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Implant Could Help Blind See Light

According to a Health & Medicine Week article on devicelink.com, the Argus II device contains electrodes that are attached to the retina and used in combination with an external camera and video processing system. The implant should be able to provide a basic form of sight for patients. Second Sight is the only manufacturer of an actively-powered permanent retinal prosthesis implant that is under clinical study in the United States, according to the article. Retinitis pigmentosa causes a gradual loss of peripheral vision that can eventually lead to blindness. This implant could be a significant development for patients with few treatment options.

Bard Expands Recall of Mesh Patches

CMS to Consider Expanded Coverage of Carotid Stenting

In a decision that the Centers for Medicare and Medicaid Services (CMS; Baltimore) said reflects the latest evidence on the effective use of carotid stenting in reducing the occurrence of stroke, the agency said that it would consider expanding its coverage of the procedure. CMS cites stroke as the third leading cause of death in the United States and the leading cause of serious, long-term disability.

Under the proposed change, CMS would cover carotid artery stenting for symptomatic patients with 50% or greater carotid artery stenosis, or blockage, as well as asymptomatic patients with 80% stenosis. Symptoms of atherosclerosis include weakness, paralysis, visual problems, and speech difficulties. In addition, coverage would no longer require that a patient be designated as a poor candidate for carotid endarterectomy, a more-traditional procedure for removing blockages.

However, CMS expressed concern about carotid stenting in patients age 80 and over. Under the proposed change, the agency would limit coverage within that population to procedures performed in accordance with clinical studies.

Norwalk
 

In making the announcement earlier this month, CMS acting administrator Leslie V. Norwalk said, "CMS is committed to providing broader access to appropriate and innovative care to our beneficiaries in the management of their carotid artery disease."

CMS medical director Barry Straube, MD, added, "The evidence on carotid artery stenting demonstrates its effectiveness in improving health outcomes for certain patients."

The policy change would require hospitals to certify their competence with carotid stenting procedures. Straube said such a process would help CMS ensure patient safety and quality care for those undergoing the stenting procedure.

Medtech manufacturers of carotid stenting devices generally applauded the announcement from CMS, but some expressed concern that the agency did not go far enough in expanding coverage.

"This proposal reflects the growing consensus in the medical community that carotid artery stenting is an important treatment option for these patients," said John M. Capek, PhD, president of the vascular division at Abbott (Abbott Park, IL). "Abbott is committed to working with the medical community, FDA, and CMS to gather additional evidence to support broader patient access to carotid stenting."

Capek
Abbott's Capek: A growing consensus.

John Pedersen, president of the peripheral intervention business at Boston Scientific Corp. (Natick, MA), said, "We are excited about the opportunity for expanded coverage for carotid stenting for asymptomatic patients at high risk for surgery. However, we believe that clinical data from our carotid stenting trials also support expansion of coverage for high-risk symptomatic patients."

Other carotid stent manufacturers include Cordis Corp. (Miami Lakes, FL), a Johnson & Johnson company; Medtronic Inc. (Minneapolis); and ev3 Inc. (Plymouth, MN). Last month, ev3's Protege RX carotid stent gained FDA approval. Cordis's carotid stent system has been deemed approvable by the agency but has not yet received final clearance. Medtronic's Exponent carotid stent received the CE mark for European and other international distribution in April 2006. The company expects to receive FDA approval later this year or in early 2008.

Carotid angioplasty uses a carotid stent and an embolic filter, which captures debris material that may become dislodged during the stenting procedure. The first carotid stent system to be approved by FDA was the Rx Acculink, manufactured by Guidant, which is now part of Boston Scientific. It entered the U.S. market in August 2004. Abbott acquired Guidant's stent business as part of the required divestiture associated with the company's acquisition by Boston Scientific.

Public comment on the CMS proposal to expand coverage of carotid stenting is open through March 3. If approved, the policy could go into effect as early as May of this year.

CMS' tracking sheet for the proposed policy change is available at www.cms.hhs.gov/mcd/viewtrackingsheet.asp?id=194 .

© 2007 Canon Communications LLC

Return to MX: Issues Update.

