Medical devices got a taste of an IPO market last year that's long been wide open for biotech. That came at the same time that the acquisition appetite for venture-backed device companies held strong. But there's a backlog of device portfolio companies that VCs need to get off their books before they can have any greater appetite for the device category.
Last year, U.S. medical device and equipment companies got $2.7 billion in venture capital financing. That's the same level as in 2014. But the devices portion remained steady as the overall U.S. venture capital total invested grew to new, teetering heights of $59 billion, according to data from PricewaterhouseCoopers and the National Venture Capital Association. Unlike devices, biotech managed to substantially increase its venture stake last year to $7.4 billion from $6.3 billion in 2014.
"The life sciences industry as a whole had its largest year ever by over $1 billion. We're seeing deal sizes that are larger than normal. But the expectation is that we'll get more normalized investing in 2016, not just in the life sciences but in tech as well," PwC Life Sciences Partner Greg Vlahos told FierceMedicalDevices.
"We'll still be within the $2 billion to $3 billion range, but maybe not right up against the top of it," he added specifically on the prospects for device venture funding this year.
Vlahos noted that some biotech hedge fund investors, like Deerfield Management and RA Capital, that typically invest in public companies are crossing over more frequently into devices in addition to biotech. He sees the more frequent emergence of drug-device combos as helping to drive that trend. This is consistent with what Silicon Valley Bank found in its annual venture report that was released earlier this week.
But if the rocky stock market so far this year is any indication, the IPO market may not be able to sustain its recent tolerance for medical device offerings. Increased volatility and poor performance is a sure way to keep device companies in venture capital portfolios without an ever-hoped-for acquisition.
"From a public market standpoint, 2015 was a strong year for medical device IPOs," said Vlahos. "But last quarter, there was only one device deal done. And the market in general over the last couple of weeks has been very volatile."
He concluded, "If there's an open market, though, we could see a lot of late stage device companies. If you look at 2015, the IPO deals were 85% biotech and 15% device. Biotech has been having an easier time. But if you look back to 2013 and 2014--the life science IPOs were almost all biotech and no devices."
- here is the PwC/NVCA announcement