“The magnitude of the most recent downturn had a tangible impact on device companies last year, particularly in the areas more exposed to elective procedures and capital equipment,” says Elliot Hyun, vice president of the investment research group at GE Capital, Healthcare Financial Services. “That has forced the industry to become leaner from an operating perspective, reprioritize R&D initiatives, and look to collaborations and acquisitions as a way to supplement organic growth objectives. Not a lot of deals were getting done last year, and there was a significant disconnect between buyers and sellers. But we’ve seen that narrow, and [there is more] activity across the space this year. ”
One major point in the device industry’s favor is the growing body of evidence that medical technology, while sometimes more expensive to implement up front, often lowers healthcare costs in the long term, says Hyun. The more robust areas of investment have been within minimally invasive therapies that facilitate a faster recovery and better outcomes, or that target earlier diagnosis and treatment of chronic diseases. There’s also been strong development in safety-enabling device technologies, and the capital equipment market has shown improvement.
During 2009 and the first half of 2010, nearly 40% of the venture capital dollars going into healthcare have been in the medical device arena, according to Storino, who expects this trend to continue into the near future. Although it is too early to tell what the market will look like in six months, Storino is seeing more lending opportunities in this space.
“With the general improvement in the public markets in the healthcare space along with increasing M&A activity, more companies have been able to raise funds, which allows some money to flow back into the hands of the VC investors,” says Storino. “This has allowed investors to put available funds to work in existing and new companies, which means more lending opportunities as we move forward.”
The device industry continues to face a fragile economic recovery on the domestic front and a growing uncertainty in Europe. Conditions in Europe, in particular, will be weighing on the minds of investors, because it is an important market for initial regulatory device approvals. Although there hasn’t been significant changes in the pricing landscape yet, reimbursement and cost pressures faced by device companies and their customers are also being closely watched by investors, says Hyun.