CMS to Consider Expanded Coverage of Carotid Stenting

In a decision that the Centers for Medicare and Medicaid Services (CMS; Baltimore) said reflects the latest evidence on the effective use of carotid stenting in reducing the occurrence of stroke, the agency said that it would consider expanding its coverage of the procedure. CMS cites stroke as the third leading cause of death in the United States and the leading cause of serious, long-term disability.

Under the proposed change, CMS would cover carotid artery stenting for symptomatic patients with 50% or greater carotid artery stenosis, or blockage, as well as asymptomatic patients with 80% stenosis. Symptoms of atherosclerosis include weakness, paralysis, visual problems, and speech difficulties. In addition, coverage would no longer require that a patient be designated as a poor candidate for carotid endarterectomy, a more-traditional procedure for removing blockages.

However, CMS expressed concern about carotid stenting in patients age 80 and over. Under the proposed change, the agency would limit coverage within that population to procedures performed in accordance with clinical studies.

Norwalk
 

In making the announcement earlier this month, CMS acting administrator Leslie V. Norwalk said, "CMS is committed to providing broader access to appropriate and innovative care to our beneficiaries in the management of their carotid artery disease."

CMS medical director Barry Straube, MD, added, "The evidence on carotid artery stenting demonstrates its effectiveness in improving health outcomes for certain patients."

The policy change would require hospitals to certify their competence with carotid stenting procedures. Straube said such a process would help CMS ensure patient safety and quality care for those undergoing the stenting procedure.

Medtech manufacturers of carotid stenting devices generally applauded the announcement from CMS, but some expressed concern that the agency did not go far enough in expanding coverage.

"This proposal reflects the growing consensus in the medical community that carotid artery stenting is an important treatment option for these patients," said John M. Capek, PhD, president of the vascular division at Abbott (Abbott Park, IL). "Abbott is committed to working with the medical community, FDA, and CMS to gather additional evidence to support broader patient access to carotid stenting."

Capek
Abbott's Capek: A growing consensus.

John Pedersen, president of the peripheral intervention business at Boston Scientific Corp. (Natick, MA), said, "We are excited about the opportunity for expanded coverage for carotid stenting for asymptomatic patients at high risk for surgery. However, we believe that clinical data from our carotid stenting trials also support expansion of coverage for high-risk symptomatic patients."

Other carotid stent manufacturers include Cordis Corp. (Miami Lakes, FL), a Johnson & Johnson company; Medtronic Inc. (Minneapolis); and ev3 Inc. (Plymouth, MN). Last month, ev3's Protege RX carotid stent gained FDA approval. Cordis's carotid stent system has been deemed approvable by the agency but has not yet received final clearance. Medtronic's Exponent carotid stent received the CE mark for European and other international distribution in April 2006. The company expects to receive FDA approval later this year or in early 2008.

Carotid angioplasty uses a carotid stent and an embolic filter, which captures debris material that may become dislodged during the stenting procedure. The first carotid stent system to be approved by FDA was the Rx Acculink, manufactured by Guidant, which is now part of Boston Scientific. It entered the U.S. market in August 2004. Abbott acquired Guidant's stent business as part of the required divestiture associated with the company's acquisition by Boston Scientific.

Public comment on the CMS proposal to expand coverage of carotid stenting is open through March 3. If approved, the policy could go into effect as early as May of this year.

CMS' tracking sheet for the proposed policy change is available at www.cms.hhs.gov/mcd/viewtrackingsheet.asp?id=194 .

© 2007 Canon Communications LLC

Return to MX: Issues Update.

Survey: Orthopedic Surgeons Fault FDA’s Approval Process

Kazman

A recent national survey of orthopedic surgeons found that respondents generally view FDA as being too slow in its review and approval of new drugs and devices. A majority of the respondents indicated that they feel delays in FDA approval harm patients and hinder their practice of medicine.

The survey was developed by the Competitive Enterprise Institute (CEI; Washington, DC), a nonprofit, public-policy organization. Since 1995, CEI has conducted six physician specialty surveys, all of which have uncovered strong anti-FDA sentiments. However, CEI reports that responses to the orthopedic survey were the most pronounced in their condemnation of the agency.

