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Friday, January 9, 2009
Innovative health-related tech firms have bright future
MHT managing editor Rodney Brown on NECN: 22 tech companies give back to community
How is the economic crisis affecting tech companies?
Rodney Brown on NECN: Hacking into medical devices
In spite of all this news of gloom and doom for the financial markets, every day there are dozens of people who are injured or become ill and need a medical intervention. Is health care, therefore, recession-proof? No. It is an industry, however, that will always have a market for goods and services to better diagnose, treat, or cure illness. How can you finance a health venture to bring it to market in this climate?
The IPO market, (“what IPO market?” you say) welcomed seven companies in the third quarter of 2008 compared to 45 last year at this time, and 134 in the third quarter of 2000. The PricewaterhouseCoopers Moneytree Report highlighted that the life sciences sector, including medical devices, showed a 10 percent increase in venture fund investing, with $2.2 billion being invested into 207 opportunities in the third quarter of this year. The fourth-quarter results are just starting to emerge, but there is a strong indication that investors with new capital will continue to invest in this sector. Several biotechnology and medical technology investors at last month’s Massachusetts Biotechnology Council’s investor conference were well funded and looking to sink some of those funds into new deals.
New England showed a strong investing appetite in the third quarter time frame. In 2007, there were 20 deals done. Through the third quarter of 2008, the same number of deals was done, with $281 million invested compared with $168 million invested in 2007. Not a bad pace for a slowdown in the economy.
Investors have shown mixed feelings about the investing pace. Some suggest that they need to reserve capital for their healthier portfolio companies, so they will not be looking at any new deals until after the first quarter of 2009. Others, who were later-stage investors, are considering investments in earlier-stage companies whose exits are farther off. Still others with new funds are eager to put money to work in health care companies with cutting-edge technologies and good teams. Corporate investors such as Seimens AG, Genzyme Corp. and GlaxoSmithKline PLC’s SR One in the life sciences, for example, are still looking for technology that makes them competitive. They have either dedicated funds or budgets to secure investments, such as co-development or marketing partnerships, or want a seat at the table when the technology reaches the market and shows commercial viability.
So if the glass has been half full up till now, is there another side of this rosy picture? Startup health care companies will have to compete for scarcer resources, and many venture funds are not looking, are out of money, or are just being pickier than usual about making new investments. Companies will need to investigate new ways to get funds during the commercialization phase. Some creative ways may be to consider corporate co-development deals, foundation support for work in their market application or for the specific disease target, or to seek to partner on an aspect of commercialization including looking to federal or state programs for funding. The SBIR program, NIH, DOD, DARPA and the FDA are all sources of grant funding worth exploring. The Massachusetts Life Sciences Center is rolling out its priorities for funding life sciences companies in early 2009. These cycles may be longer, but no longer in some cases than the private investment markets. Angels are saddened by shriveling cash supplies for investment. Venture funds want to see a company experience more growing pains and progress without their financial assistance.
Undoubtedly, 2009 and beyond will bring more regulations to the health care sector. The U.S. Food and Drug Administration has improved the fast tracking and other programs to move drugs and devices ahead into the market, but safety concerns may reverse that trend. Certainly, the costs of entering the health care market will be affected as evidence-based approaches and cost effectiveness claims continue to dominate the “go-to market” strategy. Supporting such claims will be a more costly requirement. Companies will have to be smarter about what data is needed and how to demonstrate it.
2009 will be a year of innovation, creativity and change for those entrepreneurial teams who make use of limited resources while chasing after a large market opportunity in health care. The future looks bright ... but not so bright that you’ve gotta wear shades.
Karin Gregory is a managing partner at Furman Gregory LLC, a Boston-based company offering business and legal counsel to startups. She can be reached at karin@furmangregory.com.
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