Venture capitalists invested $26.7 billion in 3,143 companies in 2012 according to statistics published in the National Venture Capital Association (“NVCA”) Yearbook 2013, prepared by Thomson Reuters. The medical device industry was the fourth largest investment sector, receiving 9.4% of the total dollars, or $2.5 billion, in 319 deals. The other top sectors were software, with 31%, biotechnology, with 15.4%, and the industrial/energy sector, with 10.5%. The life science industries collectively, including biotechnology, medical devices, and healthcare services, received $6.8 billion, or 26.0% of the total venture capital investment dollars in 2012, which was the lowest percentage of investment in the life sciences industries since 2002, and down from a 33.1% combined share in 2009.[i] By comparison, in 2009, the medical device industry received $2.6 billion in 345 deals, approximately 12.8% of the all the venture capital dollars invested that year.[ii]
Venture capital investment in the medical device industry has generally decreased since peaking in 2007 when the industry received over $3.7 billion in 399 deals. Although the total dollar value of venture capital investment in the medical device industry increased from $2.3 billion in 2010 to over $2.8 billion in 2011, it decreased in 2012 to $2.5 billion.[iii] In 2012, $146.8 million of the medical device investments were internet-related and $2.36 billion were non-internet related, showing that medical device investments still tend to focus on areas other than information technology.[iv]
First sequence venture capital investment, or first time funding, in medical device companies has also decreased according to NVCA Yearbook 2013 statistics. In 2007, medical device companies received $786.8 million in first sequence investment. The amount has been dropping since, to $691.1 million in 2008, $304.2 million in 2009, $243.5 million in 2010 and $212.4 million in 2011, the lowest amount since 1996. First sequence investment in 2012 finally rose slightly to $233.3 million. The number of first sequence investment deals also decreased from 127 deals in 2006 to 63 deals in 2012.[v] Only twenty two biotechnology and medical device companies received first sequence venture capital funding in the first quarter of 2013.[vi] The trend of first sequence venture capital funding reversed in the second quarter of 2013 with 33 biotechnology and medical device companies.[vii]
Although investment in the medical device industry has been decreasing in recent years, many VC funds and medical device companies are investing money in developing life science technology. For example, Edmond de Rothschild Investment Partners is working to raise $677 million in its BioDiscovery4 fund to invest in life sciences venture capital such as biotechnology, medical technology, and diagnostics.[viii] In January, Ceterx Orthopaedics, a company located in Menlo Park, California, and that makes surgical tools for arthroscopic procedures, raised $19.5 million in a Series B round from Novo Ventures, Versant Ventures, and 5AM Ventures.[ix] Ascension Health Ventures, Versant Ventures, SV Life Sciences, Polaris Venture Partners, and Sparta Capital Partners invested $23.8 million in Series B financing this year in Ocular Therapeutix, a Bedford, Massachusetts company that develops technologies for treating eye diseases and complications.[x]
In one financing from the second quarter, Natera, based in San Carlos, California, raised $54.6 million to support the expansion and continued global rollout of its Panorama prenatal test. According to Medical Device Daily, Panorama is a non-invasive prenatal test that can be used as early as nine weeks gestation, poses no risk to the fetus, and uses fetal cell-free DNA located in maternal blood.[xi]
Some trends that may affect the medical device market this year include: companies looking for new applications for existing devices; mobile medical applications playing a larger role in the standard of care; further development of the renal denervation market; increasing interest in obesity treatments; more appropriate patient selection; patient driven innovation; medical technology companies shifting focus to emerging markets; and increasing importance of healthcare economics.[xii]
[i] Thomson Reuters, 2013 National Venture Capital Association Yearbook, 25, 36 (March 2013), http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=955.
[ii] Id. at 36 (March 2013).
[iv] Id. at 45.
[v] Id. at 40.
[vi] PriceWaterhouseCoopers & Nat’l Venture Capital Ass’n, Dollars Invested by Venture Capitalists Rise 12 Percent in Q2 2013, According to the MoneyTree Report (July 19, 2013), http://nvca.org/index.php?option=com_docman&task=doc_download&gid=987&Itemid=317.
[vii] PriceWaterhouseCoopers & Nat’l Venture Capital Ass’n, Dollars Invested by Venture Capitalists Rise 12 Percent in Q2 2013, supra note vi.
[viii] Nuala Moran, Let ‘EdRIP’: VC fund seeks $677M for Life Science Firms, Med. Device Daily, Feb. 8, 2013, at 7.
[ix] Amanda Pedersen, Life sciences financing picks up pace so far in 1Q13. Med. Device Daily, Feb. 6, 2013, at 6.
[xi] Omar Ford, Device funding falls flat, while biotech sees tremendous uptick, Med. Device Daily, July 22, 2013.
[xii] Omar Ford, MRG points out top ten trends to look for in 2013, Med. Device Daily, Feb. 8, 2013, at 6-7.