The remarkable increase in capital raised was not driven by a fundamental shift in investor sentiment toward medtech.

Medical technology companies in the US and Europe raised nearly US$23.6 billion in 2010 — an astounding 66% increase over 2009's total

A new funding environment

This remarkable increase in capital raised was not driven by a fundamental shift in investor sentiment toward medtech and it has not made the financing environment any easier for the vast majority of emerging companies.

Instead, the increase in funding was mostly concentrated in a handful of mature companies that took advantage of historically low interest rates to raise debt — funds that were typically used to restructure balance sheets, finance acquisitions or fund general operations.

Meanwhile, emerging, pre-commercial companies faced a very different funding environment. Venture financing dropped for the third consecutive year in 2010 — falling by 13% relative to 2009. Over time, the industry faces the prospect that the challenging funding environment for R&D-stage companies will place medtech innovation at risk.

US medtech companies attracted more than US$16.7 billion in financing in 2010, a 37% increase over 2009 and the highest annual total since at least 1999. Debt financing contributed US$11.4 billion (68%) of the 2010 total, surpassing the prior record of US$6.8 billion raised in 2009. This trend continued through the first half of 2011, when debt constituted 59% (US$4.9 billion) of the US$8.3 billion in medtech financing.

The picture was dramatically different for non-debt financings. After excluding debt from the numbers, the amount of capital raised by US medtech companies actually declined by 3%. While this represents the fourth consecutive year of decline in the amount of non-debt funding, we should note that the decline in 2010 was relatively modest and that the funding levels are still consistent with those seen in years prior to the easy money era.

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