Shah: Investor eyes on the heartland.
The Midwest continues its emergence as a hotbed for medical device innovation and start-up activity. In 2007, many of the region's medtech companies attracted significant levels of capital, while others completed successful public offerings or were acquired by strategic partners. These recent regional successes have attracted the attention of healthcare investors across the country.
In 2007, 49 medical device start-ups across the Midwest raised $329 million from venture capitalists and other investors, according to a recent report from BioEnterprise (Cleveland).1 The financings included several high-profile, later-stage cardiovascular companies. For example, CVRx (Minneapolis) received $65 million from investors including ABS Ventures, Frazier Healthcare Ventures, InterWest Partners, Johnson & Johnson Development Corp., New Enterprise Associates, SightLine Partners, and Thomas Weisel Healthcare Venture Partners. In addition, Acorn Cardiovascular (St. Paul, MN ) received $22 million from investors including Cardinal Health, CSFB Private Equity, Fidelity Biosciences, New Enterprise Associates, and SightLine Partners.
Overall, the financed companies reflected a wide array of medical device sectors, mirroring the region's broad industry base.
The Midwest's innovation pipeline is built on its established base of medical device companies and leading research institutions. The Midwest is home to leading medical device companies in many sectors, including cardiovascular devices, medical imaging, orthopedics, and medical supplies. Companies include Medtronic Inc. (Minneapolis), GE Healthcare (Waukesha, WI), Biomet Inc.(Warsaw, IN), Stryker Corp.(Kalamazoo, MI), Baxter Healthcare Corp.(Deerfield, IL), and Cardinal Health (Dublin, OH) . The Midwest's prominent research universities and institutions include the University of Wisconsin, Mayo Medical Center, and Cleveland Clinic. Increasingly, the talent and innovation being developed in the region are connecting to create successful new medical device companies.
National investors are continuing to discover new investment opportunities in the region. Many East Coast and West Coast firms made their first Midwest investments in 2007. In part, they are being drawn to Midwest deals by peers who are actively investing in the region and reaping the benefits of the rich—but still relatively undiscovered—deal flow. In an annual survey of national investors active in Midwest healthcare opportunities, investors noted that they favored Midwest medical device investments in part due to the availability of seasoned medical device management teams.2 They are also being drawn by the favorable pricings of Midwest deals, which tend to be lower than similar-stage deals on the coasts. In the survey, investors noted that Midwest deals perform the same as or better than investments they make outside the Midwest.
Table I. Top 20 Midwest medical device financings in 2007. Source: BioEnterprise.
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National investors are also taking note of successful medical device public offerings emerging from the nation's heartland. In 2007, several companies—including TomoTherapy Inc. (Madison, WI) and EnteroMedics (St. Paul, MN)—completed successful, high-profile initial public offerings. Both companies emerged from clusters of industry strength in the Midwest.
TomoTherapy manufactures and sells the Hi Art system, an advanced radiation therapy system for the treatment of a wide variety of cancers. The company is the latest successful start-up to emerge from the Midwest's medical imaging and radiation oncology cluster, which is concentrated in Wisconsin (U.S. home to GE Healthcare) and Cleveland (key sites for Philips Medical and Hitachi Medical Systems of America).
EnteroMedics is a neurostimulation company developing devices using neuroblocking technology to treat obesity and other gastrointestinal disorders. The company builds on the region's strengths in electrical stimulation that emerged from the cardiac pacing industry.
In addition, a number of other neurostimulation companies in the Midwest received substantial funding in 2007. For example, Envoy Medical (St. Paul, MN) received funds from individual angel investors. Meanwhile, Intelect Medical (Cleveland) received financing from Boston Scientific Corp. and Greatbatch Inc., and Synapse Biomedical (Oberlin, OH) received financing from Vivo Ventures, Palo Alto Investors, and JumpStart Inc.
Finally, the region was also the source of a number of notable acquisitions in the medical device industry in 2007. In August, NimbleGen Systems (Madison, WI) was acquired by Roche (Basel, Switzerland) for $273 million. In November, Renal Solutions (Warrendale, PA ) was acquired by Fresenius Medical Care AG & Co. KGaA (Bad Homburg, Germany) in a deal with a potential total value of $190 million.
The 2008 outlook for Midwest medical device investment remains strong. Nationally, venture investors are allocating more dollars to medical devices and searching for opportunities in the Midwest. In addition, the pipeline of Midwest medical device start-ups continues to mature, providing opportunities for more public offerings and strategic sales. Such a combination should lead to continued record years for Midwest venture investment.
1. Midwest Health Care Venture Report (Cleveland: BioEnterprise, 2008); available from Internet: www.bioenterprise.com/reports/2007/q42007dealsheet.pdf.
2. Midwest Health Care Venture Survey (Cleveland: BioEnterprise, 2008); available from Internet: www.bioenterprise.com/assets/2007VCsurvey.pdf.
Baiju R. Shah is president and CEO of BioEnterprise (Cleveland), a business formation, recruitment, and acceleration initiative designed to grow healthcare companies and commercialize bioscience technologies.
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