SAN DIEGO--The venture capital market remains weak, but M&A activity is still strong and R&D spending is on an upward swing, two state-of-the-industry reports released by EY (formerly Ernst & Young) and EvaluateMedTech conclude at the annual AdvaMed industry conference.
Total VC funding fell 2.4% between July 2014 and June 2015 to $4.7 billion. Med tech's share of total VC funding fell to a decade low of 5.9%, and a lower percentage of med tech deals went to early-stage companies. That metric fell from 37% to 29% of all med tech deals.
"Over the last 12 months, the disparity between the 'haves' and the 'have-nots' in the med tech sector has grown increasingly stark. Even in this buoyant fundraising and deal-making environment, there remains a persistent gap in the type of early-stage venture capital funding required to support an innovative med tech ecosystem. This lack of funding is partially attributed to an increasingly uncertain reimbursement climate, exacerbated by the repetitive nature of med tech innovation, and the resulting pressure for companies to find new ways to demonstrate the value of their products," said Glen Giovannetti, the head of EY's global life science unit, in a statement.
Weakness in the VC market is offset by a decent IPO environment, which rose from $323 million in the first half of 2013 to $800 million in H1 2015, though that's still a decline from an unusually strong H1 2014 which saw IPOs worth almost $1.4 billion, according to EvaluateMed Tech.
The number of M&A deals is down in 2015, but that's because last year's spate of big deals was unsustainable. EY writes that the average deal size for "non-mega" transactions worth less than US $10 billion reached a four-year high.
EvaluateMedTech projects that continuous acquisitions from Medtronic ($MDT) will power it past current leader Johnson & Johnson ($JNJ), and make it the largest med tech company by 2020, with forecasted sales of $34.9 billion.
Meanwhile investment in R&D rose 6% in 2014 to $14.3 billion, the fifth consecutive year increase, according to EY. The investment appears to be paying off, as the FDA approved 30 new PMAs this year through the end of August, a 50% increase over the same time frame in 2014.
That statistic also reflects and improving regulatory environment, as evidenced by falling review times at the FDA.
AdvaMed said during a press conference that continued improvement at the FDA is one of its top priorities, as well as restructuring a challenging market for med tech reimbursement, fixing the tax code (especially by repealing the 2.3% medical device tax), promoting fair trade and international payment policies, and ensuring a strong R&D environment in the U.S.
- here's the release from EvaluateMedTech | download the report
- here's the release from EY