Where Have All the Investments Gone?

On May 19, 2011 the MedTech Investing Conference tackled a sticky issue in device development: the lack of funding for early stage medical device and diagnostics companies.

StarTribune blogger, Wendy Lee reported on the event, saying that VCs continue to chafe at the expense of investing in medical device companies at an early stage. "The panel said that the cost and risk of bringing medical device start-ups to market has gotten so expensive, it has caused at least one of them to change their business model."

According to Lee, Jan Garfinkle (Arboretum Ventures), said her firm used to be 75% focused on medical devices and diagnostics. Arboretum has now modified that to 60%, with the remainder to go toward healthcare services and other life science tools.

Garfinkle estimates it takes about $20 million to get enough clinical data needed to satisfy a strategic partner, and that selling those start-ups takes longer now than it did before.

As an example, Garfinkle sited the promising catheter company, VasoNova, for which Arboretum expected to invest $5 million. It ended up taking a $19 million investment and it took much longer than expected for the company to be sold, she said (VasoNova was purchased by Teleflex in a deal valued at up to $55 million.)

This isn't an isolated incident. Medical device makers will continue to find funding challenges even for its most promising technologies, if the proper clinical data isn't on hand.

—Heather Thompson