Amid a protracted slump in venture capital and an IPO boom that favors drug developers, medical device companies are looking elsewhere for funding, striking innovative deals and reaching out to potential acquirers much earlier than ever before.
As The Wall Street Journal reports, med tech investments are on pace to total about $2.1 billion this year, a 40% dropoff from 2007, but that hasn't slowed the ambitions of money-hungry startups. In an effort to get projects funded, many companies are offering up board seats and acquisition rights to larger entities in exchange for up-front cash, a system that prizes the present over the future but has generated some positive results.
California's Nanostim, for instance, relied on St. Jude Medical's ($STJ) wallet to help develop its leadless pacemaker, giving the Minnesota device giant an option to acquire it. Last month, when Nanostim's device won a CE mark, St. Jude did just that in a deal worth up to $188.5 million.
However, despite the short-term success, exits like that are likely a little bittersweet for the company's other investors. Nanostim was certainly happy to accept St. Jude's R&D support, but with the eventual acquisition a foregone conclusion, the company's backers had little hope of a competitive bidding process that might drive up its value.
And, while startups are increasingly willing to mortgage their futures, that doesn't mean the likes of Medtronic ($MDT) and Boston Scientific ($BSX) are lining up to take advantage. Twelve, a nascent company working on mitral heart valve replacements, is having trouble landing capital to move forward, CEO Andrew Cleeland told WSJ, despite his pedigree as the former chief of Ardian, the renal denervation pioneer Medtronic bought for $800 million in 2010.
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