunate in the sense that we're still growing,” says Rather.

WCAS is a private equity investment group that deals with information and business services for healthcare. The firm has sought the help of Daniel Pelak, former president of Closure Medical Corp. (Raleigh, NC) and Inner­Pulse Inc. (Research Triangle Park, NC), to get WCAS more involved in the medical device sector.

“We're in a very difficult time,” says Pelak, now serving as a senior operating executive at WCAS. “From a private equity perspective, we have an opportunity to help a lot of firms that are struggling for capital.” He adds that WCAS is more interested in helping firms that have existing technologies (as opposed to taking a risk on future technologies) from both a financial and an operational perspective.

WCAS takes an opportunistic approach to investing. This involves assessing a market's ability to see a successful turnaround. Another option is to buy and build; that is, acquire a series of small businesses to create a larger company that operates more efficiently. Such comprehensive yet cautious approaches could be the key to success in 2009.

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