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Pulse of the industry: medical technology report 2012 - Financing: United States - EY - Global

Pulse of the industry: medical technology report 2012 – Industry performance

Financing: United States

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US medtech financing by year


Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ.

US medtech companies raised US$21.6 billion in the 12-month period ending June 2012, an increase of 43% over the prior year. Eighty percent of the total (US$17.1 billion) came in the form of debt, which surpassed the previous record of US$12 billion in 2010–11. In all, seven commercial leaders issued debt in excess of US$1 billion, including Hologic (US$3.3 billion), Kinetic Concepts (US$2.55 billion) and Thermo Fisher Scientific (US$2.2 billion).

Venture capital investment was up 11% year-over-year, while IPOs and follow-on and other offerings (FOPOs) were down 159% and 243%, respectively. A year after Sirona Dental issued an US$800 million follow-on offering and 10 other companies had FOPOs of at least US$50 million, there were only 3 such financings in 2011–12, with Sequenom (US$62 million) being the largest.



US venture capital by year


Source: EY, BMO Capital Markets, Dow Jones VentureSource and Medtrack.

Venture capital funding rebounded to US$3.7 billion in 2011–12. While this was an 11% increase over the prior year, the total still trails the amounts invested between 2005–06 and 2009–10 by 10%–15%, and a challenging fund-raising environment for VC firms will likely limit further growth in aggregate dollars invested. In all, there were 399 venture rounds in 2011–12 — the second-highest level in the past seven years. The average deal size was US$9 million, which is roughly 25% less than what was being invested before the financial crisis.



Top 10 US venture rounds, July 2011–June 2012

Company Region Product type (disease) Gross raised
(US$m)
Quarter Round type
Valeritas New Jersey Therapeutic devices (hematology/renal) 150 Q3 2011 Late stage
ConforMIS Massachusetts Therapeutic devices (orthopedic) 89 Q1 2012 Late stage
Intrexon Virginia Research and other equipment 75 Q4 2011 Late stage
Sientra Southern California Therapeutic devices (aesthetics) 65 Q1 2012 Late stage
HeartFlow Northern California Non-imaging diagnostics 65 Q4 2011 Early stage
TriVascular2 Northern California Therapeutic devices (cardiovascular) 60 Q2 2012 Late stage
Nevro Northern California Therapeutic devices (neurology) 59 Q3 2011 Late stage
Sensors for Medicine and Science Maryland Non-imaging diagnostics 54 Q4 2011 Late stage
Aria Diagnostics Northern California Non-imaging diagnostic 53 Q4 2011 Early stage
NeuroPace Northern California Therapeutic devices (neurology) 49 Q3 2011 Late stage

Source: EY, BMO Capital Markets, Dow Jones VentureSource and Medtrack.

For the year ending June 2012, 8 of the 10 largest US venture rounds were late-stage investments — illustrating the trend of VCs investing in medtech companies that have the potential for delivering quicker, more predictable exits.

New Jersey-based Valeritas attracted the largest individual round. The US$150 million investment was made by private equity firm Welsh, Carson, Anderson & Stowe — which assumed a controlling interest in Valeritas — with the money designated for commercializing the company’s V-Go Disposable Insulin Delivery Device. Osteoarthritis company ConforMIS of Massachusetts pulled in the second-largest round of 2011–12.



US and European IPOs, July 2011–June 2012

Company Ticker Location Product type (disease) Gross raised
(US$m)
Quarter
ZELTIQ Aesthetics ZLTQ US - North California Therapeutic devices (aesthetics) 91 Q4 2011
GI Dynamics GID US - Massachusetts Therapeutic devices (gastrointetinal) 83 Q3 2011
Mauna Kea Technologies MKEA France Imaging 68 Q3 2011
DBV Technologies DBV France Non-imaging diagnostics 53 Q1 2012
EOS imaging EOSI France Imaging 49 Q1 2012
Sphere Medical SPHR United Kingdom Non-imaging diagnostics 22 Q4 2011
Osprey Medical OSP US - Minnesota Therapeutic devices (cardiovascular) 21 Q2 2012
Vexim ALVXM France Therapeutic devices (orthopedic) 14 Q2 2012
Visiomed Group ALVMG France Non-imaging diagnostics 7 Q3 2011
Intrasense ALINS France Imaging 6 Q1 2012
Brighter BRIG Sweden Therapeutic devices (hematology/renal) 2 Q1 2012

Source: EY, BMO Capital Markets, Dow Jones VentureSource and Medtrack.

Post-IPO returns were depressed, and only one company — Sweden’s Brighter — experienced an increase in share price as of 30 June 2012, with a relatively minor 2% gain. The performance of this IPO class is unlikely to boost investor sentiment for new issues in the medtech sector.



US and European IPO performance, July 2011–June 2012


Source: EY and Capital IQ.



Capital raised by leading US regions, July 2011–June 2012


Source: EY, BMO Capital Markets, Dow Jones VentureSource and Medtrack.
Size of bubbles shows relative number of financings per region.

Massachusetts led US regions with a total of US$9.1 billion (42% of US total) in financing for the year ending June 2012. Three of the four largest debt offerings in 2011–12 were completed by Massachusetts-based Hologic, Thermo Fisher Scientific and Alere, which raised more than US$2 billion each. Of the six regions that attracted more than US$1 billion in funding, only Northern California did so without the assistance of a large debt offering.



Capital raised by leading US regions without debt, July 2011–June 2012


Source: EY, BMO Capital Markets, Dow Jones VentureSource and Medtrack.
Size of bubbles shows relative number of financings per region.

When debt offerings were removed from the equation, the distribution among regions changed dramatically, as Northern California far and away attracted the largest proportion of non-debt funding. As in prior years, Northern California (which raised US$1.2 billion), Southern California (US$447 million) and Massachusetts (US$383 million) led the US in both funds raised and number of rounds. Northern California alone attracted a third of US venture investment.

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