Diagnostics & Imaging Week Contributing Writer
WALTHAM, Massachusetts – A decidedly bullish atmosphere pervaded last week's Boston MedTech Congress: Growth & Financing Strategies at the Westin Waltham-Boston.
Some of the key themes of the first-time event:
1) More venture capital is flowing into the medical device industry both on an absolute and a relative basis.
2) Round size has increased, particularly in later-stage situations.
3) Valuations have increased, again in later-stage situations.
4) Deals are more geographically spread out-both globally and regionally within the U.S. market.
"While med-tech may still be a market of base hits, doubles, a few triples and an occasional home run, the market has rewarded consistency, innovation, and the risk/reward profile offered by devices," said Michael Grippo, who heads up the Medical Technology Practice at SunTrust Robinson Humphrey in Boston, a co-sponsor of the event.
In his keynote address on "The Status of Private Equity Markets for Med-Tech Companies," Grippo offered lots of hard evidence about the growing respect being shown the device industry by venture investors. "Medical technology, which has traditionally been a distant sector behind software and biotechnology, is really growing into one of the large legitimate sectors," he said.
While observing that total venture capital raised by companies across all industries last year held steady at about $20 billion on a year-to-year basis, he said VCs "committed over $2.3 billion to medical device companies in 2005, up from $1.7 billion in the previous year."
Grippo added that emerging device companies "are attracting a significant share of funding interest on a relative basis," adding that 1Q06 "has shown no signs of a slowdown."
He noted that, through February, nearly $300 million of venture capital has been invested into the med-tech sector. "While the average size for seed- and first-round investments in med-tech companies has held relatively constant at $6 million, we see a marked increase in the size of second-round and later-stage financings."
Grippo said growth in device-sector investing is being fueled by "a convergence of breakthrough innovations, more sophisticated entrepreneurs and investors, and a reasonably good environment for liquidity events."
He said that in 2000, some 80% of VC deal volume in the device sector went toward "traditional' sectors, but that the current opportunity for investment includes ‘a much more diverse set of categories.'
While traditional categories such as cardiology, orthopedics and ophthalmology have continued to show strength in attracting VC dollars, Grippo said investors are entering new categories such as neurotechnology, biomaterial-based devices, surgical navigation technologies and interventional pulmonology.
"In the mid-1990s, there were only about eight to 12 firms that consistently led transactions," he said. "However, in 2005, 19 funds led more than three transactions."
Grippo said investors are "rotating back into venture capital as an asset class, funds are bigger, and investors are going to put their capital to work in sectors and companies that show promise – and clearly medical technology is one of them."
In addition to Grippo's opening comments and wrap-up observations by Michael Hanewich, senior vice president and national life sciences coordinator for Silicon Valley Bank, another co-sponsor of the Boston MedTech Congress, the afternoon program included four panel discussions:
• MedTech Investing in 2006: VCs' Perspectives on the 2006 MedTech Venture Capital Market. Moderated by Tom Cibotti, managing director of Covington Associates, it included as panelists Jeffrey Barnes, general partner with Oxford Bioscience Partners; Rudy Mazzocchi, general partner in OVUM Ventures; and Brendan O'Leary, PhD, principal in Prism Venture Partners.
• CEO Roundtable: The Ingredients for Success. Moderated by John Williams, former CEO of Physiometrix (North Billerica, Massachusetts), which was bought last year by Hospira (Lake Forest, Illinois), panelists included Douglas Daniels, president and CEO of HydroCision (Billerica, Massachusetts); Michael Dempsey, co-founder and CEO of Radianse (Lawrence, Massachusetts); Richard Ganz, president and CEO of Omnisonics Medical Technologies (Wilmington, Massachusetts); Peter Glick, CEO of Cohesive Technologies (Franklin, Massachusetts); and Allen Ruszkowski, president and CEO of CVAC Systems.
• Corporate Partnerships and Alliance Management. Moderated by Omar Amirana, MD, investment manager, Oxford Bioscience Partners, with panelists including Alan Milinazzo, chief operating officer of Orthofix (Huntersville, North Carolina); Andrew Jay, MD, managing partner of Siemens Venture Capital's Medical Solutions Fund; and David Milne, general partner in SV Life Sciences Advisors.
• Expectations on Exits and Preparing for Liquidity Events, with Grippo as moderator. Panelists include Neil Aronson, senior partner with Mintz Levin; Bruce Roberts, managing director with Roberts Mitani; W. Bradford Smith, CFO of NeuroMetrix; and Mazzocchi.
Business Wire's Boston office and Medical Device Daily also were co-sponsors of the Boston MedTech Congress, which was organized by Ronald Trahan Associates (Norwood, Massachusetts).