The incessant growth in innovation and novel technologies has made the medical device industry the largest in healthcare. The US medical device industry is the global leader with sales of around $136 billion representing approximately 45% of the global market, followed by Europe and China.
For pursuing innovation and R&D, companies and entrepreneurs require funding, especially because of the resource and cost extensive product development, testing and regulatory approval involved in medical devices. More so for high risk devices than the low risk ones.
According to the EY Lifesciences 2015 report, US medical device companies raised approximately $47 billion in 2015, which is almost double the capital raised in 2014. Venture Capitalists (VCs), and other players that raise capital through public offerings and debt issuances, support the U.S. medical device industry.
Venture capital is one of the prime sources of capital for the device industry. However, due to a disruptive industry outlook and a switch to value-based healthcare, there has been a reduction in the interest of VCs. According to EY Lifesciences’ 2015 report, financing deals have decreased from 449 in 2014 to 409 in 2015, which is a significant decline from the six-year average of 438 deals from 2009 to 2015.
The largest share and economic source of capital for the medical device industry are contributed by Debt Financing. The requirement for this type of funding is generally directed by investing in innovation, R&D, supply chain, or merger and acquisition activities. In one of the instances, Medtronic raised the largest debt offering of $17 billion for the acquisition of Covidien in 2015. To add to the record, huge acquisitions by Boston Scientific, Becton Dickinson, and Zimmer were also financed by raising debt.
When a private organization offers the first sale of stock to the public, it constitutes an initial public offering. This type of funding is not only generated by small young companies that seek capital to grow further, but also by large private organizations that look to become publicly traded.
Crowdfunding is a type of funding by common people that help one kickstart their personal or business project. Once a project is posted on a site, users or potential investors will fund the project if they are interested in it. Some of the known crowdfunding sites are Kickstarter, Indiegogo, and Razoo.
Above are the major VC firms and the amount invested in the medical device industry by them. The clinical area which received maximum funding from the Sprout Group includes diagnostic products and products for vascular access, minimally invasive surgery, urology, cardiology, and orthopedics. A similar funding trend was observed in the case of Telegraph Hill Partners where orthopedic, cardiovascular, and diagnostic companies received maximum investment. With MPM Capital, their portfolio primarily includes diabetes management systems, transdermal drug-delivery systems, and hearing aids. WFD Ventures LLC also invests in drug delivery technologies, therapeutic and diagnostic products. However, the portfolio of Norwest Venture Capital is varied that includes blood-gas sensing systems, devices for automated sample preparation, and products for minimally invasive surgery and orthopedics.
Some tips for Medical Device Companies seeking funding from potential investors:
- Understand the real problem and present a clear solution
- Aim for superior clinical results at lower costs
- Foresee and present a clear plan to overcome regulatory hurdles
- Sustain a large and addressable market
- Have a well-defined path to reimbursement
- Contain an attractive business model
- Represent an efficient and result-driven quality management team/partner
- Possess realistic financial forecasts
At Elexes we help medical device companies overcome regulatory hurdles, prepare a regulatory strategy/pathway that they can use for their funding pitch, and present robust quality systems that help them secure certifications.