"In recent years, FDA has been repeatedly attacked for approving allegedly defective therapies," said Sam Kazman, CEI's general counsel. "But as this physician survey shows, the real threat to public health is that FDA's approval process is already too long. Any attempt to make it more stringent will only worsen this problem."

The CEI report includes the following findings.

  • 76% of surveyed orthopedic surgeons say FDA's approval process is too slow.
  • 60% say FDA hinders their use of new therapies.
  • 73% say FDA approval delays hurt patients.
  • 70% favor changing laws to give physicians access to unapproved therapies if they carry a warning about their unapproved status.

"All new therapies carry risks, and sometimes those risks cannot be discovered until after clinical testing," Kazman says. "If we set a goal of zero unexpected risks, then the only way to meet that goal is through zero new therapies. As the results of this latest survey indicate, from a public health standpoint, that could well be the riskiest approach of all."

The CEI survey polled 175 orthopedic surgeons across the country. The survey included 13 questions that measured most opinions on a positive-negative response continuum. It was conducted by the Polling Company Inc. (Washington, DC), which reported the survey findings are subject to a 7.4% margin of error.

According to the report, younger orthopedic surgeons expressed a greater degree of dissatisfaction with FDA than their older colleagues. CEI cites this as a significant finding, as the demand for orthopedic surgeons is expected to grow in order to keep pace with the aging of 77 million baby boomers.

So far, no orthopedic society, professional journal, or trade organization has publicly responded to the survey, although it was cited in a positive light by a Wall Street Journal editorial.

CEI is generally recognized as a conservative, probusiness organization. Its "Death By Regulation" project focuses on raising public awareness of what the organization refers to as the often-hidden costs of government overregulation.

A summary report and the complete survey are available at www.cei.org.

© 2007 Canon Communications LLC

Return to MX: Issues Update.

CMS Denies Expanded Coverage for Cyberonics Neurodevice

Earlier this month, the Centers for Medicare and Medicaid Services (CMS; Baltimore) declined a request by Cyberonics Inc. (Houston) to expand reimbursement for the company's implantable neurodevice to include therapy for patients with treatment-resistant depression (TRD).

After reviewing studies from the company, CMS concluded there was little evidence that patients with TRD would benefit as a direct result of VNS therapy. CMS is accepting comments on its proposed decision through March 7 and plans to finalize its ruling this spring.

VNS

Despite the CMS decision, Cyberonics insisted that the clinical evidence was on its side. "Published peer-reviewed data demonstrate that VNS therapy provides unparalleled long-term benefits for many patients who have been unable to experience relief from depressive symptoms with other available treatment options," said George E. Parker, Cyberonics' interim chief operating officer. "A recent study has shown that annual medical costs associated with the subset of patients with TRD identified in the submission to CMS average approximately $47,000."

The latest ruling throws yet another hurdle in front of the company, which has already traveled a long--and sometimes contentious--road to expand the market for its Vagus Nerve Stimulation (VNS) device, which costs about $10,000.

The VNS device was approved for TRD in February 2005, but FDA stipulated that it could not be marketed for that indication until the company had addressed agency concerns about its manufacturing operations, product labeling, and other issues. Following a series of corrective actions and improvements in the company's reporting systems, FDA notified Cyberonics in April 2005 that it was in full compliance with all of the agency's quality systems requirements and that the issues raised in the earlier warning letter were fully resolved. The VNS device received final approval for TRD in July 2005.

The April-to-July delay in granting final approval of the VNS for TRD was believed to be due, in part, to an investigation begun in May 2005 by the Senate finance committee. Late last year, Robert P. Cummins, then president and CEO of Cyberonics, and Pamela B. Westbrook, the company's CFO, resigned their positions over accounting errors uncovered during an ongoing investigation into past stock option practices.

Shares of Cyberonics plummeted nearly 10% after news of the CMS noncoverage decision was released. Some industry analysts don't expect the agency's final decision to deviate from its initial conclusion, resulting in Cyberonics grasping after a smaller share of what is already considered to be a modest market.

