A rapidly changing industry landscape

The first half of 2015 has seen both positive and negative influences come to light for the medtech industry: stock exchange pressures from poor financial results, and diminishing venture capitalist funding for new businesses are just a few of the headaches coming to prominence; conversely, there are some rays of light: the market has seen considerable consolidation with $83bn-worth of mergers already registered. Also the FDA is increasing its level of approvals and overall collaboration with medtech firms (more innovative new products than ever are now likely to make it onto the market), while the medtech IPO market seems to be stabilizing.

What are the ingredients of this change?

The data suggests that it is a combination of factors that have shaken up the medtech sector.

Mergers – it’s quality not quantity
While the number of mergers in H1 2015 is pretty standard, the value is anything but: $83bn. This means the market is well on track to exceed $100bn-worth of deals by the close of the year – a first that shows how much consolidation there has been. This should mean a more conservative level of deal making in the near future, stability that many would welcome.

Venture financing; where is it?
While the market players are spending, the moneymen are not. The second quarter of 2015 saw the lowest total VC investment for a second quarter for seven years – a meager $1.6bn was raised for the entire first half of 2015. This can be attributed, for one thing, to VCs searching for guaranteed returns at the later stages of development – an obvious threat to the lifeblood of medtech startups. Others also see investors being seduced by the substantial returns of biotech, while tech companies are also now entering the fray and stealing a piece of the pie. Apple and Google are both making overtures of entering the health sphere, and this could steal some of the VCs that previously found the medtech industry so alluring.

Without this seed money, new firms find it harder to get their products onto the market, often a precursor for market stagnation and increasing monopolies.

IPOs remain consistent
The lack of venture cash has a direct knock-on effect, as it means that some companies may now be compelled to make the plunge into the public markets sooner than they had planned. That said, the figures have remained consistent with the second half of 2014, though they are considerably lower than H1 2014.

Stock exchange pressures
Disappointing financial results and the impact of spinouts have led to medtech groups generally having a torrid time on the stock exchanges; the extent of this is highlighted by the fact that some of the industry’s biggest players have seen their share prices fall in the first half – the first time this has happened in two years.

More love from the FDA
On a more positive note, the FDA regulatory authority has issued first-time premarket approvals or humanitarian device exemptions for 26 devices so far in 2015. This means that, should this continue, even more innovative products will make it to the US market than in a single year since as far back as 2005. It’s definitely not all bad news.

The turbulence has subsided; for now, at least

The medtech sector has changed somewhat dramatically in as little as six months. The flurry of mergers and acquisitions has seen the emergence of a new industry leader, while a large number of IPOs has raised substantial financial collateral in the light of more European economic certainty.

But there are also grave threats to the wellbeing of the medtech industry, and a key perpetrator is venture funding, or lack thereof.  This pertains most strongly to early-stage companies – without this financial backing, making the leap from startup to established business will become a real uphill struggle.

Overall, the immediate forecast for the medtech industry seems to be a level of stability. Much of the turmoil of the opening year appears to have quelled, and now it’s time for consolidation – especially for the early-stage businesses with a seed money deficit.

It’s far too early to say whether the industry is in crisis. There are still prizes to be won for the medtech companies – they just have to ensure that they make it through the early stages. This is nothing new for the medtech sector, in fact: crunch time has always revealed itself at the start-up phase; what is worrying, however, is that the situation is visibly deteriorating.  And that is why it is so important that the industry finds a way to fill the funding void in order to ensure that a continuous flow of potent and safe medical technologies is safeguarded.

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