Could medical device technology investments once again reach the heady numbers of the mid-'90s? Venture firms seem to be answering that question with an increased confidence — and larger sums of money.

According to a report released by the Dow Jones News Service on Monday, venture firms have invested $1 billion into U.S. medical device companies in the second quarter of 2007, about 58% higher than 2Q06. Behind the growth is the increasing confidence in the main exit opportunities of developmental firms: going public or being snapped up by larger players.

"A couple of things are happening — healthcare overall is drawing investor interest and we're facing an aging population and a more wealthy population not just in the country but globally, Baiju Shah, president of Bio Enterprise told Medical Device Daily. "People are concerned with extending their lives and improving upon the quality of their lives."

This is transforming into a market ripe for fruitful investor harvests in shorter periods of time.

"The time and development for medical devices are substantially lower than for biotherapeutics," he said. "You're even seeing your biomed companies like Johnson & Johnson (Brunswick, New Jersey) [going] for even more acquisitions of medical devices than they have in the past."

This is giving venture investors the confidence to put larger sums into small companies. The median amount invested per deal last quarter was $8 million, up from $7.4 million during the same time in 2006 and the highest since the fourth quarter of 2000, according to data from the Dow Jones report.

Seven years ago, before the dot-com bubble burst, the median sum invested was $9.5 million.

This confidence is particularly apparent in the device market, where merger and initial public offering activity is particularly strong.

"Most of the innovation comes from smaller companies," Robert Bellas, general partner for Morgenthaler told MDD.

And various regions of the country are seeing unprecedented growth in backing these smaller entrepreneurial firms.

Among other figures from the Dow Jones report: In the Northeast, investments in healthcare led activity with 45 deals raising $503.9 million in the second quarter of 2007, up from $440.3 million raised in the same period last year, representing a 14% increase year over year. Most notably, medical devices and equipment almost doubled, raising $249.8 million in Q2 2007 with 23 deals, up from $126.8 million in Q2 2006 with 10 deals.

"Venture capital investment in the Northeast area is continuing to trend upward. The second quarter saw the highest number of deals since 2001, with an encouraging broad geographic distribution across both the New York metro area and New England," said Bryan Pearce, Northeast strategic growth markets leader, Ernst & Young . "In line with the national trend, Northeast area activity was driven by investments in information services, software, medical devices and biotech."

Bay Area investment is up 14% compared to the first quarter. With $4.7 billion invested in the first half of 2007, Bay Area investment is up 2% compared to the same period last year.

In Shah's region — the Midwest — investments were reported reaching $726 million for the first half of 2007 (MDD, July 25, 2007). By year's end investments are expected to far surpass last year's total of $792 million.

Technologies financed by these firms in recent years have included devices to rebuild heart valves and monitor body functions from within. No med tech deal has gone untouched.

TissueLink Medical (Dover, New Hampshire), a private company that develops disposable surgical devices that reduce or eliminate bleeding in surgery recently reported a Series E $20 million financing. Current investors Arnerich Massena & Associates and RiverVest Venture Partners led the round (MDD, June 10, 2007).

But the two areas of medical devices where venture capitalists provide the largest financings are aesthetics and obesity.

"There's a very strong trend in aesthetics," Bellas said. "We all want to look better — we all want to age gracefully. And for the first time ever the federal government has classified obesity as a real disease."

He added that there is tremendous profit potential in this field.

But how long will these favorable conditions last?

In the mid-1990s medical device investing was indeed strong but crashed toward the new millennium when public-market investors leaped on the Internet and information technology band wagon. The IT sector still has a higher investor confidence over medical device therapies – firms pouring a record $4.1 billion into technology concerns – about 10% higher than in the same quarter last year. But could what was seen in the 90s reoccur?

Not likely, Shah said.

In the 1990s, firms "were getting pressured by investors to get into IT investments," he said. "It was hard not to participate because IT was so clearly earning returns. Barring any significant regulatory legislation, what we're seeing in healthcare now is not a fad line but a trend."

But Bellas disagrees, suggesting that the investment pendulum will swing again.

"There's no reason not to believe there will be a shift back to IT," he said. "It won't be abrupt, but these changes are in business cycles. There will come a time when the next big innovation in IT comes out and investors will gravitate toward it."