On February 8, Goldman Scarlato & Karon PC, a law firm with offices in Pennsylvania and Ohio, announced that it had filed a class-action lawsuit in the U.S. District Court for the Southern District of Texas on behalf of individuals who purchased Cyberonics stock between February 5, 2004, and August 1, 2006. The complaint alleges that the company failed to disclose and misrepresented material information regarding FDA review and approval of its VNS device to treat depression, the marketability of the VNS device, and medical insurance payers' coverage decisions for the device.

Lynch
NIO's Lynch: Evening the field.

Zack Lynch, executive director of the Neurotechnology Industry Organization (San Francisco), says Medicare's noncoverage decision for Cyberonics likely won't have implications for other medtech companies considering depression as a possible application for neurodevices. "If a neurodevice based on a separate technology is shown in clinical trials to be effective for depression and it is priced properly, then I see no reason that CMS would not approve coverage of another neurodevice targeting depression," he says.

In other neurodevice news, FDA's panel on neurological devices recently concluded that the NeuroStar transcranial magnetic stimulation system by Neuronetics Inc. (Malvern, PA) is not substantially equivalent to electroconvulsive therapy (ECT) for the treatment of major depression. Although the panel concluded that the NeuroStar device is safer than ECT, it determined that efficacy was not adequately demonstrated in the company's existing 510(k) filing.

The company reports that it plans to work with the agency to address its existing questions. A final decision on the application is expected within the next few months.

"Neuronetics will need to invest in more trials," Lynch says. "Relative to neuropharmaceuticals, neurodevices have had a fairly easy time with FDA. Trials are smaller and have different efficacy requirements. This may be because unseen harmful effects are less likely than they are with pharmaceuticals. But it seems FDA has decided to even the field and treat these trials with the critical eye with which it views neurotech drugs."

Lynch says Northstar Neuroscience Inc. (Seattle) and Medtronic Inc. (Minneapolis) are both developing neurodevices for the potential treatment of depression. "I'm sure they are watching developments with FDA and CMS very carefully, especially in regard to clinical trial design," he says.

© 2007 Canon Communications LLC

Return to MX: Issues Update.

Diverse Stakeholders to Converge at Postmarket Monitoring Colloquium

On March 8, a diverse group of stakeholders--including medtech manufacturers, hospital personnel, and industry regulators--will meet in Houston to develop an integrated action plan for improving patient safety through an effective--and fair--system for reporting device-related failures. The one-day event is being sponsored by the American College of Clinical Engineering (ACCE) Healthcare Technology Foundation, Texas Children's Hospital, Texas A&M University, and the FDA Medical Device Industry Coalition.

David

"This colloquium will offer a unique opportunity for participants to hear from key people working in this area and to present their own perspective on what is needed to build a better medical device reporting system that can improve patient safety," says Yadin B. David, president of the ACCE Healthcare Technology Foundation and director of the biomedical engineering department at Texas Children's Hospital (Houston). "By bringing together representatives of medical device manufacturing firms, hospitals administrators, clinicians, legal professionals and risk managers, reporting system vendors, and regulators, a complete understanding of the objectives and barriers to implementation of a blame-free system can be achieved."

In the July/August 2006 issue of MX magazine, David set the wheels of this initiative in motion by calling on leaders across industries and communities to join together to improve device safety. In his commentary, he wrote, "Unquestionably, consumer safety is diminished when there is limited communication among the engineers who design devices, the clinicians who deploy them, the clinical engineers who support them, the regulators who monitor them, and the patients who experience them. Conversely, a coordinated investigation conducted by appropriate experts within an appropriate legal framework will help to supply critical knowledge that could lead to a safer environment in the future. This legal framework must allow free and effective communication without exacerbating manufacturers' risk of litigation or denying wrongfully injured patients appropriate compensation." (The full text of David's commentary is available at www.devicelink.com/mx/archive/06/07/david.html.)

The March 8 colloquium is designed to offer ample opportunities for networking and information exchange among participants. It will open with presentations by representatives of various interests and continue with breakout sessions designed to generate specific recommendations for further action. The program will conclude with the formulation of an integrated action plan that will be published for additional stakeholders' input.

The colloquium will take place at the University of Texas MD Anderson Cancer Center, located in the Texas Medical Center in Houston. For more information or to register, visit www.123signup.com/calendar?Org=acce-htf, or contact William Hyman (979/845-5593; w-hyman@tamu.edu) or Yadin David (832/824-1810; ybdavid@texaschildrenshospital.org).

