It's beginning to sound like a broken record: another year, another drop in medical device industry venture capital investments.
In 2013, VCs spent $2.1 billion on 308 medical device investment deals, representing a 17% plunge in dollars and 4% drop in deals compared to the year before, according to the latest MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on Thomson Reuters data.
Here's the broken record part: In 2012, the industry pulled in $2.4 billion on 313 deals, reflecting a 13% drop in dollar value and 15% nosedive in deal numbers from 2011.
For the fourth quarter, the medical device industry attracted $460 million in 94 deals, versus $543 million for 71 med tech deals in the 2013 third quarter. Q3 reflected a moderate bright spot during the year, generating a 12% hike in dollars and an 8% drop in deals versus the previous quarter. By contrast, the biotechnology industry attracted $4.5 billion for 470 deals in 2013, an 8% jump in investment dollars and 2% decrease in deal volume, a relatively successful year for that sector.
Why does VC money keep dwindling for the med tech industry? Carl Goldfischer, a managing director and investment partner at Bay City Capital, told FierceMedicalDevices after Q3 VC numbers came out that a tougher reimbursement climate and more rigorous U.S. regulatory demands have added lots of new costs to the med tech industry, making early-stage VC investments much less common. This trend, in turn, has led to a decrease in VC funds available to help companies endure these added struggles in getting new devices and diagnostic tests to market, he said. Health reform in the U.S. has also hampered med tech spending, which dissuades investment in new technologies unless they can prove they provide value as well as a boost to the standard of care. Those factors remain in play today.
Later-stage med tech companies with products at or close to market offer less risk, so they've been drawing in the VC money that remains in force.
Other industries have fared better overall. According to the new MoneyTree report, venture capitalists invested $29.4 billion overall in 3,995 deals in 2013, a 7% jump in dollars and 4% jump in deals versus 2012. Software, media and entertainment, and Internet-specific companies were among the sectors responsible for the increase.
- read the release
Special Report: Top Med Tech Investments of Q3