Venture investments for early-stage medical technology companies has plummeted since the financial crisis as firms look to safer investment options.
Medical technology businesses captured just 16 per cent of total funding for early stage rounds in the 2012/13 fiscal year according to research by professional services firm EY.
It said the drop in funding was partly due to the overall economic climate, but also driven by increasing regulatory issues, reimbursement uncertainty and lower growth prospects.
The firm’s report Pulse of the Industry said, “It hardly needs saying that investors do not like uncertainty.
“So when tolerance for risk recently returned to some segments of the capital markets (initial public offerings are booming in the US, for example) investors remained cool to medtech, even as they warmed to other healthcare sectors such as biotech.
Warburg Pincus Ventures healthcare principal Noah Knauf said, “A combination of higher risk and lower reward has resulted in a real change in the number of investors and their appetite to invest in medical technology.”
EY said that in 2012/13 the funding situation for emerging companies continued on its multi-year downward trajectory.
Innovation capital – the funds available for the vast majority of pre-commercial companies – declined by nine per cent to the lowest level since before the financial crisis, providing less than one-fifth of the sector’s financing in 2012/13.
The report said the decline in venture funding had been compounded by a shift away from early-stage funding, with just 25 per cent of medtech venture investment going to first or second rounds in the fiscal year.
That was down from pre-recession levels of 40 to 45 per cent.
EY said, “Faced with regulatory and pricing pressures, an anaemic IPO market and selective corporate buyers, VCs will likely remain cautious and favour funding later-stage companies with clearer paths to exits.
“In this environment, early-stage companies will be better positioned to raise venture capital if they have a truly novel technology and can clearly demonstrate the clinical and economic benefits of their products.”
Copyright © 2013 AltAssets
Copyright © 2013 AltAssets