In recent years--due largely to a number of high-profile recalls of complex medical devices--the public has voiced widespread concern regarding the safety of approved medical devices. Therefore, FDA has been moving rapidly to reinvigorate its mechanisms for postmarket monitoring.

In order to examine the new policy environment for medical products and what it will mean for medical device companies, on February 22, MX magazine is hosting a free Webcast, "Handling Adverse Events in a Changing Postmarket World." Sponsored by Oracle Corp. and Deloitte Consulting LLP, the Webcast will explain how advanced complaint-handling and corrective and preventive action systems can help manufacturers meet FDA's emerging requirements for more-stringent postmarket surveillance. To register, visit www.devicelink.com/mx/webcasts/oracle_deloitte_feb22.html.

© 2007 Canon Communications LLC

Return to MX: Issues Update.

Analysts Expect a Rebound in Drug-Eluting Stent Sales

Although many medtech market observers once viewed drug-eluting coronary stents as being on a trajectory for continued growth, sales of the products declined significantly in the final quarter of 2006. Boston Scientific Corp. (Natick, MA) reported that fourth-quarter revenues from its Taxus drug-eluting stent were $506 million, down almost 20% from $606 million in the year-earlier quarter. Similarly, Cordis Corp. (Miami Lakes, FL), a Johnson & Johnson company, reported that fourth-quarter sales of its Cypher drug-eluting stent fell 15% to $580 million. Taxus and Cypher are currently the only FDA-approved drug-eluting stents on the market.

The sales falloff is generally attributed to concerns arising from recent clinical studies, some of which indicated a significantly higher incidence of late-term thrombosis with drug-eluting stents than with their bare-metal counterparts. The findings were initially reported last September at the 2006 World Congress of Cardiology in Barcelona, Spain. However, studies reported at the annual Transcatheter Cardiovascular Therapeutics conference in October and a meeting of FDA's circulatory system devices advisory panel in December generally concluded that the risk of blood clots associated with drug-eluting stents was within acceptable limits and that the devices were safe and effective when used as intended by the manufacturer.

Straube

However, the latter findings have apparently done little to quell the anxieties of patients, physicians, and hospitals when it comes to the use of drug-eluting coronary stents. Prior to the reports of potential blood clots, the devices accounted for 85-90% of all coronary stents implanted in the United States. Most analysts estimate a current usage rate of 70-75%.

Adding to the gloomy climate for the devices, news recently began to circulate that the Centers for Medicare and Medicaid Services (CMS; Baltimore) was about to review its reimbursement coverage of drug-eluting stents. The report initially appeared in the Wall Street Journal and was picked up by numerous industry and business news services. Most analysts disputed the report, and both Boston Scientific and Cordis said they were unaware of any scheduled coverage review by CMS.

Responding to the speculation regarding a coverage review, Barry Straube, MD, chief medical officer at CMS, said, "There is no plan for any change in current policy toward drug-eluting stents at the present time." However, he added that CMS is always assessing whether new evidence about a medical technology warrants the agency's attention.

Gunderson
Analyst Gunderson: Time will tell.

Although sales of drug-eluting coronary stents have taken a significant hit, most analysts see little--if any--permanent damage to the category. Many expect that, with time, next-generation products already in the pipeline will stimulate growth over the long term.

Thomas Gunderson, a managing director and senior medtech analyst at Piper Jaffray & Co. (Minneapolis), says he does not see any signs of a comeback just yet. "The probability of a recovery is high, but it may take a year or more to get back to an 80-85% usage rate," he says.

Gunderson says he expects manufacturers of next-generation stents to pay greater attention to long-term data, to emphasize the products' use with anticoagulant drugs, and to provide additional safety features and demonstrable clinical benefits.

Wald
Analyst Wald: Off-label setbacks.

Jan Wald, PhD, a medtech analyst with A.G. Edwards Inc. (St. Louis), also sees some recovery for drug-eluting stents on the horizon. Nevertheless, "they may never get back to an 85% share," he says. "Considering the alleged widespread off-label use of the stents--which may have been a contributing factor in the increased incidence of blood clots--physicians and hospitals are now more likely to closely adhere to the manufacturers' guidelines when implanting drug-eluting stents. Ultimately, that could hold down the numbers."

