Our guest panelists for the webinar were Managing Partner Mike Carusi from VC firm Lightstone Ventures and Partner Hanson Gifford of The Foundry, a medical device incubator with years of experience working with technologies developed at universities. Mike focuses on investments in the biopharmaceutical and medical device sectors in Lightstone’s Menlo Park office, where he also serves as a General Partner at Advanced Technology Ventures (ATV). Since its founding in 1998, Hanson has helped The Foundry form, finance, and staff 20 therapeutics and med tech companies. Combined, Mike and Hanson have extensive experience in the development, commercialization and acquisition of, as well as the investment in, early stage medical device startups. Their portfolios include some of the largest exits the sector has seen.
The webinar was attended by approximately 170 participants who provided questions during the presentation.
To kick off the conversation, Matt Cohen, Principal on OUP’s life science investment team, presented the following chart:
Bill Harrington, Managing Partner on OUP’s life science team, then led a discussion where Mike and Hanson used many of their own investment examples to describe the state of medical device investing and its challenges.
Investors have not made outsized returns in med tech during the 2000–2010 decade, with on average single-digits IRRs. Many medical device technologies brought to the market in the past 10–15 years have been incremental, partly a reaction to tightening by the FDA and a more challenging market.
The FDA had become more rigid over the past 20 years. To get approval, any new technology needed to be exceedingly better than existing technology. This created a demand for better trials and higher quality data with an eye towards payers and clinicians to prove the product is improving healthcare. Fortunately, the FDA has made a concerted effort to be more balanced in its review process over the past three years. However, even if a product gets approved by the FDA, there’s no guarantee that it will be reimbursed and adopted by the market.
In evaluating digital health, and particularly wearables, the ability to analyze data in the cloud and manage it is valuable and can bring measurable economic health benefits. Unfortunately, some of the ideas in the space are not very novel or patentable.
VCs and entrepreneurs are becoming more creative on deal structure in the med tech venture industry, emulating how startups have worked with big pharma. Large medical device firms are investing in device companies in earlier rounds, providing key support for the industry.
Some of the areas in med tech today receiving the most investor attention include peripheral neurostimulation, neuromodulation, interventional neuro-radiology, and catheter-based structural heart valve therapies.
Overall takeaway: Venture investment in medical devices is a smaller sector than ten years ago, but there are many promising signs. While the number of med tech startups has diminished, acquisition numbers in med tech have remained the same, largely due to a steady appetite from strategic acquirers. Even though venture investment is down, the confidence strategics are showing in early stage device innovation could eventually catalyze VC interest in med tech in the coming years.