Pulse of the industry - medical technology report 2012

Financing and rising debt

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For the 12-month period ended June 30, 2012, US and European public medtech companies raised a remarkable US$27.4 billion, an increase of 26% over the prior 12-month period.

80% of all capital raised in the US and Europe in 2011–12 was in the form of debt.

While this total represents the largest amount raised in at least the last seven years, the increase was driven not by a fundamental shift in investor sentiment toward medtech, but by a low interest rate environment that fueled a huge growth in debt.

Indeed, 80% of all capital raised in 2011–12 was in the form of debt. Funding other than debt actually declined by 22% in 2011–12 relative to the prior year. While most of the debt financing when to a few large conglomerates, smaller firms struggled to obtain funds to support their R&D and product launch efforts. Ongoing regulatory and pricing pressures, an anemic IPO market and ever more selective buyers have made venture capitalists — the lifeblood of emerging medtech firms — extremely cautious.

Capital raised in the US and Europe by year (US$m)

United States reaches new debt record

US medtech companies raised an announced US$21.6 billion in the 12-month period ended June 30, 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$2.6 billion) and Thermo Fisher Scientific (US$2.2 billion).

Venture capital investment was up 11% year-over-year and IPOs continued to be few and far between, as only three US medtech companies went public.

Innovation capital raised in the US and Europe by year

European funding declines 

Funding for European medtech companies declined in all four categories in 2011–12. However, despite the 5% decrease in year-over-year financing to US$5.9 billion, European medtechs still enjoyed the second-highest level of funding since at least 2005–06.

Similar to the US, the vast majority of funding (US$4.8 billion, or 80% of the total) came in the form of debt. Nearly 85% of European debt was raised by Fresenius Medical Care and Covidien.

Venture capital investment was down for the second year in a row — reaching its lowest level (US$676 million) since 2005–06 — while eight companies went public for a total of US$222 million. Both amounts were both slightly behind the previous year's pace.

See more of our findings at www.ey.com/MedTechData.