Wald also says that new drug-eluting stents--such as the CoStar from Conor Medsystems (Menlo Park, CA), which uses a bioabsorbable polymer to hold its drug--will be well received by cardiologists. J&J's Cordis recently acquired Conor.

Wald says other advanced stent designs on tap for market entry in 2008 and beyond will further restore physician and patient confidence in the category. Abbott (Abbott Park, IL) has a new bioabsorbable drug-eluting stent in development that is made of polylactic acid and is designed to be fully absorbed and slowly metabolized by the coronary artery.

Best
Boston Scientific's Best: The best is yet to come.

Despite the sales slump, drug-eluting stent manufacturers received some promising news earlier this month when a study conducted at Wake Forest Medical School (Winston-Salem, NC) found that the devices showed substantially lower rates of death, heart attack, and the need for repeat procedures in patients when compared with bare-metal stents.

In forecasting recovery for drug-eluting stents, many analysts point to a similar sales setback that occurred in the cardiac rhythm management (CRM) market following the recall of nearly 300,000 pacemakers and implantable cardioverter defibrillators (ICDs) manufactured by Guidant, which is now part of Boston Scientific. While sales of drug-eluting stents declined in the fourth quarter of 2006, noteworthy recovery was seen in sales of pacemakers and ICDs. To promote further recovery and additional growth, Medtronic Inc. (Minneapolis) has launched a $100 million campaign with direct-to-consumer television ads promoting its ICDs.

Larry Best, Boston Scientific's chief financial officer, is not hesitant to predict a similar full recovery in the drug-eluting stent market. During a conference call with analysts, Best said, "I think we're moving in the right direction. I don't think anybody on Wall Street is going to believe us, but internally we actually think our best year on drug-eluting stents is ahead of us, not behind us."

© 2007 Canon Communications LLC

Return to MX: Issues Update.

Tyco Healthcare to Become Covidien

As a part of a larger corporate restructuring that was initially announced in January 2006, Tyco International Ltd. (Pembroke, Bermuda) announced late last month that it would spin off Tyco Healthcare. With annual sales of nearly $10 billion, Tyco Healthcare is one of the top five players in the worldwide medtech market. Under the name Covidien, the new company will operate independently from the parent firm.

Meelia

Richard Meelia, president and CEO of Tyco Healthcare, said the new name "reflects our corporate goal to build and strengthen our role as an integral healthcare partner, supporting the lifesaving work of medical professionals." In a prepared statement, the company said the name is designed to evoke togetherness--represented by the prefix co --and the Latin word for life, vita. It was selected from more than 6000 suggested names, including Aquient, Evendra, and Vancian.

"Covidien was the result of a careful process that focused on distilling from our customers, employees, and industry experts the attributes of a best-in-class healthcare business," said Eric Kraus, senior vice president of corporate communications for Tyco Healthcare.

The new company will remain at Tyco Healthcare's Mansfield, MA, headquarters, where it employs 1300 people. Another 700 employees are employed at two other locations in the state. Covidien will continue to manufacture all of Tyco Healthcare's disposable, wound care, and medical instrumentation products across its Autosuture, Kendall, Mallinckrodt, Nellcor, and Puritan Bennett brands.

In addition to Covidien, the spinoff will result in two other independent entities: Tyco International and Tyco Electronics. The company's corporate management sees the reorganization, which was formally filed with the Securities and Exchange Commission last month, as the final chapter in the old Tyco's saga. The former $41 billion conglomerate was rocked by corporate scandal in 2002. It is still fending off a bevy of shareholder and other lawsuits associated with the firm's mismanagement under the direction of former CEO L. Dennis Kozlowski, who is currently in federal prison. In its filings with the SEC, Covidien acknowledges that it will remain liable for lawsuits originally filed against Tyco.

Meelia, the only Kozlowski-era head of a Tyco division still in place, will carry his position into the new organization. The company, which vigorously asserts that there are no remaining vestiges of the Kozlowski era, says it will launch a high-visibility marketing and promotion campaign to build the Covidien brand.

