Medtech and biotech investment is driven by an expectation of returns, but rapid advances in technology simultaneously drive excitement for their application while increasing the uncertainty in what is needed to bring those applications in the market.
MedMarket Diligence has tracked technology developments and trends in advanced medical technologies, inclusive of medical devices and the range of other technologies — in biotech, pharma, others — that impact, drive, limit, or otherwise affect markets for the management of disease and trauma. This broader perspective on new developments and a deeper understanding of their limitations is important for a couple of reasons:
- Healthcare systems and payers are demanding competitive cost and outcomes for specific patient populations, irrespective of technology type — it’s the endpoint that matters. This forces medical devices into de facto competition with biotech, pharma, and others.
- Medical devices are becoming increasingly intelligent medical devices, combining “smart” components, human-device interfaces, integration of AI in product development and products.
- Medical devices are rarely just “medical devices” anymore, often integrating embedded drugs, bioresorable materials, cell therapy components, etc.
- Many new technologies have dramatically pushed the boundaries on what medicine can potentially accomplish, from the personalized medicine enabled by genomics, these advances have served to create bigger gaps between scientific advance and commercial reality, demanding deeper understanding of the science.
The rapid pace of technology development across all these sectors and the increasing complexity of the underlying science are factors complicating the development, regulatory approval, and market introduction of advanced technologies. The unexpected size and number of the hurdles to bring these complex technologies to the market have been responsible for investment failures, such as:
- Theranos. Investors were too ready to believe the disruptive ideas of its founder, Elizabeth Holmes. When it became clear that data did not support the technology, the value of the company plummeted.
- Juno Therapeutics. The Seattle-based gene therapy company lost substantial share value after three patients died on a clinical trial for the company’s cell therapy treatments that were just months away from receiving regulatory approval in the US.
- A ZS Associates study in 2016 showed that 81% of medtech companies struggle to receive an adequate return on investment
As a result, investment in biotech took a correctional hit in 2016 to deflate overblown expectations. Medtech, for its part, has seen declining investment, especially at early stages, reflecting an aversion to uncertainty in commercialization.
Below are clinical and technology areas that we see demonstrating growth and investment opportunity, but still represent challenges for executives to navigate their remaining development and commercialization obstacles:
- Cell therapies
- Parkinson’s disease
- Type I diabetes
- Burn victims
- Cardiovascular diseases
- Artificial pancreas
- Non-invasive blood glucose measurement
- Tissue engineering and regeneration
- 3D printed organs
- Brain-computer and other nervous system interfaces
- Nerve-responsive prosthetics
- Interfaces for patients with locked-in syndrome to communicate
- Interfaces to enable (e.g., Stentrode) paralyzed patients to control devices
- Robotics in surgery (advancing, despite costs)
- Robotic nurses
- Optogenetics: light modulated nerve cells and neural circuits
- Gene therapy
- Localized drug delivery
- Further accelerated by genomics and computational approaches
- Immune modulators, vaccines, adoptive cell therapies (e.g., CAR-T)
- Drug development
- Computational approaches to accelerate the evaluation of drug candidates
- Organ-on-a-chip technologies to decrease the cost of drug testing
Impact on investment
- Seed stage and Series A investment in med tech is down, reflecting an aversion to early stage uncertainty.
- Acquisitions of early stage companies, by contrast, are up, reflecting acquiring companies to gain more control over the uncertainty
- Need for critical insight and data to ensure patient outcomes at best costs
- Costs of development, combined with uncertainty, demand that if the idea’s upside potential is only $10 million, then it’s time to find another idea
- While better analysis of the hurdles to commercialization of advanced innovations will support investment, many medtech and biotech companies may opt instead for growth of established technologies into emerging markets, where the uncertainty is not science-based
Below is illustrated the fundings by category in 2015 and 2016, which showed a consistent drop from 2015 to 2016, driven by a widely acknowledged correction in biotech investment in 2016.
*For the sake of comparing other segments, the wound fundings above exclude the $1.8 billion IPO of Convatec in 2016.
Source: Compiled by MedMarket Diligence, LLC.