Med tech companies raised $821 million in venture capital money during the third quarter, the most since Q2 2011, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association based on data provided by Thomson Reuters. It is one of the most impressive numbers on record, barring unsustainable heights close to or beyond the $1 billion mark reached during the run-up to the financial crisis is in 2007 and 2008.
But former AdvaMed CEO Stephen Ubl was not wrong to bemoan the state of med tech VC during the association's annual med tech conference. It remains true that U.S. VCs have less preference for med tech (but not biotech) investing these days, especially in early-stage companies. Stringent public and private insurance company reimbursement is often blamed as the latest contributor to the malaise.
In fact, the headline number was also inflated by the whopping $200 million given to anticancer proton therapy systems maker Mevion Medical, led by two Chinese investors who are forming a joint venture with the company to sell the devices in that country. It was the 8th largest overall VC deal of the quarter, making it a bragging point for the device world.
Take out the outlier and the amount raised falls between Q1's $475 million and Q2's $797 million, and near the $634 million in Q3 a year ago. At 73 deals, deal volume remains essentially unchanged from the previous two quarters (72 and 77 deals). The 222 deals recorded in 2015 are down slightly from 230 in the first three quarters of 2014.
The data is particularly dire for startups and small companies. With 45 first-sequence (or Series A) deals recorded so far in 2015, the year is on pace to be a real clunker based on that metric. At least it's on pace to beat the 55 first sequence deals conducted back in 1995. The second worst year was 2014, with 57 first-sequence deals. There were more than 100 such deals in 1997, 2006, 2007 and 2008.
Across all industries tracked by the MoneyTree Report, seed stage and early stage companies account for more than 80% of first sequence deals, as you would expect.
The turmoil is creating opening for traditionally less active European VCs, like Paris' Sofinnova Partners, a lead investor in Fremont, CA, Fierce 15 member Shockwave Medical. The VC last year closed a $12.5 million Series A, and co-led a $40 million round in May.
A fairly strong IPO market helped offset the tough VC environment, but now even that funding mechanism is in doubt due to the stock market slowdown. Artificial heartmaker SynCardia Systems just withdrew plans for its $27.5 million IPO (though a product safety issue may have contributed to that decision as well).
Besides Mevion, top deals of quarter include funding for fibroid ablation devicemaker and 2014 Fierce 15 member Gynesonics ($43 million), infusion pump startup Ivenix ($42 million), lung cancer biopsy specialist Veran Medical Technologies ($41 million), breast tissue ultrasound imaging company Delphinus ($40 million), and maker of recently approved weight-loss balloons and 2014 Fierce 15 member ReShape Medical ($38 million).
Meanwhile, appetite for biotech deals remains strong. The $2 billion raised during Q3 is line with prior quarters, and double the $1 billion raised in Q1 2014, after which deal value exploded.
Biotech activity is indicative of a general trend that doesn't include med tech. The $47.2 billion invested across all industries so far in 2015 is higher than the full year totals of 17 of the last 20 years.
- read the release from the MoneyTree Report
Special Reports: FierceMedicalDevices' 2015 Fierce 15 - Shockwave Medical | FierceMedicalDevices' 2014 Fierce 15 - Gynesonics - ReShape Medical - 2014 Fierce 15