The spinoff is subject to approval from the SEC and the Tyco board. Such approvals are expected before June 30, 2006.

© 2007 Canon Communications LLC

Return to MX: Issues Update.

Reports: Medtech Venture Investment Soars in 2006

In 2006, U.S. venture capital investment in the medical device and equipment industry rose substantially over 2005, according to a report released by Ernst & Young LLP (New York City) and Dow Jones VentureOne (San Francisco). During 2006, the industry recorded 239 deals--20 more than in 2005. Overall, 2006 investment in the industry totaled $2.63 billion, representing the largest annual capital invested in industry on record.

Last year, the healthcare industry as a whole--encompassing medical devices and equipment, biopharmaceuticals, medical services, and medical software--saw a deal flow increase of 5% and a capital investment increase of 12% over 2005 levels. Overall, healthcare companies attracted 628 investment deals, representing a total of $8.25 billion (see Table I).


Year

Healthcare VC Investment
($ billions)

Medtech VC Investment
($ billions)

Medtech % of Total Healthcare Investment

2000

9.48

2.18

23

2001

6.81

1.91

28

2002

5.95
1.75
29

2003

6.25
1.86
30

2004

7.26
1.73
24

2005

7.33
2.18
30

2006

8.25
2.63
32
Table I. U.S. venture capital investment in all healthcare companies, and medical device and equipment companies, 2000–2006. Source: Ernst & Young LLP and Dow Jones VentureOne.

Across all industries, U.S. venture capital investment reached $25.75 billion, an 8% increase over 2005 levels. In addition to the medical device and equipment industry's strong showing, the rise was due in part to strong numbers in the information services and alternative energy industries.

"There was a nice balance of investment in 2006 with investors deploying a significant amount of capital to later-stage portfolio companies, but also supporting the emerging class of start-ups," said Joseph Muscat, Americas director of Ernst & Young's venture capital advisory group. "The expanding opportunities for venture-backed companies to achieve liquidity through an initial public offering, merger, or acquisition are having an impact. It was a relatively strong year for these transactions with investors recognizing the need to support their companies for as long as six years before they can achieve a successful exit."

Data related to the Ernst & Young LLP and Dow Jones VentureOne Quarterly Venture Capital Report are available at www.venturecapital.dowjones.com/press/statistics.html.

Shah

On a regional basis, the medical device financing trend was echoed by a new report from BioEnterprise (Cleveland), which reported that 2006 investment in Midwestern medical device companies totaled $356 million--an increase of more than 70% over the $205 million reported for 2005.

"The region has always been rich in research and industry assets," says Baiju Shah, president of BioEnterprise. "That rich base is now translating into a growing stream of high-quality healthcare start-ups due to progressive policies and programs such as state investments in research institutions, creation of new capital sources, and professional technology development groups."

Of the $792 million attracted by 135 Midwestern healthcare start-ups in 2006, medtech companies accounted for about 45% of the investment, with biopharmaceutical companies accounting for an additional 44% and healthcare software and services companies attracting the remaining 11% of funds. In 2005, medical device companies attracted 37% of investments, with biopharmaceuticals and healthcare software and service companies accounting for 35% and 28%, respectively.

"The 70% jump in medical device investments was driven in particular by larger, later-stage financings in the Midwest medtech sector," Shah says. "The three sectors that gained the most attention in the Midwest were cardiovascular devices, neurostimulation therapies, and orthopedics companies. In addition, several significant medtech exits occurred in the Midwest--such as Restore Medical's initial public offering and Suros Surgical's sale to Hologic--which has continued to raise awareness of the region as an area with potential for not only good technologies, but also great investments."

Shah says the most significant Midwest medtech investments in 2006 were EnteroMedics and CVRx--both of which are neurostimulation companies--and Pioneer Surgical, an orthopedics company.

In the Midwest in 2006, the Minneapolis-St. Paul region attracted the most investment among all healthcare sectors, with $233.9 million in financing across 22 companies. The second most lucrative region was Chicago, with $101.6 million in financing across 12 companies.

© 2007 Canon Communications LLC

Return to MX: Issues Update.